Why we might keep getting participation wrong — like we have for 20 years

For 20 years, a key part of the intergenerational reports produced by governments of both persuasions has been badly wrong. And they’ve known it. Luckily, it’s proved a good kind of wrong. But examining why the best minds in the country have erred on a key policy issue might prove instructive.

Since the first one in 2002, the reports have focused on the three Ps — population, productivity and workforce participation. Treasury has got each of them wrong. The early reports badly underestimated population growth, our productivity performance fell into a hole because of WorkChoices and has never fully recovered (except for a burst under the Rudd-Gillard governments), and each report has been badly off-beam on the participation rate.

As both former treasurer Josh Frydenberg’s intergenerational report and the current one show, each report has revised up forecasts about the participation rate, meaning that there’s been a radical shift in the view of participation.

If the first report was right, the participation rate would have fallen to just 60% now; if the 2007 report was right, it would be 62%; the 2010 one (by which time the penny had started to drop that participation wasn’t going to fall off a cliff the year after the report), above 64%. Instead, it’s now 66.7%. That’s mostly been driven by the rise of female participation from below 55% in 2002 to 62.5% today.

While that long series of misses confirms that Treasury is even worse at projecting long-term trends than forecasting what will happen next year, it also means that one of the great fears that drove the original intergenerational report, that we’d run out of workers as the population aged, hasn’t come to pass — yet.

Policymakers can take some credit for this. Since 2002 they’ve sought to increase participation, mainly by enabling women to reenter the workforce after having children, or keeping women with small children linked to the job market. Childcare funding significantly increased at the turn of the century (fostering a commercial industry to exploit it, led most famously by the collapsed ABC Learning) and has steadily increased in real terms since then. Paid parental leave was introduced in 2011.

Successive governments have also used incentives for employers to take on mature-age workers, and funded training programs specifically targeted at older workers, which has, along with greater longevity, pushed older worker participation higher as well. So even as they were warning that Australia faced a participation crisis, policymakers were actually helping to fix it — something that even now they don’t fully seem to appreciate.

But bigger changes were also altering participation in ways that policymakers were oblivious to. Deteriorating housing affordability has long meant two-income households are a necessity for home ownership; as housing became more expensive and more difficult for young households to buy, they delayed having children to increase their savings, meaning more women remained in the workforce longer before having children. The proportion of women having their first child before 30 has fallen from more than 60% in 2000 to just over 47% in 2020.

But the biggest policy-driven change in participation came from an ageing population itself: in the past 20 years, increased health spending by the federal and state and territory governments has driven the health and social care workforce from below 10% of the entire workforce to 15.3% this year, making it easily the fastest growing industrial sector.

That has flowed directly into female participation, because 76.5% of the health and social care workforce is female. The huge increase in spending pumped into the sector over the past two decades has done little to de-feminise that workforce — the proportion of female employees in health and social care was less than two points higher, 78.3%, in 2002.

The drive to encourage women back into the workforce by funding childcare has had a similar effect. Childcare services — the workforce for which is also nearly 77% women — makes up the bulk of the social assistance services employment category, and that category has tripled in size since 2002 as childcare funding has driven the expansion of the sector. Female social assistance workers made up less than 2% of the entire workforce in 2002, but now make up over 4%. They are a bigger workforce by themselves than financial services, agriculture or mining (in fact they’re almost as large as those two combined).

As with every other intergenerational report, last week’s predicts that participation is about to peak and will start falling — less precipitately than previous reports, but with increasing speed over the coming decades. And, surely, they must be right this time? Participation can’t go on rising forever, can it?

Except the big factors that have driven increasing female participation are not merely remaining in place, but increasing. Health and especially aged care funding are set to continue to grow much faster than GDP, along with the NDIS, another subsector dominated by women. The ongoing decline in housing affordability will continue to force women to delay childbearing, and discourage some couples from having any children. And we’re continuing to increase funding for childcare, and increasing investment in early childhood education.

Many of the women who will do these caring jobs will come from overseas. But given each intergenerational report has got participation so wrong, who’s to say this one will turn out to be right?

Do you think that workforce participation will continue to increase? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.