Workforce Tomorrow. Adapting to a more diverse Australian labour market

Transcription

1 Workforce Tomorrow Adapting to a more diverse Australian labour market

2 ISBN Commonwealth of Australia 2005 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General s Department, Robert Garran Offices, National Circuit, Barton ACT Publications Inquiries: Employment Communications Branch Department of Employment and Workplace Relations GPO Box 9879 Canberra ACT 2601 jnmarketing@dewr.gov.au General Inquiries: Tel: (02) DISCLAIMER This publication is produced for general information only. It is not intended to be, and it does not represent, a statement of the policy of the Commonwealth of Australia, and it does not constitute professional advice for any particular purpose. Whilst the Commonwealth of Australia has exercised reasonable care in producing this publication it does not warrant or represent that the material contained in this publication is accurate, reliable, current or complete. Because the circumstances of users may vary greatly, the material in this publication is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Users are advised to exercise their own independent skill or judgement or seek professional advice before relying on the information contained in this publication. To the maximum extent permitted by law, the Commonwealth of Australia does not accept any legal liability or responsibility for any injury, loss or damage incurred by the use of, or reliance on, or interpretation of, the information contained in this publication.

3 CONTENTS EXECUTIVE SUMMARY 3 INTRODUCTION 5 CHANGING LABOUR MARKETS 6 OUTLOOK FOR THE NEXT FIVE YEARS 16 WHAT IT MEANS FOR BUSINESS 25 GLOSSARY 28 BIBLIOGRAPHY 29 APPENDIX A 30 Description of MONASH Model Modifi cations to Represent Population Ageing APPENDIX B 32 Detailed MONASH model forecast results Workforce Tomorrow: Contents 1

4 LIST OF FIGURES AND TABLES Figure 1: Employment and Participation Rates for Persons Aged 15 to 64 Years 6 Figure 2: Participation Rates for Males and Females, All Ages 7 Figure 3: Employment Growth for Selected Industries 9 Figure 4: Employment Growth for Other Selected Industries 9 Figure 5: Employment Growth by Selected Occupational Groups 10 Figure 6: Employment by Industry by Selected Age Groups 11 Figure 7: Age Profi le (45 to 54 Years and 55 Years and Over) Selected Skill Shortage Occupations 12 Figure 8: Labour Force Status by Age, Average for All Trades, Figure 9: Proportion of the Labour Force Aged 45 years and Over by Region, July Figure 10: Annual Change in Share of People Aged 65 Years and Over in the Population: Figure 11: Forecast Reduction in Employment Levels (Thousands of Employed Persons) due to Population Ageing, by State and Territory, to Figure 12: Forecast Reduction in Average Annual Employment Growth (Percentage of Baseline Employment Growth Rate) due to Population Ageing, by State and Territory, to Figure 14: Forecast Reduction in Employment Levels (Thousands of Employed Persons) due to Population Ageing, by Industry, to Figure 15: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Occupation, to Figure 16: Forecast Reduction in Employment Levels (Thousands of Employed Persons) due to Population Ageing, by Occupation, to Figure 17: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Hours Worked, to Table B.1: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Detailed Industry, to Table B.2: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Detailed Occupation, to Table B.3: Forecast Average Annual Employment Growth and Reduction in Average Annual Employment Growth Due to Population Ageing, by State and Territory, to Table B.4: Forecast Reduction in Employment Levels (Thousands of Employed Persons and Percentage of National Reduction) due to Population Ageing, by Region, to Figure 13: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Industry, to Workforce Tomorrow: List of Figures and Tables

5 EXECUTIVE SUMMARY This report provides new information on the projected impact of population ageing on labour supply, and on employment by industry, region, and occupation for the period 2005 to This report is also designed to inform employers, large and small, of the challenges they are likely to face in the near future, and to assist them to develop strategies to deal with their workforce needs over the next fi ve years and beyond. Australia has enjoyed almost a decade and a half of uninterrupted economic growth, and historically strong labour market conditions. Employment growth over the last 12 months has been particularly robust, increasing by , or 3.7 per cent, to a record high of over 10 million workers in July The unemployment rate, at 5 per cent, is at its lowest level in nearly thirty years. Economic growth is projected to slow over coming decades as a result of the impact of population ageing on labour force growth. The projected slow-down can be averted by increased productivity and by tapping potential new sources of labour. The ageing of the population coupled with an already tight labour market, especially for the more skilled occupations, will have significant implications for business. Without sufficient skilled workers, many businesses will have difficulty in continuing to produce their current level of output, let alone in expanding output to keep up with the consumption wishes of Australians and export markets. Indeed, modelling commissioned by the Department of Employment and Workplace Relations shows that population ageing will impact on all major industries and occupations across most Australian regions. As the population ages skills shortages could become even more acute, particularly in industries where there is already a high proportion of older workers. The number of workers who are already aged 45 years and over is high and growing, although this varies considerably across industries. For instance, the proportion of workers who are 45 years and older ranges from a high of 52.1 per cent in Agriculture, Forestry and Fishing to a low of 24.4 per cent in Retail Trade. Similarly, there are workers aged 45 years and over in Health and Community Services and only in Electricity, Gas and Water Supply. There are already skill shortages emerging in most Trades shortages of Engineering/Metal, Wood and Automotive Tradespersons, and Chefs and Cooks have been evident for over ten years and there are also shortages in some construction trades. Skill shortages for Professionals are evident in the health sector, for Registered Nurses and Health Specialists (such as Physiotherapists). There are also national skill shortages for Accountants, Child Care Workers and Civil Engineers. Australia is currently undergoing a phase of accelerating population ageing. Over the next five years the estimated impact of population ageing is equivalent to a shortfall of workers. In other words, while employment is expected to continue to grow solidly over the next five years, it is likely to be substantially less than it would otherwise have been if the population age structure were to have remained unchanged. New South Wales has the largest share of the forecast national shortfall in workers, followed by Victoria and Queensland. The Northern Territory has the lowest share. However, the relative impact of population ageing will be greatest in South Australia, the Australian Capital Territory and Tasmania. As the population ages skills shortages could become even more acute, particularly in industries where there is already a high proportion of older workers. Workforce Tomorrow: Executive Summary 3

6 The modelling also shows that every industry is likely to be adversely affected by population ageing over the next five years. At a national level, Mining and Manufacturing are especially affected. This also holds across all States and Territories (except for Manufacturing in the Northern Territory). All major occupational groups are forecast to be adversely affected by population ageing. Particularly hard-hit groups include Tradespersons and Elementary and Intermediate Clerical, Sales and Service Workers. As there is already widespread excess demand for Tradespersons, the ageing effect is anticipated to exacerbate an already difficult situation. With the potential shortfall in workers over the next five years being as large as and spread unevenly across industries and occupations, many firms could face a difficult task obtaining the workers they need. This is true especially for firms hiring high proportions of Tradespeople and some lesser skilled occupations and for firms engaged in Mining and Manufacturing. Some of the approaches that employers will need to consider include creating and maintaining a more diverse workforce, retaining mature-age employees, mentoring and coaching new employees to improve their productivity, increasing education and training for existing employees, improving the work/family balance for their employees to attract and retain workers with children and/or caring for elders, providing child care facilities in or near the workplace, modifying the workplace and tasks so that they can be performed by employees with various levels of disability, and taking advantage of government incentives to try out new employees with different characteristics from their current employees. A tight labour market and the ageing of the population, combined with current skill shortages, could therefore have adverse consequences for many businesses unless they adapt. While some businesses are becoming more aware of the ageing workforce issues and the need to adjust their retention and recruitment practices, more needs to be done. As labour shortages increase, employers will need to be innovative to attract the shrinking supply of available talent. The workforce of the future will be more diverse; it will consist of more older workers, more parents, more people with disabilities and more people wanting to work part-time; so new strategies will be needed. 4 Workforce Tomorrow: Executive Summary

7 INTRODUCTION Australia has enjoyed almost a decade and a half of uninterrupted economic growth, and historically strong labour market conditions. Employment growth over the last 12 months has been particularly strong, increasing by , or 3.7 per cent, to a record high of over 10 million workers in July The unemployment rate at 5 per cent is the lowest rate in nearly thirty years. Economic growth, however, is projected to slow over coming decades as a result of the impact of population ageing on labour force growth. The projected slow-down can be averted by increased productivity and by tapping potential new sources of labour. The Australian labour market is strong and flexible, but there will be challenges in meeting the needs of businesses arising from the impact of an ageing workforce in many industries and occupations, and slower growth in labour supply caused by population ageing, which is likely to exacerbate existing high demand for skilled workers. The problems posed for Australia by population ageing are already widely known. Just like many other developed countries, Australia s population is ageing as a result of declines in fertility and increasing life expectancies. These effects are offset to an extent by net migration, but new migrants are, on average, only slightly younger than the existing population. Most reports on ageing deal mainly with the long-run effects of population ageing on society at large and government finances. For example, the Intergenerational Report projected a shortfall in government finances of 5 per cent of Gross Domestic Product (GDP) by However, profound changes will occur over the next five years as many of those from the baby boom generation still in the workforce begin to retire. The Government, in the Budget, recognised that an ageing population is already having an impact, by reducing the projected growth rate of GDP for This report therefore focuses on the next five years, to , by analysing the impact of ageing on labour supply, and on employment by industry, region, occupation and skills. This provides information which will assist employers, large and small, to develop strategies to deal with their workforce needs over the next five years and beyond. Workforce Tomorrow: Introduction 5

8 CHANGING LABOUR MARKETS The Changing Nature of the Labour Market Over the past few decades the Australian labour market has undergone considerable structural change. The ageing of the population, increased participation of women in the workforce, changes in industry structure and a requirement for greater fl exibility have all contributed to marked changes in the labour market. Technological advancement, together with economic reforms, has also helped to underpin signifi cant productivity gains and strong employment growth over the period. For instance, over the last 15 years the employment rate for persons aged 15 to 64 years increased from 68.8 per cent in July 1990 to 71.2 per cent in July 2005 (see Figure 1). Similarly, the proportion of Australia s working-age population in the labour force (the participation rate for persons aged 15 to 64 years) increased from 73.3 per cent in July 1990 to 75.1 per cent in July This fifteen-year period has also been marked by strong growth in part-time employment and substantial changes in the patterns of male and female participation in the labour force. For instance, between July 1990 and July 2005, part-time employment increased by , at an annual average rate of 3.6 per cent, while full-time employment increased by , at an annual average rate of 0.9 per cent. Figure 1: Employment and Participation Rates for Persons Aged 15 to 64 Years Per cent of years population July % July % Participation rate Employment to Population Ratio July % July % July 1990 July 1991 July 1992 July 1993 July 1994 July 1995 July 1996 July 1997 July 1998 July 1999 July 2000 July 2001 July 2002 July 2003 July 2004 July 2005 Source: ABS Supertables Table LM8 (2005). Trended by DEWR using 12 month moving averages. 6 Workforce Tomorrow: Changing Labour Markets

9 Figure 2: Participation Rates for Males and Females, All Ages 80 Percentage of civilians in population Female full-time Female part-time Male full-time 10 Male part-time 0 Feb 1978 Feb 1979 Feb 1980 Feb 1981 Feb 1982 Feb 1983 Feb 1984 Feb 1985 Feb 1986 Feb 1987 Feb1988 Feb 1989 Feb 1990 Feb 1991 Feb 1992 Feb 1993 Feb 1994 Feb 1995 Feb 1996 Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Source: ABS (2005), Labour Force, Australia, Detailed Electronic Delivery (Cat. no ), data adjusted using technique outlined in Connolly and Neo (2001), Adjusting Labour Force Series for ABS Defi nitional Changes in April 1986 and April 2001 with a further adjustment for the 2004 redefinition relating to future starters. The participation rates in this Figure are for civilians aged 15 years and older. As illustrated in Figure 2, since 1978 the full-time participation rate has fallen for males and has stayed approximately the same for females. Over this same period, the part-time participation rate has increased for both males and females. A major factor behind the male full-time participation rate falling is the decline in full-time job opportunities in industries (such as Electricity, Gas and Water; Mining; and Manufacturing) and in occupations where men have traditionally worked. However, this situation is changing with employment increasing over the past two years in industries which were previously in decline and where men working full-time are a high share of the workforce. For example, over the past two years male full-time employment in Construction increased by 14.9 per cent while in Property and Business Services it has increased by 4.9 per cent. Other industries have also recorded significant male full-time jobs growth. For instance, the number of male full-time jobs increased significantly in Retail Trade over the last twelve months, up by 7.9 per cent. Further, some occupations with skill shortages, such as Civil Engineering, also have a high share of their workforce consisting of men working full-time. There are a number of factors that have underpinned the growing incidence of part-time employment. From an employer s perspective, part-time employment provides greater flexibility to manage ongoing competitive pressures and changes in technology. From an employee s perspective, part-time employment, which generally has more flexible working arrangements than full-time work, can allow workers to combine work with family and other responsibilities, thereby encouraging new entrants and retaining valued skills and experience within the workforce. The increased availability of child care, and changing work preferences relating to the work/family balance and changing gender roles, have resulted in a greater preference, particularly by females, for part-time work. Indeed, females have accounted for 63.5 per cent of part-time employment growth over the last 15 years (compared with 49.0 per cent of full-time employment growth over the period). As could be expected the female labour force participation rate has also increased significantly over the last 15 years, up from 52.7 per cent to 57.4 per cent. This reflects changing work preferences and gender roles, and strong growth in part-time employment, particularly in industries with high female representation. In contrast, the male participation rate has declined over the period, from 75.9 per cent to 72.2 per cent. Workforce Tomorrow: Changing Labour Markets 7

10 Mature-age persons (those aged 45 years and over) are now increasingly more likely to be in work than they were a decade ago. However, reflecting the broader changes in female labour-force participation and changing industry structures, the employment rates for mature-age women have been rising at a faster rate than for matureage men. For example, the employment rate for women aged 45 to 54 years has risen strongly, from 66.1 per cent in July 1995 to 73.1 per cent in July In contrast, the employment rate for men aged 45 to 54 years only rose slightly, from 84.4 per cent in July 1995 to 85.6 per cent in July Despite the increase in mature-age employment, the participation rate in July 2005 for persons aged years (at 78.1 per cent) was still significantly higher than that for persons aged years (at 70.4 per cent). While economic and labour market growth has played a part in this increase in mature-age employment and participation, the ageing of the population, and people taking their jobs with them as they progress into the older age group, are also major factors. Employment Rate Trends for Lone Parents and People with Disabilities The employment rate for lone parents whose youngest child was aged 0 4 years increased from 26.9 per cent in June 1995 to 31.9 per cent in June 2005; for those with a youngest child 5 9 it rose by 6.0 percentage points to 59.7 per cent; and for those with a youngest child it rose by 2.7 percentage points to 57.9 per cent. The employment rate for lone parents whose youngest dependant was a student aged years increased from 66.0 per cent to 73.1 per cent over the same period. It should be noted that these increases in the employment rate for lone parents have been driven by a combination of factors, including the strong labour market conditions that have prevailed over the period. Despite this clear upward trend, however, employment rates for lone parents still lag considerably behind overall employment rates for working age females. For example, in June 2005, the employment rate for females aged stood at 65.0 per cent, 11.4 percentage points above the rate recorded for all lone parents with dependants. The employment rate for all persons with a disability has only increased modestly in recent years. By way of example, between 1998 and 2003 (latest data available), the employment rate for all persons with a reported disability rose from 47.1 per cent to 48.7 per cent. This figure will have been affected by a range of factors beyond the improvements in labour market conditions over this period, including the rate of disability disclosure and the incidence and type of disabilities amongst the disabled population (bearing in mind that potential labour market involvement varies considerably by type and severity of disability). Employment Trends by Industry In the past decade employment growth has been dominated by a handful of service industries, and this pattern is expected to continue in the next few years. Five industries Property and Business Services; Health and Community Services; Retail Trade; Construction; and Accommodation, Cafes and Restaurants (hospitality) have grown strongly (as shown in Figures 3 and 4) and this growth is expected to continue. In addition, employment in Mining has been growing strongly for the last two years and this is also expected to continue. Manufacturing, while growth is subdued, is the third largest employing industry and has a high level of job turnover. Accordingly, these seven industries have been targeted for the Australian Government s industry strategies which are being implemented by the Department of Employment and Workplace Relations. 8 Workforce Tomorrow: Changing Labour Markets

11 Figure 3: Employment Growth for Selected Industries Index Feb 1987 = Health and Community Services Property and Business Services Accommodation, Cafés and Restaurants Retail Trade Construction Manufacturing Mining 50 Feb 1987 Feb 1988 Feb 1989 Feb 1990 Feb 1991 Feb 1992 Feb 1993 Feb 1994 Feb 1995 Feb 1996 Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Source: ABS (2005) Labour Force, Australia, Detailed Electronic Delivery (ABS Cat No ). Figure 4: Employment Growth for Other Selected Industries Index Feb 1987 = Education Finance and Insurance Transport and Storage Wholesale Trade Agriculture, Forestry and Fishing Feb 1987 Feb 1988 Feb 1989 Feb 1990 Feb 1991 Feb 1992 Feb 1993 Feb 1994 Feb 1995 Feb 1996 Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Source: ABS (2005) Labour Force Survey, Australia, Detailed Electronic Delivery (ABS Cat No ). Workforce Tomorrow: Changing Labour Markets 9

12 Employment Trends by Occupation The skill mix of new jobs will be an important factor that must be taken into account when responding to the challenge of an ageing workforce. Clearly, adjustments to the skill mix will be most difficult where training lead times are long, for example health professionals and most trades. Employment growth over the past ten years (see Figure 5) has been strongest for Professionals, but strong growth has also been evident for less-skilled service-oriented jobs. Overall, there has been limited employment growth for Tradespersons and Labourers, although employment has grown for specific occupations in these groups. Figure 5: Employment Growth by Selected Occupational Groups Labourers Elementary clerical sales and service workers Tradespersons Professionals Index Feb 1987 = Feb 1987 Feb 1988 Feb 1989 Feb 1990 Feb 1991 Feb 1992 Feb 1993 Feb 1994 Feb 1995 Feb 1996 Feb 1997 Feb 1998 Feb 1999 Feb 2000 Feb 2001 Feb 2002 Feb 2003 Feb 2004 Feb 2005 Source: ABS (2005) Labour Force, Australia, Detailed Electronic Delivery (ABS Cat No ). Concorded and trended by DEWR. 10 Workforce Tomorrow: Changing Labour Markets

13 An Ageing Workforce and its Impact on Industry and Occupation The ageing of the population will have several direct effects on the workforce. First, the rate of inflows from younger people has already started to fall. For example, while the working-age population grew, on average by around people every year from 2000 to 2005, this will fall to in 2010 and an average of about a year in the period 2020 to partly due to relatively low fertility rates. Second, existing employees are getting older, and there has been a tendency for many of them to retire at around 55 years of age and for employers to target recruitment at younger and primeage people. As shown in Figure 6, both the number (and proportion) of workers who are aged 45 years and over varies considerably by industry. For instance, the proportion of workers within an industry who are 45 years and over varies from a high of 52.1 per cent in Agriculture, Forestry and Fishing to a low of 24.4 per cent in Retail Trade. Similarly, the number of workers aged 45 years and over varies considerably, from in Health and Community Services to in Electricity, Gas and Water Supply. In May over half of all employed people aged 45 years and over were in five industries: Health and Community Services ( ); Property and Business Services ( ); Manufacturing ( ); Education ( ); and Retail Trade ( ). While every industry will be affected by demographic change in the coming decades, those with a high proportion of workers who are aged 45 years and over, and have recorded large increases in mature-age workers in recent years, are likely to face the most disruption from population ageing. Over the past decade, Education recorded the largest increase in the proportion of workers aged 45 years and over, up by 13.6 percentage points to 49.4 per cent in May Government Administration and Defence recorded the second largest increase (up by 12.9 percentage points to 43.9 per cent), followed by Health and Community Services (up by 12.4 percentage points to 44.4 per cent). 1 Refers to twelve months to 30 June of the specified year. Source: Productivity Commission population projections Series M, The Economic Impacts of an Ageing Australia. 2 Using four-quarter average data. Figure 6: Employment by Industry by Selected Age Groups Agriculture, Forestry and Fishing 45+ Mining Manufacturing Electricity, Gas and Water Supply Construction Wholesale Trade Retail Trade Accommodation, Cafés and Restaurants Transport and Storage Communication Services Finance and Insurance Property and Business Services Government Administration and Defence Education Health and Community Services Cultural and Recreational Services Personal and Other Services Source: ABS (2005) Labour Force, Australia, Detailed Electronic Delivery (ABS Cat No ). Workforce Tomorrow: Changing Labour Markets 11

14 The industry with the smallest proportion of workers aged 45 years and over in May 2005, Retail Trade (24.4 per cent), also recorded the smallest increase in the proportion of its workforce that was aged 45 years and older over the past decade, up by only 2.2 percentage points. Accordingly, while Retail Trade is the fifth largest employer of mature-age persons, it is less likely to experience serious disruption from population ageing than other industries such as Manufacturing. Of more direct relevance to emerging skill issues, is the age profile for occupations where skill shortages are evident. Figure 7 presents the share of older-age workers for selected occupations facing skill shortages. The graph highlights the high proportion of mature-age workers for many professional occupations where national skill shortages are evident for example, Dentists, Registered Nurses and Pharmacists. Even though professionals typically continue working in the occupation relevant to their skills and qualifications to retirement, the impact of the ageing of the workforce will become evident in the next few years and skill shortages may worsen, especially in regional areas. The situation for Tradespersons is not as clear-cut. The share of mature-age workers for many Trades in national shortage, such as Electricians and Motor Mechanics, is below the national average. This runs counter to industry concerns about ageing of the trades workforce. While the age profile is tilted to mature-aged workers for occupations such as Metal Fitters and Machinists, there is a more important factor at work most Tradespersons move out of the occupation in which they trained (their home occupation) well before retirement age, and their skills are, at least to some extent, wasted. While the movement of people out of the trades in which they trained (as illustrated in Figure 8) would be partly related to career progression, strategies to increase retention may be worth examining. Figure 7: Age Profile (45 to 54 years and 55 years and over) Selected Skill Shortage Occupations Dentists Registered Nurses General Medical Practitioners Pharmacists Civil Engineers Metal Fitters/Machinists ALL OCCUPATIONS Electricians Carpenters and Joiners Accountants Motor Mechanics Child Care Workers Chefs and over Source: ABS Labour Force Survey annual average data for % 12 Workforce Tomorrow: Changing Labour Markets

15 Figure 8: Labour Force Status by Age, Average for All Trades, Not in the Labour Force Unemployed 80 Unrelated Occupations Percentage 60 Related Occupations Home Occupations Total Age Source: ABS, Census of Population and Housing 2001 data, adjusted by NCVER apprenticeship completions by age data. Demand for Skills Demand for labour remains strong and this has contributed to a broadening of skill shortages, especially for the Trades. There are skill shortages in most Trades shortages of Engineering/Metal, Wood and Automotive Tradespersons, and Chefs and Cooks are evident and there are also shortages in some Construction Trades. Skill shortages for Professionals are mainly evident in the health sector, for Registered Nurses and Health Specialists (such as Physiotherapists). There are also national skill shortages for Accountants, Child Care Workers and Civil Engineers. Most Trades have been in persistent shortage, although shortages are more cyclical for Construction and, to some extent, Engineering. There has been a pick-up in demand for Information and Communication Technology (ICT) skills, as evidenced by higher levels of online vacancies. There are ICT skill shortages in some States, especially New South Wales. A survey of 768 manufacturing firms conducted in September 2004, by the Australian Industry Group 3 reported that there were between and unfilled vacancies for skilled Tradespersons in the Manufacturing industry. One in two firms surveyed reported difficulties in finding skilled labour, with the greatest difficulties being in metal-based manufacturing sectors, in Queensland and in small firms. The availability of suitably qualified labour is an important constraint on business investment and activity in Australia. In the National Australia Bank s Quarterly Business Survey for the June quarter 2005, the availability of suitably qualified labour was the second most important factor (after sales and orders) in terms of being a significant constraint on business output. A similar picture emerges in the ACIL-Tasman/ACCI Survey of Investor Confidence for July 2005, where the availability of suitably qualified employees was the second most important constraint on investment. In the latter survey, wages and non-wage labour costs (which can be raised by insufficient labour supply) were also major constraints on investment. 3 Australian Industry Group (2004), Australia s Skills Gap: Costly, Wasteful and Widespread, A report on the nature and depth of skills shortages in manufacturing, AI Group economics, September. Workforce Tomorrow: Changing Labour Markets 13

16 Labour Market Conditions by Region Labour market conditions vary considerably across Australia as a result of differences in the performance of the local economy, the diversity of a region s industry base and the skill level of the regional labour force, as well as other factors such as population density, natural resources, the rate of population growth and the area s demographic profile. Not surprisingly, then, there is some variation in key labour market indicators by region. For instance, in July 2005 the unemployment rates in metropolitan and non-metropolitan Australia stood at 4.6 per cent and 5.4 per cent respectively. Similarly, the metropolitan participation rate (65.6 per cent) was higher than that in non-metropolitan Australia (62.5 per cent). While there are differences in labour market performance between metropolitan and non-metropolitan Australia, this disparity has narrowed in recent years. Importantly, both experienced strong employment growth over the year to July 2005, with employment in metropolitan Australia increasing by (or 3.7 per cent) while in non-metropolitan Australia it rose by or (3.4 per cent). There are significant differences in the demographic structure of the labour force across Australia (as illustrated in Figure 9) which means that the impact of population ageing will vary considerably from region to region. These differences are due to a number of factors, including fertility rates, the pace of population growth and population movements between areas. A region s age profile can be affected by young adults leaving to study or look for work in areas with better educational facilities or stronger and more diverse labour markets. On the other hand, certain regions have experienced inflows of older persons of both working and retirement age, attracted by a range of factors including favourable climates, cheaper housing costs and other lifestyle benefits. As illustrated in Figure 9, there are even greater differences in the proportion of the labour force aged 45 years and over at the regional level. For example, 44.1 per cent of the labour force in Richmond-Tweed and Mid-North Coast (in NSW) was aged 45 years and over in July 2005, the highest proportion of any region in Australia. Conversely, the region with the smallest proportion of the labour force aged 45 years and over was Inner Melbourne (19.4 per cent). Other regions where mature-age people comprise a particularly high proportion of the labour force include Wide Bay-Burnett in Queensland (42.0 per cent), Central Northern Sydney (41.4 per cent), Northern and Western South Australia (41.2 per cent), and Far North Queensland (41.0 per cent). Figure 9: Proportion of the Labour Force aged 45 years and Over by Region, July Source: ABS (2005) Labour Force, Australia, Detailed Electronic Delivery (Cat No: ) Workforce Tomorrow: Changing Labour Markets

17 The strengthening of the Australian labour market in the past few years has resulted in falling unemployment and the broadening of skill shortages, including in many regional areas. Demand for regional skill shortage information from industry, employment service providers, regional organisations and State and Australian government agencies has increased, and there is demand for data on regional skill needs to help target regional migration, develop industry strategies to address regional skill shortages and inform employment services and local education and training. To determine the feasibility of collecting information on recruitment difficulties facing regional employers and assessing skill shortages on a regional basis, the Department of Employment and Workplace Relations (DEWR) conducted six telephone-based pilot surveys during late Pilots were conducted for Adelaide, the Riverina, Townsville, central western New South Wales, Gippsland/Latrobe Valley and Tasmania. Findings from the pilot surveys indicate that in regional areas of Australia employers are experiencing problems attracting applicants for a range of occupations, from reasonably low-skilled work such as labouring and cleaning to trades and professional employment. About two-thirds of vacancies were filled four to six weeks after advertising. Only about a quarter of applicants were considered by employers to be suitable for their vacancies, with lack of skills or experience being the main factors for applicants being considered unsuitable. The results support the work undertaken by State Offices of DEWR that shortages are apparent for most trades, but also point to broader recruitment problems in regional areas. shortages are apparent for most trades, but also point to broader recruitment problems in regional areas. Workforce Tomorrow: Changing Labour Markets 15

18 OUTLOOK FOR THE NEXT FIVE YEARS The labour market is currently very tight and is likely to remain so, particularly as Australia is also currently undergoing a phase of accelerating population ageing. Between now and 2012 there is projected to be a sharp rise in the annual percentage point change in the share of the population aged 65 years and older. This is shown in Figure 10. In view of this accelerated rate of ageing, coupled with the strong labour market and labour shortages, DEWR commissioned the Centre of Policy Studies (CoPS) at Monash University to model the interaction of ageing and employment and to identify in particular the impact of ageing on labour supply and employment. (The methodology is described in Appendix A.) At the national level, the estimated effect of population ageing is forecast to be quite significant over the next five years, with the average annual employment growth rate falling from around 1.9 per cent per annum in the absence of population ageing to a baseline level of 1.5 per cent per annum in the presence of population ageing. The divergence in growth rates is equivalent to a shortfall of workers over the next five years as a result of the effects of population ageing. In other words, while employment is expected to continue to grow solidly over the next five years, it is likely to be substantially less than it would otherwise have been if the population age structure were to have remained unchanged. Figure 10: Annual Change in Share of People aged 65 years and Over in the Population: Change in share of population aged 65 years and over (% points) Historical Average Accelerating Phase Source: Productivity Commission (2005), Economic Implications of an Ageing Australia, p Workforce Tomorrow: Outlook for the Next Five Years

19 These forecasts are an indication of likely developments in the absence of major policy responses and unforseen structural changes, rather than a firm prediction of what is going to happen over the next five years. They are subject to the accuracy of the structure of the MONASH model and assumptions about economic developments used in the present baseline of this model (more information on these is provided in Appendix A). In particular, it is assumed that there will be a fairly benign economic environment over the next five years, with no major disruptions to the economy. It is possible that more people who are currently outside the labour force or who are considering retirement in the next five years could be encouraged to join or remain in the labour force in response to the additional employment opportunities and higher relative wages for occupations in demand, than has been estimated in these forecasts. For example, the modelling does not incorporate changes in labour supply for those people who will be affected by the welfare-to-work measures announced in the Australian Government s Budget 4. It is also possible that employers could respond to a shortfall of workers by substituting capital for labour (such as by replacing employees by machines and computer software) to a greater extent than modelled. The Australian Government s proposed workplace relations changes could also lead to stronger demand for workers than has been modelled in this project. Unless there is a corresponding increase in labour supply in response to these changes, it is possible that the prospective shortfall in workers could be even higher than modelled here. Balancing this, these proposed changes are aimed at improving productivity, which would help businesses to maintain output in the face of shortfalls in employment. 4 The Treasurer announced in the Budget that there will be a requirement for income support recipients who are parents of school-age children and people with disabilities who are capable of working between 15 and 29 hours a week to look for part-time work. Also, job seekers over 50 will have the same job search requirements as other job seekers. The divergence in growth rates is equivalent to a shortfall of workers over the next five years as a result of the effects of population ageing. Workforce Tomorrow: Outlook for the Next Five Years 17

20 Employment by State/Territory and Region New South Wales has the largest share of the forecast national shortfall in workers, followed by Victoria and Queensland. The Northern Territory has the lowest share (as illustrated in Figure 11). However, the relative impact of population ageing on forecast employment growth rates differs considerably from this distribution, driven as it is by the population size of each State. South Australia, the Australian Capital Territory and Tasmania are the most adversely affected by ageing and the Northern Territory is the least affected (see Figure 12). More detailed regional forecasts, for the 56 separate ABS Labour Force Regions of Australia, are provided in Appendix B. While the regional forecasts should be treated with caution given the presence of generally larger sampling errors in regional labour force data and the fact that population ageing was modelled mainly at the national level, a couple of general trends are apparent: The regional industry pattern is broadly similar to the national industrial pattern i.e. Mining is the most severely affected industry for almost all regions. Conversely, Construction is the least severely affected industry, again for almost all regions. In fact, population ageing is forecast to have a positive effect on construction employment growth in a lot of regions. Particular remote areas (including the Pilbara, Goldfields and Midwest of WA, Northern SA, and Northern Queensland) seem to be the worst affected. Given the high rate of population growth in Queensland and Western Australia, it is not surprising that employment in these States increased strongly over the last five years, up by 17.8 per cent and 14.5 per cent respectively. It is important to note, however, that these increases were not simply a reflection of strong population growth, as reflected by the substantial rise in the working-age (15 to 64 years) employment rate in both Western Australia (up by 2.7 percentage points to 74.0 per cent) and Queensland (up by 3.0 percentage points to 73.5 per cent). In accordance with past trends, the baseline rates of employment growth over the next five years are expected to be strongest in the Northern Territory, Western Australia and Queensland (see Appendix B). This is a key reason why these three zones have the lowest forecast reduction in employment growth in Figure 12. Employment growth was more subdued in the other States and Territories, although South Australia and Tasmania both recorded significant increases in their employment rates (up by 3.3 percentage points to 71.3 per cent and by 2.6 percentage points to 66.7 per cent respectively). Despite this, South Australia and Tasmania are forecast to have the slowest forecast baseline rate of employment growth over the next five years (see Appendix B). One important difference between the Northern Territory and the rest of Australia is that the Northern Territory has a high proportion of Indigenous people. The Indigenous population has a younger age distribution and is estimated to have a higher fertility rate than the non-indigenous population. This will tend to partially offset the effects of population ageing. Also, in addition to being affected by shortages of intermediate level workers, it seems that the Northern Territory will be afflicted by more severe shortages of Professionals and less affected by shortages of Tradespersons. So while most States and Territories should broadly follow national trends, the Northern Territory will feel the effect of population ageing in a different way to the rest of the country. New South Wales has the largest share of the forecast national shortfall in workers, followed by Victoria and Queensland. 18 Workforce Tomorrow: Outlook for the Next Five Years

21 Figure 11: Forecast Reduction in Employment Levels (Thousands of Employed Persons) due to Population Ageing, by State and Territory, to New South Wales 63.9 Victoria 50.2 Queensland 39.0 Western Australia 18.4 South Australia 13.0 Tasmania Australian Capital Territory Northern Territory s Source: Centre of Policy Studies, MONASH model forecasts. Figure 12: Forecast Reduction in Average Annual Employment Growth (Percentage of Baseline Employment Growth Rate) due to Population Ageing, by State and Territory, to South Australia 42.9 Australian Capital Territory Tasmania Victoria New South Wales Australia Queensland 20.3 Western Australia Northern Territory Per cent of baseline employment growth rate Source: Centre of Policy Studies, MONASH model forecasts. Workforce Tomorrow: Outlook for the Next Five Years 19

22 Employment by Industry The modelling shows that employment in every industry is forecast to be adversely affected by population ageing over the next five years (see Figure 13). At a national level, Mining and Manufacturing are especially affected. This also holds across all States and Territories (except for Manufacturing in the Northern Territory). It is worth bearing in mind that Mining is a highly capitalintensive industry and only makes up a small proportion of total employment. Therefore, while labour-intensive industries, such as Construction; Personal and Other Services; Property and Business Services; Health and Community Services; and Retail, are forecast to be less affected, these industries make up a large proportion of total employment. Nationally, Electricity, Gas and Water Supply; and Finance and Insurance; will also be more adversely affected than average, but the extent to which individual States and Territories will be affected is varied. These industries are concentrated in the larger States, particularly New South Wales and Victoria, so they tend to influence the national outcome. Subdivisions within Wholesaling and Transport and Storage are also forecast to be more affected than average at the national level, as shown in Appendix A. In terms of total numbers of workers affected, the three industries which are expected to be most severely affected by population ageing over the next five years are Manufacturing, Retail Trade and Property and Business Services (see Figure 14). Figure 13: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Industry, to Mining Manufacturing Utilities Finance/Insurance Wholesale Trade Hotels etc Communications Transport/Storage Education All Industries Agriculture, Forestry and Fishing Cultural/Recreational Services Personal and Other Services Property and Business Services Retail Trade Government Administration/Defence Health and Community Services Construction Percentage points Source: Centre of Policy Studies, MONASH model forecasts. The industrial grouping used for this Chart is the ABS s ANZSIC divisions classification. 20 Workforce Tomorrow: Outlook for the Next Five Years

23 Figure 14: Forecast Reduction in Employment Levels (Thousands of Employed Persons) due to Population Ageing, by Industry, to Manufacturing Retail Trade Property and Business Services Education Wholesale Trade Accomodation, Cafés and Restaurants Transport/Storage Finance/Insurance Agriculture, Forestry and Fishing Health and Community Services Mining Personal and Other Services Communications Cultural/Recreational Services Government Administration/Defence Electricity, Gas and Water Construction s 45.4 Source: Centre of Policy Studies, MONASH model forecasts. The industrial grouping used for this Chart is the ABS s ANZSIC divisions classification. Workforce Tomorrow: Outlook for the Next Five Years 21

24 Employment by Occupation All major occupational groups are forecast to be adversely affected by population ageing (as illustrated in Figure 15). Particularly hard-hit groups include Tradespersons and Elementary and Intermediate Clerical, Sales and Service Workers. As there is already widespread excess demand for tradespersons, the ageing effect is anticipated to exacerbate an already difficult situation. The effect on professionals is forecast to be the same as the all-occupations average, while some slightly lesser skilled occupational groupings (Associate Professionals and Advanced Clerical and Service Workers) are forecast to be less affected than average. In terms of skill levels, it appears that semi-skilled and unskilled occupations will be most greatly affected. In terms of total numbers of workers, Professionals and Intermediate Clerical, Sales and Service workers are forecast to be most adversely affected by population ageing, while there is also forecast to be a sizable shortfall of Tradespersons (as shown in Figure 16). Figure 15: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Occupation, to Managers and Administrators Advanced Clerical/Service Workers Associate Professionals All occupations Professionals Labourers Intermediate Production/Transport Workers Intermediate Clerical/Sales/Service Workers Elementary Clerical/Sales/Service Workers Tradespersons Percentage points Source: Centre of Policy Studies, MONASH model forecasts. The occupational grouping used for this Chart is the ABS s ASCO major groups classification. 22 Workforce Tomorrow: Outlook for the Next Five Years

25

26 Employment by Hours Worked Whilst the MONASH model does not produce explicit forecasts for full-time and part-time employment levels, forecasts can be generated by nine separate (weekly) hours worked categories: 0 hours; 1 15 hours; hours; hours; hours; 40 hours; hours; hours and 49+ hours. While population ageing is expected to reduce employment growth for all hours worked categories, a larger reduction in the employment growth rate of those working 35 hours per week or longer is forecast than for the growth rate of people working from 0 to 34 hours per week (as illustrated in Figure 18) 5. This will have the overall impact of increasing the share of part-time employment in total employment. The MONASH forecasts are consistent with the Productivity Commission projections for a rise in the share of part-time work and lower average hours worked. This is because participation rates for mature-age workers are projected to rise and mature-age workers have a greater tendency to work part-time hours than workers aged 25 to 44 years. 5 The ABS uses two main definitions of hours worked, usual hours worked and actual hours worked, which result in different classifications of the same employed person. Under the ABS Labour Force Survey definitions, as an example, it is possible that a number of employed persons may be classified as full-time workers but would have worked less than 35 hours in the survey reference week for a variety of reasons (such as holidays, illness and plant shut-downs). In July 2005, 17.7 per cent of full-time workers worked less than 35 hours in the survey reference week. Figure 17: Forecast Reduction in Average Annual Employment Growth (Percentage Points) due to Population Ageing, by Hours Worked, to Per cent hours Total 35+ hours Source: Centre of Policy Studies, MONASH model forecasts. 24 Workforce Tomorrow: Outlook for the Next Five Years

27 WHAT IT MEANS FOR BUSINESS The ageing of the population coupled with an already tight labour market, especially for the more skilled occupations, will have signifi cant implications for business. The results of the MONASH modelling show that population ageing will impact on all major industries and occupations and affect all of Australia. The extent to which particular States and Territories or labour market regions are affected will not be uniform due to differing demographic and structural characteristics. Also, because industries vary in terms of their labour intensity of production, occupational mix and the workforce age distribution of existing workforces, different industries will be affected in different ways and over differing time-frames. With the prospective shortfall in workers over the next five years potentially being as large as workers and spread unevenly across industries and occupations, many firms could face difficulties in obtaining the workers they need. This holds especially for firms hiring high proportions of Tradespeople and some lesser skilled occupations and for firms in Mining and Manufacturing. In relative terms South Australia will be the most affected by ageing and the Northern Territory the least. However, in line with the size of their populations, New South Wales, Victoria and Queensland will have the largest employment shortfalls. With a likely shift in employee preferences from full-time work towards part-time work as a result of population ageing, those industries that remain reliant on full-time workers could also face more difficulties than otherwise. A tight labour market and the ageing of the population, combined with current skill shortages, could therefore have adverse consequences for many businesses unless they adapt. Without sufficient skilled workers, many businesses will have difficulty in continuing to produce their current level of output, let alone in expanding output to keep up with the consumption wishes of Australians and export markets. In addition to having trouble maintaining production, firms could have other challenges to their profits from skill shortages. One is that there could be additional reworking of products and services from insufficiently trained employees in order to make ordered items suitable for customers. Another challenge to company profits from the ageing of the population and skill shortages is that wages could be higher than otherwise, as the reduced supply of trained workers means that they can earn a higher premium for supplying their labour. The Productivity Commission (2005) drew attention to the likelihood of higher wage pressures in its recent Report, Economic Implications of an Ageing Australia. Allied with wage pressures, the costs of recruiting are likely to be higher. Many businesses will find that they will have to do more job advertising and even run more recruitment rounds in order to fill their positions. Population ageing and skill shortages are also likely to impact on Australia s competitiveness both in terms of maintaining production at a reasonable cost and in terms of the competition for skilled migrants. Without sufficient skilled workers, many businesses will have difficulty in continuing to produce their current level of output, let alone in expanding output to keep up with the consumption wishes of Australians and export markets. Workforce Tomorrow: What it Means for Business 25

28 While almost all other developed countries will be subject to population ageing over the next five years and beyond, some of our competitors such as Germany and France have substantial excess labour supply. Similarly, many of the developing countries with which we compete have young and fast-growing populations and will have a competitive advantage. As population ageing begins to bite elsewhere, other countries will compete more strongly with Australia for migrants, especially skilled migrants. This means that businesses might not be able to rely on skilled immigrants to fill their vacancies at the same rate as in the past. It will also mean that there will be more pressure from overseas countries for experienced Australian workers and skilled emigration might increase. Businesses could become even more reliant than in the past on underutilised sources of labour supply in particular, mature-age job seekers, people with disabilities and parents of school-aged children. A higher propensity to import could be a consequence of population ageing combined with skill shortages. Already, some large resource projects are having reduced Australian content as a result of skill shortages and other factors. 6 The variety of effects of population ageing across industries, occupations and regions indicates that there is no unique solution and employers will need to take account of their own circumstances and tailor approaches to their workforce needs. Businesses are becoming more aware of the ageing workforce issues and the need to adjust their retention and recruitment practices. Both the Business Council of Australia and the Australian Chamber of Commerce and Industry have issued policy documents warning of the implications of ageing for business and urging a range of actions be taken by member organisations to employ and 6 An example is the fifth train of the North-West Shelf Liquefied Natural Gas development, as explained in a recent speech by Don Voelte, CEO of Woodside Energy retain mature age people. Drake International (Australia) has also issued a White Paper, The age chasm, in which the author, Professor Louise Rolland, recommended a range of strategies for businesses to handle the effects of population ageing, including implementing and managing age-balanced recruitment; learning, development and retraining strategies for mature-age workers; support for the health and wellbeing of older workers; workplace and task redesign; and managing retention and exits. Many employers are already hiring more older workers, as the national statistics show. Nevertheless, there are still some myths standing in the way of better business outcomes from employing more older workers, and indeed other groups who have been seen as outside the workforce, such as parents and people with disabilities. Yet, many lone parents and people with disabilities are already employed and more are increasingly looking to enter the labour force. As labour shortages increase, employers will need to be innovative to attract the shrinking supply of available talent. The workforce of the future will be more diverse; it will consist of more older workers, more parents, and more people wanting to work part-time; so new strategies will be needed. Some of the approaches that employers could take include: creating a more diverse workforce retaining mature-age employees through strategies such as phased retirement and age-aware training mentoring and coaching new employees to improve their productivity increasing education and training for existing employees (both on the job and off the job) improving the work/family balance for their employees to attract and retain workers with children and/or caring for elders providing child care facilities in or near the workplace to retain workers who are primary carers for young children 26 Workforce Tomorrow: What it Means for Business

29 modifying the workplace and tasks so that they can be performed by employees with various levels of disability taking advantage of government incentives to try out new employees with different characteristics from their current employees. Australian Government incentives to assist businesses to create a more diverse workforce, announced in the Budget s Welfare to Work package, include the following measures: Wage subsidies and provision of workplace modifications to employers to hire workers with disabilities Provision of additional child-care places for parents of school-age children, including Outside School Hours Care Wage subsidies for employers to hire very longterm unemployed job seekers under the Wage Assist programme Targeted and improved industry and workplace engagement strategies Strategies to increase employment of workers with a disability Training for employers to manage an ageing workforce effectively Additional training and employment preparation services for job seekers. working longer by offering attractive working conditions and incentives. Employers who proactively provide an environment which supports work/life balance (even going so far as to help them plan for retirement), will increase employee engagement, focus, and productivity. The Australian Government is also working with employers, employees and other stakeholders to improve education and training for Australia s workers. Policies introduced in the Budget are available on DEST s website 8 and include the opening of 24 new Australian Technical Colleges, the provision of additional pre-vocational training places and enhancements to New Apprenticeships. While population ageing is happening now and will have an influence on Australian employment over the next five years, Australian employers, with the assistance of the Australian Government (and other levels of government), are capable of addressing the issue. This is provided they tackle it with the same zeal and innovation for which Australia is renowned. 7 Fact sheets on some of the main Welfare to Work measures including assistance to employers and job seekers can be obtained at dewr.gov.au/dewr/publications/budget/ /PortfolioBudget Statements FactSheets.htm. 8 An outline of these policies and links to additional information can be accessed at dest.gov.au/sectors/training_skills/policy_issues_reviews/key_issues/ new_iniatives.htm. Further information on these incentives and other Australian Government measures to improve labour supply and employer demand for new job seekers (especially parents of school-age children, people with disabilities, mature-age people and very longterm unemployed persons) is available in the Australian Government Budget and on DEWR s website 7. Flexible work practices will help attract and retain the best people in a fiercely competitive market. Employers may be able to influence experienced workers to remain Flexible work practices will help attract and retain the best people in a fiercely competitive market. Workforce Tomorrow: What it Means for Business 27

30 GLOSSARY Employment Rate The proportion of the civilian population aged 15 years and over who are employed. This rate can also be calculated for other age groups. Labour Force Persons aged 15 and over who are either employed or unemployed. Employed persons worked at least an hour in the reference week, or had a job and were away for less than four weeks, while unemployed persons do not have a job but actively look for work and are available to start work, or are waiting to start a new job within four weeks. Labour Force Participant Person who is either employed or unemployed see Labour Force. Skill Shortages Skill shortages exist when employers have difficulty recruiting for, or are unable to fill, vacancies in an occupation or specialist area of an occupation, assuming pay and conditions of the job are typical and the job is not in a remote or difficult to access location. Shortages are typically for specialised and experienced workers, and can coexist with relatively high unemployment. Shortages may be numerically small, or may be confined to specific geographic areas. Unemployment Rate The number of unemployed persons (persons who do not have a job but are actively looking for work and are available to start work, or are waiting to start a new job within four weeks) as a percentage of the labour force (employed and unemployed persons). Labour Force Participation Rate Those persons who are employed or unemployed as a percentage of the civilian population aged 15 years and over. This rate can also be calculated for other age groups. Population Ageing As a result of lower fertility and mortality rates, the age structure of the economy is changing markedly, with the average age rising and higher proportions of older people but lower proportions of younger people. 28 Workforce Tomorrow: Glossary

31 BIBLIOGRAPHY Access Economics (2001), Population Ageing and the Economy, Ausinfo, Canberra, January. Drake International (2005), The age chasm, Drake White Paper Vol 2 No. 5, Drake International Australia Pty Ltd. Productivity Commission (2005), Economic Implications of an Ageing Australia, Final Research Report, Productivity Commission, Canberra. Treasurer of the Australian Government (2002), Intergenerational Report , Budget Paper No. 5, Ausinfo, Canberra, 14 May. Voelte, D. (2005), Woodside: Growing an Australian Global Business, Speech by the Chief Executive Officer of Woodside Energy to the Institute of Chartered Accountants in Australia, Perth, WA, 15 July, downloaded from Workforce Tomorrow: Bibliography 29

32 APPENDIX A Description of MONASH Model Modifications to Represent Population Ageing The MONASH model is a dynamic, multi-regional computable general equilibrium (CGE) model of Australia, maintained by the Centre of Policy Studies at Monash University. In this model, employment is disaggregated by region, industry and occupation. Forecasts of employment by qualification level and field have been produced by the Centre of Policy Studies as an intermediate step in producing the estimates of the effects of population ageing. The estimated effect of population ageing was derived by comparing the results of alternative simulations produced for this project using the MONASH model. A baseline simulation was prepared under the assumption that population ageing proceeds as expected, based on modified ABS population projections which were used by the Productivity Commission in modelling developments in labour force participation rates, unemployment rates and average hours worked per week by gender and age group. These projections were combined with modelling of qualifications by level of achievement and field of study to produce forecasts of employment by qualification, exogenously from the MONASH model. This baseline simulation is also based on the standard Monash model macroeconomic and industry growth assumptions, which are informed by forecasts from Access Economics as described in their September 2004 issue of Business Outlook: Five year forecasts for business planners. This baseline was modified from the standard MONASH model projections, in which employment and hours worked are determined by labour demand (in other words, that there is excess labour supply in all industries and occupations). In the standard MONASH simulation, wage rates are set exogenously based on scenarios supplied by Access Economics and employment levels are determined within the MONASH model. In contrast, in the modified baseline simulation for this project, employment levels are determined exogenously as described above and the MONASH model is used to determine wage rates. The improved modelling allows employment in all industries and occupations to be consistent with the exogenously specified levels of employment by qualification, which in turn are influenced by labour supply constraints resulting from population ageing. These labour supply constraints are imposed at the national level and the resulting industry employment levels are then distributed among the regions. The overall labour market environment is forecast to be benign in the baseline used for this project, with total The estimated effect of population ageing was derived by comparing the results of alternative simulations produced for this project using the MONASH model. 30 Workforce Tomorrow: Appendix A

33 employment growing at a compound average annual growth rate of 1.5 per cent per annum in the five years to While this growth rate is less than the compound average annual growth rate of 2.1 per cent per annum in the five years to , a slower growth rate is to be expected as a result of assumptions that world and Australian economic growth would be slower in the next five years than in the last five years and the difficulty of achieving further reductions in an already low unemployment rate in Australia (over the five years to , the unemployment rate was reduced from 6.6 per cent to 5.2 per cent). This baseline simulation was compared with an alternative simulation from the MONASH model, based on a hypothetical situation with no ageing of the adult population. In this simulation, the growth rate of the adult population over the next five years is assumed to remain the same as in the baseline forecast, but the age distribution of the adult population is assumed to be unchanged instead of becoming distributed more towards older persons. This assumption leads to a forecast of higher labour supply than in the baseline forecasts, because prime-age persons generally have higher labour force participation rates and tend to work longer hours per week than mature-age persons. The amount of unemployed labour (in terms of hours available for employment) is assumed to be the same in both scenarios. Effectively, for the alternative simulation, this means that all of the additional labour supply is assumed to be employed. In turn, this implies that the employment level in the alternative simulation is substantially higher than in the baseline by , because the baseline incorporates the effects of population ageing. The higher employment level in the alternative simulation is estimated to be associated with lower pressure on real wages than in the baseline: the real wage rate (nominal wages deflated by the price deflator for Gross Domestic Product) is modelled as growing by 1.6 per cent per annum in the baseline, but only by 1.0 per cent per annum in the alternative simulation, over the five years to The ageing effect is estimated as the difference of the no-adult-population ageing simulation from the baseline simulation. These effects were prepared by industry, occupation, qualification, region, gender and hours worked and detailed results by industry, occupation and region are shown in the next Appendix. Disclaimer: Analysis of the simulations produced using the MONASH model from the Centre of Policy Studies has been undertaken by the Department of Employment and Workplace Relations (DEWR). Accordingly, while all reasonable care has been taken to ensure that results are presented accurately, errors that may arise as a result of the analysis are attributable to DEWR. Errors as a result of the modelling process are attributable to the Centre of Policy Studies. Workforce Tomorrow: Appendix A 31