The Output Implications of Higher Labour Force Participation

This paper examines the output implications of a significant rise in Australian labour force participation over the next forty years. Using the projections in the Commonwealth Government’s 2002-03 Intergenerational Report as a benchmark, it generates alternative projections assuming that, for each age-and-gender cohort, Australian participation rates rise gradually over (roughly) the next twenty years to reach the 80th percentile of the distribution of current participation rates across the OECD. Over the following twenty years, it assumes that Australian participation rates remain at these higher values. These alternative projections, if they were realised, would imply gradually rising aggregate labour force participation in Australia for most of the next twenty years, rather than gradually falling participation, as projected in the Intergenerational Report. Output in twenty years time would be about 9 per cent higher than that projected in the Intergenerational Report, and would remain about 9 per cent higher for the following twenty years. About one-third of the rise in output in these alternative projections would be accounted for by higher participation by 45-64 year old males, and between one-sixth and one-quarter by higher participation by people aged 65 and over. Some of the rise in participation rates in the alternative projections could occur as a consequence of recent rises in educational attainment flowing through to older age groups over time. Much of the rise, were it to occur, would need to come about as a consequence of changes in policy and in community attitudes, particularly to older workers.