Blog Sections

In the years between 2006-2007 Australia’s series of the Ashes, a variety of commentators suggested pace bowler Glenn McGrath, aged 36, had become too old to endure such outstanding records in bowling (Mitchell, 2013). Comparable comments were said on the economic performance of the effected ageing population on Australia, that its growth performance could not be sustained as the age distribution shift increases. This essay investigates claims of the consequences of the ageing population by examining economic and productivity growth, whilst analyzing these changes and challenges have in terms of economic policy.

Over the course of the 21st century, Australia is experiencing an increase in age due to a fertility rate decrease and an increase in life expectancy (Treasury 2014, p.98). Migration can improve the situation due to migrants being more youthful than the residential population of Australia (Treasury 2014, p.99). Migrants can decrease the rate of ageing as the distributed projection by the Australian Bureau of Statistics (2015) shows, by presenting an conducted agency of future age Australian citizens under a variety of scenarios in demographic conditions (ABS 2015, pp.154), these are further presented realistically in below Appendix. While figure 3 and 2 provide projections on the projected assumptions of ‘Series C’ And ‘Series B’, figure 1 presents projections that of ‘Series A’.

Each projection makes it clearer that all three assumptions set the distribution of age in terms of the population of Australia shifting forward in favor of the elderly. Perhaps metaphorically, the distribution of age will start to represent the coffin shape (Productivity Commission, 2013). The query for the economic future policy is to assist the economic anticipated effects of such changes. It’s the response of policy and economic effect this essay will attempt to examine. The labor market is the first most important area affected area Figure 1 (ABS 2015, pp.157).

The ageing population effects will be more directly affected in the labour market. While fertility rates decrease, the increase in the working-age population will decline, leading to reduced supply of labour and the restriction of potential growth in the Australian economy. Reflect on Figure 4 presenting projected and historical rate of growth (Productivity Commission 2014, pp.85) of the individuals working age (inclusive 64 to 15). The annual growth of the aged individuals from the 64 to 15 inclusive, decreased between 0.8% 2007, to 2% 1980 and has been projected to decrease furthermore 0.15% 2051 from 0.43% 2021.

Such changes are speculated in the projected growth in ‘dependency ratio’ aged to working mapped throughout figure 5. The effect of ageing is further expected to generate the rate of participation leading to a decline from 2046-47 57% to 2005-2006 from 64.5%. The Productivity Commissions (2014, p.86) illustration, of which figure 6 has adapted, the impact of expected ageing on the rate of participation rate illustrates a decline in the general supply of labour in Australia.

Labour supply decline will decrease such potential growth in the economy of Australia. Australia’s economy as the population ages is expected to have lowered rate of economic growth. The data presented by the Productivity Commission (2014, p. 139) in Figure 7 estimates the ageing per capita effect. Hence, growth decomposing population changes productivity and participation, by means of a smaller influence on participation and population growth (labour supply increase), the GPD (Gross domestic product) per person growth rate should be mainly an operation of productivity increase.

The main challenges lie within participation improvement and further improving unmeasured and measured (volunteering for example) of those higher than the age of retirement in the market labour to relieve the consistent decrease in labour supply. A generic suggestion is to raise the age of retirement. Whereas, this contradicts the reality of politics. The more rather practical method would be to develop more flexibility in the relations industrial system, suitable aged-care support, of which enables providers to enroll in the workforce (‘Hogan Review’, 2005), and the establishment of enticements to encourage individuals that are older than 65 to work under superannuation benefits and conditional health. In encouraging older individuals to enroll back into the workforce, to disapprove any notion becomes a challenge in terms of participation within said workforce are respectively private to life in retirement. Additionally, potential resides within improving participation of women within the workforce to ease decline in labour supply (Economics and Finance 2013, p.54). In contradiction to mend the aged-care issue, the can involve the possibility of access childcare improvements. Furthermore in regards to reduced growth in the supply of labour, striking age-composition in the labour market can change over the course of time. Demonstrated in Figure 8, the decades of which have converged over time, have been separated by the percentage of labour force.

Sudden on the adjustments on productivity impacting net percentage are unclear, due to uncertainty about counterbalancing factors affecting productivity percentages over the course of the age groups. However, even though experienced workers are older and have impressive ‘corporate memory’, reducing the rate of job turnovers and decreasing levels of job absence, inconsistencies, and sick leave (Economics and Finances 2013, pp. 56-58). Historically this is counterbalanced by lowering levels of education of experienced (older) workers and the decreasing mental and physical culminating abilities, leading to more accidents (DEWR 2008, p. 172). If it became apparent that there is possible connection between productivity and age, Australia should expect the level of productivity in older workers to produce more work and general level of productivity.

As this view becomes more apparent, Productivity Commission (2014) and the state Treasury (2015) predict consistent productivity increase of 1.85% moreover conduct delicate analyses below and above the likes of this level. As for future growth predictions, productivity significance should never be underestimated. It may seem to be minimal in terms of annual growth of productivity differences, will significantly influence, long-run per capita GPD. The Productivity Commission (2014, p.33) for example, projects a reduction of annual productivity growth across 2009-10 to 2043-2045 of 0.09%, this will lead the Australian economy to increasingly worse by $700 billion (2009-2010 constant prices).

The size of future labour productivity may have possibility for optimism. Primarily, productivity could increase as the level of education is becoming higher due to more exposer in citizens (Teghtsoonian 2009, pp.29-31), of which ‘estimate’ 2.3% annual growth in productivity situated on the future of propagated education. Weidmann (2015) emphasize this information in terms of (ICT) communication technology by building upon capital-deeping effects by improving productivity growth. For example, Investments by the ICT are expected to bring older workers capacity to productively contribute by decreasing physiological capacity demands. Weidmann (2015) further suggest the growth of labour productivity and force are quite correlated negatively; as the growth of forced labour decreases, organizations will focus more on increasing the performance in productivity, leading to increased general output.

Policy is a vital role in terms of the proceeding analysis. The challenge in policy will inspire growth in productivity. ICT private investment should have been commended, and even incited by investment of public infrastructure, for example the broad band scheme. This could optimize ICT investment returns, wide educational ICT projects possibly should be carried out and aimed at the technologically illiterate. This could help the elderly to work longer to bring more income into the Australian Economy. Pharmaceuticals, public expenditure sector on health and aged care are predicted to increase as the population ages. Such expense pressures, connected with projected increases in the amount of pension payment transfers, establishing an important challenge for the future of economic policy (Treasury 2014).

Once said changes can be implemented, fiscal deficits could be run by governments to sustain the increasing debt levels (Figures 12 and 11). This is objectionable since it raises the burden on sources of savings. On the other hand, an increase in taxes from the governments could make up for short comings. Alternatively this is an undesirable approach as it decreases investments and work effort throughout, therefore economic and productivity growth leading to ‘an assault on incomes’ of youthful workers (Keating 2011, pp.87).

The most appropriated answer, and for the economic policy challenge, would be to advance the governmental sector position of sustainability to prepare for the future. The sector of which sustains the public could continue to create a position across different government levels  to build up a net asset to counterbalance projected government fund demands, leading to an improved level of nation gross savings. A fund, for example in a Future Fund model, which could be developed to protect medicine finances or develop the projected growth in health costs, specifically in correlation with the Benefit Pharmaceutical Scheme (Treasury, 2011). To commend this policy, the health should be more of a responsibility and consolidated at a federal level within the government, of which an estimate suggests that will result in an annual benefit of $22 Billion (Hailey, 2009). 

In the upper section examined projected growth and productivity changes in correlation with Australia’s labour market ageing. This section is proceeding with analyzing dynamic effects with future growth and productivity performance in a capital market.

In understanding levels of investments, they're are required to sustain capital per unit leading to declines in effective labour. Actual investments are sustained over the course of time as the economy progresses at a steady-rate of per worker capital. As value of the positive is marginal for the productivity of labour with the account to capital as a whole, Productivity per worker – output – increases. Figure 10 represents this graphically. Not only is this result intuitive, but also rather simple, due to the general complexity of the dynamic demographic factors affecting the variable levels of acclimating capital the economy sustainability. Reflect on the question if Australia could widen capital investment or sustain the amount of required savings to fund the investment. A hypothesis by Brumberg (1954) brought up that in terms of a function as wealth, savings increase when until retirement, then decrease as the individuals savings fall victim to consumption of finance. All else equal, as citizenry age, mass savings shall decrease minimizing the level of available funds for investment capital.

Unavoidably, over an extended period of time the ageing population will decrease Australia’s rate of economic growth all together. This is inevitable; Australia has a set ‘destined demographic’ (Peter Costello MP, 2004). So much has been said in terms of the impact and all of these specific changes within the economic performance. This blog has been a scaled strategic attempt to give an educated overview of important aspects and issues opposing the Australian economy, and policy makers. Accommodating economic policy is an increasingly changing challenge to improve the potential growth within Australia to develop productivity and participation as much as possible, ensuring the work force consistently adapt and adjust to the new economic realities. As other issues associated with future issues such as equality, sustainability should be more connected with policy.