Labouring in vain as essential skills in short supply

MOST of the interest in this week's figures for the labour force in June was in what they told us about the strength of the demand for labour. But what's happening to the supply of labour is just as interesting.

With trend figures showing total employment grew by 188,000 over the six months to December but by only 38,000 over the past six months, it's clear the demand for labour is slowing.

Even so, the rate of unemployment staying steady at a healthily low 4.9 per cent for the past four months suggests the demand for labour is keeping pace with the supply of it. This means the supply must have slowed, too.

The labour force (all those people with jobs or actively seeking them) grew by 1.7 per cent to just over 12 million people in the year to June, which was down from 2 per cent growth the previous financial year.

This is distinct from the earlier position because, as an article in the latest Reserve Bank Bulletin points out, the labour force has grown at an average rate of 2.5 per cent a year since 2005. That's fast it's also an extra 1.4 million people. Where have they come from?

The first source is more people of working age (those 15 and over) choosing to participate in the labour force. The big increase has been among women, plus older workers choosing to delay their retirement.

Since 1980, the rate of participation by women aged 25 to 54 has increased by about 20 percentage points, while the rate for women aged 55 to 64 has risen by a remarkable 35 percentage points.

Female participation has been rising since the 1960s, reflecting changing social norms as well as economic factors. The proportion of women with post-school qualifications has risen from 7 per cent in the early 1980s to more than 25 per cent today, which is higher than the proportion for men. Why wouldn't these women want to use their qualifications in paid work?

The strong growth of employment in service industries has suited women, partly by providing more jobs with flexible working arrangements. Growing access to childcare and paid maternity leave has also helped.

But the largest increase in participation has been for older workers. The change for men began in about 2000. Since then, the rate for males aged 55 to 64 has risen by more than 10 percentage points.

There had been a trend towards early retirement, but this is reversing. One factor encouraging people to remain in the labour force for longer is greater longevity. Another is increases in the qualification age for the age pension. Since 1995, the age for women has been gradually increasing from 60 to 65.

Other factors encouraging later retirement include more flexible work practices and the rising share of jobs in the services sector, where employment is typically less physically demanding than in the traditional goods-producing industries.

But a bigger factor explaining the growth in the supply of labour has been the growth in the population of working age. It has been increasing at an average rate of 1.5 per cent a year since 1980. Annual population growth picked up markedly from the mid-2000s, peaking at more than 2 per cent in 2008, since when it has fallen back to the average.

Part of this is population growth is "natural increase" (more kids turning 15 than oldies dying) but most of it is net migration. The increase in net migration between 2004 and 2008 mainly reflected a higher intake of permanent and temporary skilled migrants and a huge rise in the number of overseas students.

The Howard government's switch of priority from family reunion to skilled migration helps explain why more than 80 per cent of the migrants who arrived in 2009-10 were of working age, compared to 70 per cent of the total population.

The proportion of the labour force that had arrived in Australia in the previous five years rose from under 3 per cent in 1996 to 6 per cent in 2011.

The significance of the government's annual permanent immigration program has been overshadowed by the temporary immigration categories for skilled workers (employer-sponsored 457 visas), students and working holidaymakers.

The number of 457 visa-holders has doubled since the mid-2000s, though their share of total employment is less than 1 per cent. Their numbers have fallen as a result of the global financial crisis, but are likely to go back up because of resources boom mark II.

The number of student visa holders in Australia has tripled over the past decade, accounting for most of the surge in net migration. Overseas students are permitted to work 20 hours a week while their course is in session and unlimited hours during scheduled course breaks. Student numbers have fallen sharply, however, because of a tightening in entry rules, the higher exchange rate and the bad publicity in India.

Those who disapprove of high immigration should remember this, as should those economists who bewail the slowdown in net migration. A lot more overseas students won't avert our looming skilled-labour shortages.