Adding migrants to the mix: the demography of the labour force participation rate, 2000 to 2010.

• Author: Cully, Mark
• Position: Contributed Article - Report

Abstract

Between 2000 and 2010, the labour force participation rate in Australia increased by more than 2 percentage points to reach a record high by the end of the decade. This article decomposes the change in the participation rate to examine the respective contributions of age, gender, and birthplace. There are three strong findings. First, among the Australian-born, increases in the propensity to participate in the labour force--among women and older persons--fully offsets the downward pull of ageing. Second, among the overseas-born, there is both a reverse-ageing effect--reflecting the large influx of young migrants over the past decade--and the same higher propensity to participate among women and older persons. The end result is that migrants added 1.9 percentage points to the aggregate participation rate over the past decade. Third, controlling for age and gender, participation rates for the overseas-born remain lower than they are for the Australian-born people. There has been some convergence over the decade for men, but not for women.

1. Introduction

   Between 2000 and 2010, the Australian labour force grew by 2.1 per cent per annum, a tremendously fast rate. By way of comparison, in the previous decade it grew by 1.3 percent per annum. (1) This increase has been unexpected. We have been softened up--with the release of what are now three Intergenerational Reports and the Productivity Commission's 2005 report into an ageing Australia--to expect a slowing in labour force growth. The main factor expected to drive this slowdown was a projected fall in the aggregate labour force participation rate, as an ever greater share of the population moved into older age groups, the ones historically characterised by lower labour force participation rates than for younger age groups.

   Contrary to expectations, the aggregate labour force participation rate has risen, not fallen. In January 2000, the rate (on a trend basis) stood at 63.1 per cent; by December 2010 it stood at 65.8 per cent, a record high. To illustrate quite how remarkable this is, Figure 1 compares the mid-decade projections made by the Productivity Corn mission of the labour force participation rate on an ageing basis and a no-ageing basis, with what has transpired since that time. For the moment, the aggregate labour force participation rate is tracking above the no-ageing scenario. (2)

   [FIGURE 1 OMITTED]

   What drove this increase in labour force participation? It is customary in the literature to examine the association between participation rates and gender and age (see for example Austen and Seymour 2006; Dixon 2002). Into this mix we add the impact of migration.

   The scale of net migration over the decade ending 2010 was high at 1.8 million net migrants. (3) This has been enough to derail population projections, which assumed a more modest intake, and could be considered sufficiently high to constitute a labour supply shock. This is especially so, because the intake is strongly concentrated among people of prime age. (4) How that has had an impact in the labour force is of considerable interest.

   A demographic accounting method is used to explain the respective contributions of age, gender, and birthplace. In examining the contribution of migration, the article distinguishes only between those who are Australian-born and those who were born overseas; it does not take into account how long the overseas-born have lived in Australia.

   This is necessarily a partial analysis in two ways. One is that other individual attributes that may be associated with labour force participation are not taken into account--for instance differences in educational attainment (Kennedy, Stoney and Vance 2009). (5) The other is that the method ca n not isolate the impact of changed macroeconomic conditions. During the 2000s, employment growth outstripped population growth, so that by the start of 2008 the unemployment rate fell below 4 percent, a rate not seen since the early 1970s. This low level of unemployment is likely to have induced some discouraged workers to rejoin the workforce and to have ca used some older persons to remain in the workforce. The accounting approach we adopt allows us to show how changed macroeconomic conditions, among other factors, resulted in changing propensities to participate by different age, gender, and birthplace cohorts.

   In the next section of the paper, some descriptive statistics are presented on the patterns of labour force participation rates by age, gender, and birthplace and changes in these patterns overtime. The following section formally decomposes the change in the aggregate labour force...