How Australia can get the job done on the employment

The G20 growth target may turn out to be nonsense, but it should not prevent Australia from pursuing concrete reforms to boost employment for the young, the old and women to encourage economic growth.

Senior business leaders from across the G20 flooded into Sydney this week for the B20 Australian summit. Their focus will be on ways to facilitate and boost employment growth, which will be necessary to support the broader growth target outlined at the G20 Meeting of Finance Ministers and Central Bank Governors meeting.

Back in February, Treasurer Joe Hockey announced that countries in the G20 will aim to increase global real GDP by an additional 2 per cent (presumably on top of the current economic outlook) or around US$2 trillion over the next five years.  

A lack of growth has plagued much of the developed world since Lehman Brothers collapsed in September 2008. Achieving any growth remains a problem for Europe -- where many countries face more than a decade of lost growth -- and we are only now seeing a sustained and resilient recovery in the United States and the United Kingdom.

But although admirable, the goal faces some practical issues. Unfortunate there is no central bank in the world that can forecast effectively. There is no Treasury department or investment bank that can do so either.

If central bank forecasts are nonsense -- and unfortunately they are -- how exactly do you measure the success of the G20 growth target? Isn’t the counterfactual completely arbitrary? How can you possibly monitor and enforce this accord?

The truth is you can’t, and that makes some of the discussions at the G20 and this week’s B20 meetings feel a little hollow. But even though we cannot measure the success of these discussions, it shouldn’t stand in the way of us tackling important issues.

 Employment is one such issue. The developed world has an unemployment problem but also a participation problem. The participation rate in most developed countries is trending down as the baby boomers enter retirement. Life expectancy continues to rise, putting a strain on the workforce and the tax base of most countries.

Australia is no exception. Our recent job performance has been ordinary and government forecasts suggest that this will continue. The Department of Employment estimates that employment will rise by 838,000 over the five years to November 2018; growth of 7.3 per cent compared with employment in November 2013.

At first glance this might appear impressive, but under the government’s current scenario, employment growth fails to keep pace with population growth, resulting in a noticeable rise in the unemployment rate over the next five years. It marks a continuation of the worst employment growth since the early 1990s.

Graph for How Australia can get the job done on the employment

The best way to improve participation is to address market failures for three distinct groups: the young, the old and women in general.

Youth unemployment is arguably our most pressing labour market issue. It has increased significantly since the global financial began and remains stubbornly high. At the same time, participation has plunged.

It’s a corny statement, but young people are our future. High unemployment among this group lowers human capital and experience and will eventually weigh on economic growth as their group transitions towards prime working age. 

Graph for How Australia can get the job done on the employment

Australia has taken steps to increase the retirement age and, while that is repulsive to many Australians, it is something that they will need to learn to live with. But raising the retirement age will have a limited effect on labour market participation unless firms adjust their hiring practices.

Age discrimination remains a very real issue. Lose your job in your 50s? Good luck finding a new one. Businesses are often reluctant to hire older workers, particularly those who require additional training.

Our attitudes to older workers must change. But it is not simply enough to hire older workers. Businesses, both here and in other G20 countries, must recognise that an older workforce will require a more flexible working environment. This is particularly true for jobs involving manual labour, where many workers begin to struggle in their 50s. Consideration must be given to finding jobs that are appropriate for older workers, which take advantage of their skills and experience.

The final area of consideration is female employment. Rising participation among women boosted the economy through the 1990s and early 2000s but has stagnated at a level that is high by historical standards but still low compared with male participation.

Graph for How Australia can get the job done on the employment

Boosting female employment will require a more flexible workplace, particularly with regards to hours. Better incorporation of technology would allow many women to work from home when needed and that too would encourage more women to enter the workforce.

A big impediment to employment for women is childcare costs, which can make the jump from welfare-to-work a costly one. Research by both the International Monetary Fund and Organisation for Economic Co-operation and Development found that reducing the cost of childcare promotes female participation in the workforce.

The IMF estimates that a 50 per cent reduction in childcare costs could boost participation by between 6.5 to 10 per cent. By comparison, paid parental leave schemes have a negligible effect on workplace participation.

The growth target set out by the G20 under Australia’s presidency might be nonsense but we should nevertheless pursue reforms that boost employment. More flexible and tolerant workplaces are a must if we are to increase employment among the groups discussed.

Obviously that will need to be combined with more concrete proposals to boost growth, such as greater infrastructure spending and cutting red tape, which works as an impediment to business formation and expansion. But if achieved, growing employment among these groups could offset the recent effect that retiring baby boomers have had on workplace participation and provide a much-needed boost to economic growth.