Raising Labour Force Participation: Issues and Challenges

In its annual report, released today, the Productivity Commission focuses on the scope to raise labour force participation rates and the policy challenges involved. Commission chairman, Gary Banks observed:

'Australia has relatively low participation rates by OECD standards and also underutilises its workforce. There is potential to raise workforce participation, partly offsetting the effects of population ageing. But higher participation is not an end in itself. The goal is to enhance community wellbeing and living standards.'

The Commission identifies three broad areas where reform can contribute to improved labour force participation outcomes:

• improving the capacity of people to work, through policy measures that improve health, education and training
• enhancing incentives to work, including by measures directed at tax and income support arrangements
• creating more flexible institutional arrangements, including work arrangements and child care.

The Commission notes that developing effective policy responses to improve participation outcomes raises some difficult issues and challenges, that bear on the potential costs and benefits of reform. One includes the need to take explicit account of broader policy objectives and trade-offs. It is also important to understand the characteristics of target group(s) relative to the existing workforce. And there needs to be a realistic appreciation of the often long timeframe for benefits to materialise.

Such challenges underline the value of careful policy design and review, including learning from the experiences of different jurisdictions. The Commission emphasises that tackling policy-related impediments to participation will require actions by all governments in Australia.