Spooner opinion illo for september 11 2012

Illustration: John Spooner.

SOMETHING odd is happening to our labour market. Since December 2010, the adult population has grown by 386,000, while we have added only a net 95,000 jobs. You might think that means 291,000 more people are now unemployed. But no: the figures say there are only 21,000 more people unemployed now than at the end of 2010.

Then where are the other 270,000 people? It's a big question, with two big answers. One is that detailed figures show that our jobs market has deteriorated far more than our relatively benign unemployment rate suggests. That is now fairly well known, and well accepted by officials. I won't labour that point here, except in passing.

An ageing society is welcome: it shows we have achieved success where it matters. 

The second reason is not well known, but is even more crucial. Australia has passed a vital demographic turning point. Until recently, we were in what economist Chris Richardson called a ''demographic sweet spot'': the number of Australians of working age (taken as 15 to 64) kept growing faster than the number outside working age. That meant every year more of us were potential workers, relatively fewer were dependants, and this was good for growth.

Now we have passed that sweet spot. The population of Australians 65 and over is growing rapidly. That too has two reasons. First, the oldest baby boomers are now 66, making that swollen cohort eligible for all the incentives to retire early: taking our superannuation at 55 at low tax rates, taking it tax-free at 60, taking the pension at 65, and getting all the fringe benefits of concessions, free health care, lower tax rates, etc.

Second, the rapid advance of medical knowledge and treatment means Australians now live far longer after they stop work. The International Monetary Fund points out that the life expectancy of Australians aged 60 is rising at the rate of nine years every half-century. The life expectancy of 80-year-olds has risen by three years since the 1970s. That's great for us, but not for growth.

An ageing society is welcome: it shows we have achieved success where it matters. But it's a problem if we think we can afford to spend all those extra years in retirement. That implies a rapidly growing number of retirees will be supported by a relatively shrinking workforce of younger people. It can't work like that.

Labor, under Keating and Rudd, made modest shifts to adapt policy to the new reality of longer lifespans. By next July, women will finally have the same pension age as men. From 2014, the preservation age for superannuation will start inching up from 55 to reach 60 by 2024. And between 2017 and 2023, the pension age for men and women will inch up from 65 to 67. Is that enough to deal with the problem?

Let's look at the data. Who are the 270,000 people who have moved outside the workforce since the end of 2010?

First, 133,000 of them are people aged 15 to 64, the traditional working age. Two-thirds of them are male, and the number of working-age men not in jobs or looking for them grew by almost 8 per cent in 19 months.

There are some good reasons for this. A quarter are aged 15 to 19, and would once have had a part-time job. If full-time students now want to focus on study rather than seek part-time jobs, that's no problem. We also know from other data that more people over 25 are now studying full-time. And with each year, more men are joining the pioneering band of house husbands, who are the main caregivers for their children while their wives earn the bread. Cool!

Still, that leaves tens of thousands of working-age Australians, especially aged 45 to 59, who seem to have just dropped out of the workforce. That doesn't happen when the economy is strong. In the past decade, particularly among the over-45s, workforce participation rates mostly rose, not fell. It's another warning that the real economy is weaker than some of the data suggests.

But the main reason why so many more Australians not in work are not looking for work is the over-65s. On the (flawed) population figures used in the labour force data, since December 2010 more than half the growth in the adult population has been among people aged 65 and over. If that is right, the number of Australians of ''retirement age'' is now outgrowing the number of ''working age''.

That probably exaggerates the reality, but not by much: if it's not true now, it soon will be. On these figures, between the three months to December 2010 and the three months to July 2011, the number of Australians over 15 grew by 361,500 - and of them, 188,500 were over 65.

The good news is that many Australians aged over 65 don't see that as a reason to stop work. In the five years to July, the number of people aged 65 to 69 and still in work shot up by 117,000 or 72 per cent. The number retired grew by just 99,000 or 15 per cent. These are dramatic changes. On these trends, by 2014 full-time workers aged 65 to 69 will outnumber those aged 15 to 19.

Even among those over 70, in the past five years the number of them still in work has jumped by 32,000 or 40 per cent. One in every 100 workers in Australia is now over 70, and that will grow enormously in coming years.

Our changing attitudes should embolden our politicians to be more brave. We should start now to raise the pension age, and the age of tax-free super, to meet the crest of the wave of baby boomers, rather than moving after they've passed us. If 90 is to be the new human lifespan, surely 70 should become our new retirement age.

Tim Colebatch is economics editor.

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