Women: The Economic Case

Our ageing population and the slowdown of young people entering the labour force has profound economic implications. Increasing the female participation rate and retaining those already employed will be an important way of ensuring strong economic growth. With over 15 years' financial market experience, Chief Economist and Market Strategist Bruce Luckham looks at the economic case for growth in female employment.

Our Ageing Challenge

According to the OECD’s Policy Brief Maintaining Prosperity in an Ageing Society (June 1998):

“In the past 25 years, the number of people of pensionable age (65 and over) in OECD countries rose by 45 million, but the population of working age rose by 120 million ... This will change dramatically in the next 25 years when the number of persons of pensionable age will rise by a further 70 million, while the working-age population will rise by only five million.”

In 2000, 12% of the Australian population was over 65 years with another 9% between 55-64 years. The number of people 55 years and over will increase rapidly in the next 20 years as the ‘baby boomer’ bulge moves through the population. By 2021, nearly one-third of the population will be over 55 years old.

Add to this the declining proportion of young people in the population (34% under 24 in 2002 and 28% by 2021), and Australia will not be immune from the major economic or social problems of ageing identified by the OECD.

“the growth in the population ... is slowing due to declining rates of fertility.”

Economic Implications of Ageing on the Available Workforce

Ageing poses a number of economic and social problems for the wider community: 

• The burden on public finances increases sharply due to higher health spending and a greater number of people reaching pensionable age. This trend has underpinned the gradual movement away from benefit schemes to contribution schemes, such as changes to superannuation legislation, private health insurance and the Pharmaceutical Benefits Scheme of recent years.

• The ageing of the population results in slower growth in the labour force. For the last 20 years, the growth in the labour force has exceeded the growth in the population. However, in the next 20 years, this is likely to slow sharply to around the growth in the population, which itself is slowing due to declining rates of fertility. And by the 2020s, the labour force will be growing only one quarter as quickly as in the 1980s. Accompanied by slower labour force growth will be an increase in the average age of the labour force.

Changing Face of the Labour Force

One way to alleviate or at least lessen the impact of ageing on the economy is to boost labour force growth. This could be achieved by: 

• encouraging more people into the labour force, or 

• keeping those already in the labour force there.

The current composition of the labour force according to the Australian Bureau of Statistics shows that males account for 52% and females, 42%. But females account for the bulk of part time employment (19% female vs 7% male) and are under-represented in full-time employment compared with males (23% female vs 45% male).

“… trends in participation rates greatly affect the economy, including the gradual increase in the female participation rate.”

Of note, the strongest component of employment growth in the last 20 years has been in female part-time employment (Chart 1). Female full-time employment has grown slightly more quickly than total employment, but part-time employment has increased much more rapidly. Notwithstanding the rapid growth in female employment, particularly part-time, the female participation rate remains well below the comparable male ratio. Chart 2 shows that the female participation rate is around 55% compared with 72% for males.

Two interesting trends in participation rates greatly affect the economy: the continuous decline in male participation over the last 25 years due partly to early retirement; and the gradual increase in the female participation rate.

What is to be done?

Based on current population trends and participation rates, the growth in the labour force will slow sharply in coming years and workers will become relatively scarce. However, two ways of alleviating the potentially serious economic implications for the Australian workforce are to:

1.   boost the female participation rate closer to the male level, and

2.   maintain the relatively strong growth in female employment which has occurred over the last 20 years.

Bruce Luckham has been at Burdett Buckeridge Young Ltd, a leading Australian stockbroker, since 1990 in the role of Chef Economist/Market Strategist. Prior to BBY, he worked at Macquarie Equities and Chase Manhattan Bank in the UK.