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What is the scope for raising labour force participation?
International comparisons of structural unemployment, overall employment ratios and participation rates suggest that there is ample room for raising labour inputs in Australia. It is especially important to improve incentives to join the labour force in the first place and to remain in it when older. To help raise participation rates, policy initiatives, commencing with the introduction of the Australians Working Together (AWT) package in the 2001-02 Budget, have aimed to help people move from income support into work and reduce welfare dependency by introducing a series of “making work pay” measures. To contain the extensive flow of people into the Disability Pension Support programme, initiatives were taken to address the work capacity of people with disability, and tighten the rules governing access to disability pensions. The latter has so far encountered strong political opposition, although new assessment measures were introduced in 2002 as part of the AWT. Low participation remains a problem, especially for older workers. Rebalancing obligations, services and assistance for those on income support would improve participation. In addition, more could be done to encourage employers to provide training and re-training facilities for workers before they reach their mid-50s, and encourage those workers themselves to enrol in such schemes.
Participation rates in OECD countries
2003
Source: OECD, Employment Outlook database.
What can reforms of the welfare system and industrial relations contribute?
Welfare policy reforms have also aimed at reducing high effective marginal tax rates (EMTRs) faced by income support recipients when they move from welfare to work and have also granted “Working Credits” which enable welfare recipients to keep more of their income support payments when they take up work. Its impact, however, on high marginal effective tax rates is transitory, as the financial benefit depends on the level of working credits accrued by the person. With the May 2004 Budget also incorporating a reduction in the withdrawal rates of the Family Tax Benefits and increased family assistance, EMTRs for families on average earnings have now fallen to 51.5 per cent from 85.5 per cent in 1999. Further welfare reforms should continue to provide firmer incentives for participation, with the fiscal costs of the prospective changes being closely monitored.
To further encourage participation and favour employment, the industrial relations system also needs to be reformed so as to increase the flexibility of the labour market, reduce employment transactions costs and achieve a closer link between wages and productivity. Regulatory requirements for collective and for individual agreements should be eased so that they can replace awards. A major step in this direction would be another reduction of the number of allowable award matters, and the tightening of their definitions and specifications. “Safety Net” award wage increases should be guided by the productivity and thus employability of low-skilled workers. Further unfinished business includes harmonisation of federal and state industrial relations and the streamlining of regulations which minimise the incidence of unlawful industrial action. Finally, the cost of dismissal procedures, including for employees who have been with firms for only a short period, is often cited by small businesses as a disincentive to hiring. The Government is now in a position to address these issues and should proceed as soon as practicable.
International comparison of minimum wages (1)
1. Adult minimum wages as a percentage of full time median earnings in 2002.
Source: OECD estimates and OECD earnings structure database.
How to improve the performance of the education and training system?
While the educational attainment in Australia has improved remarkably over the twenty five past years, there is still scope for catching up. For example, on the basis of the OECD PISA study around 12 per cent of 15 year old students have low reading literacy levels, while Australia exhibits above-average disparities in student reading performance. Also, despite an increase in the apparent retention rates in the past two decades or so, the share of 15-19 year olds enrolled in post-compulsory secondary education is lower than in many OECD countries. Further improving the educational opportunities and outcomes in order to facilitate the school to work transition for young people should remain a policy priority. Recent initiatives aiming at enhancing the foundation of skills learned in school, and strengthening career education and information systems, are steps in the right direction. Efforts should also continue towards broadening the secondary school curriculum to meet students’ aspirations and reduce the risk of early school leaving. The further integration of the vocational education and training sector with the broader education sectors would be advisable in this respect. Training and up-skilling persons already in work should be given higher policy priority, and recent moves towards a coordinated strategy to adult learning represent a welcome step forward. Policy initiatives should be closely tailored to the needs of adult workers so that lifelong learning outcomes meet the underlying costs of tuition and production losses from being out of work. Finally, regarding higher education, the comprehensive reform package, announced in the May 2003 Budget is expected to improve the functioning of the sector by making funding arrangements more flexible, through a partial deregulation of university fees and an extension of income contingent loans to full-fee paying students. Improvements in other areas, including that of governance, are also required in order to enhance the quality of the higher education system and ensure it remains internationally competitive.
Education indicators in comparison
1. Unweighted average.
2. Tertiary education is defined as tertiary type A and advanced research programmes.
Source: OECD (2004), Education at a Glance.
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A printer-friendly Policy Brief (in PDF format) may also be downloaded. The Policy Brief contains the executive summary and the OECD assessment and recommendations, but does not necessarily include all of the charts available from the above pages.
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