The response to the COVID-19-induced recession has so far focused on short-term stimulus to re-ignite economic activity and retain and quickly rebuild employment connections. This approach has been widely supported, including by CEDA. It is clear, however, that attention must now also shift to how policy can and should support Australia’s longer term economic and social development.
The 2020-21 Federal Budget highlighted the very significant shifts in Australia’s longer term economic prospects attributable to the impacts of COVID-19. Most notable was the outlook for population growth, which is expected to slow from 1.2 per cent in 2019-20 to 0.2 per cent in 2020-21 and 0.4 per cent in 2021-22 – the slowest growth in a century. Population growth is now assumed to be permanently lower. This reflects the adverse impact of the pandemic on net overseas migration, which is likely to be negative for the first time since 1946 and will affect not only total population growth but also its distribution around the country.
There are differing views on the benefits of relying on population growth to support economic activity, but the simple fact is this has been our approach to date, and we have relied on it more than others. Population growth has contributed substantially to Australia’s economic growth in recent years. In 2018-19, while GDP grew by 2.2 per cent, GDP per capita grew by only 0.5 per cent.
In the absence of the first of the 3Ps of economic growth – population, participation and productivity – attention must now focus squarely on the remaining two, as it is these underlying trends that will support long-term growth.
On the productivity front, the Budget assumes a return to the average growth rate of the last 30 years. This is ambitious given Australia’s performance in recent years, and we will have more to say about priorities for reform in our economic dynamism research agenda.
The participation outlook also points to further headwinds for future growth, with Treasury predicting lower trend participation rates as a result of lower migration and population ageing. This is bad news. The 2015 Intergenerational Report, published when population and participation rates were expected to be higher than now projected, cautioned that:
“ongoing improvements in Australian living standards will remain primarily contingent upon continually improving our productivity and require us to take every opportunity to increase participation rates
Lower participation rates are not only bad for the economy, but also have significant bearing on individual and family wellbeing and social development more broadly. Participation and employment allow individuals and families to support themselves financially, but also support physical and mental wellbeing.
Our starting point is to prepare for recovery in terms of a cyclical rebound in employment growth and in the context of increasing future demands for workers and skills, particularly in human services, as well as ensuring this crisis does not have lasting impacts on people’s employment prospects.
Previous intergenerational reports have highlighted the economic and social benefits of supporting the participation of older Australians who want to work, as well as boosting opportunities for women, young people, parents and people with disability to participate in the workforce. Each of these remains as important now as before the pandemic. But there are new dimensions to these challenges as well as new opportunities.
- Women typically become more discouraged in economic downturns, with their participation dropping by more than men. Since January of this year, the female labour force has decreased by 1.7 per cent, compared with a 1.1 per cent decrease in the male labour force. Employed females also continue to experience higher rates of under-employment.
- Before COVID, long-term unemployment increased even as unemployment came down. As unemployment is projected to remain high for years, the pool of long-term unemployed will grow larger. We know from past recessions that it is harder for these people to regain work, as skills and confidence are lost, and because of bias in hiring.
- Too little progress was being made to increase employment opportunities for those with disabilities; higher unemployment rates will not help.
- While JobMaker will help younger workers get back to work quickly, work by the Productivity Commission has highlighted the risk of being caught on the ‘low rungs’ of the employment ladder and the importance of enabling job mobility.
- Pre-COVID participation had been rising faster than predicted for some cohorts including women and older workers. Hopefully we can retain and build on that momentum.
- New workplace flexibilities that have enabled people to work from home during the crisis, and to work from anywhere in the future, have the potential to broaden employment opportunities considerably.
Where to from here?
It is critical that policy settings enable these developments. There are well-identified barriers and disincentives to work. From the perspective of those not in the labour force or looking for more hours, these relate to caring responsibilities, in particular access to and financial assistance for childcare, taxation and training and skills needs.
There is plenty of economic analysis on the benefits of addressing these issues – for example, there is a wealth of evidence in support of access to affordable childcare. But over the past decade there has also been compelling analysis highlighting the economic and social win-win of supporting the participation and employment of older workers, those with disabilities and the long-term unemployed.
The participation rate took 50 months to recover after the recession of the 1990s and 35 months after the 1980s recession, compounding the economic pain. Anything we can do to ensure higher participation this time around is imperative to ensure a speedy recovery and not lose the pre-COVID participation gains.
Employers must play their part by creating opportunities for a diverse range of jobseekers. We welcome insights from businesses on how to address employment barriers and discrimination, how to support greater workplace flexibility and how to better incorporate formal and informal education and training in the workplace.
With the next federal budget already rapidly approaching, and a delayed intergenerational report due in 2021, now is the time for a sharper focus on setting Australia up for sustainable economic and social success. Policies that address workforce participation can and should complement economic stimulus and will provide strong foundations for future growth.