We need only look back less than ten years to know that Tasmania can have a strong economy, low unemployment (including low levels of underemployment and long term unemployment) and high levels of labour force participation for men and women across all ages. 

From June 2008 to September 2008, Tasmania's unemployment rate was 4.1 per cent and the labour force participation rate was above 62 percentage points for seven consecutive months.  The total number of people employed peaked at 241,964 in October 2008 (its now 235,965).  

In the five year period to December 2008, employment grew by 29,672 people, or 14 per cent.  During this same time, the population grew by 22,630 persons (natural increase 12,556, net overseas migration 7,105 and net interstate migration 2,969).  Employment growing at a greater pace than population growth is an ideal situation for both the economy and society. 

However, we know not long after that the GFC hit and the strength of the global economy deteriorated.  Five years on, there are signs of potential recovery.  The unemployment rate is now 7.5 per cent and participation is 60.9 percentage points. Employment is lower than its high in 2008 by 5,999 people yet at the same time, the population grew by over 12,000 people.

A number of factors conspired positively for Tasmania specifically to bring about this growth in the mid 2000s. The introduction of low cost airlines and increased access to the state, relative housing affordability, increased use of the internet in the home and the introduction of real estate websites, the first of the baby boomers turning 55 and able to access their superannuation entitlements and, most significantly, the introduction of the redistribution of GST to the states. Plus the state was coming off a very low base.  Growth was fast and outpaced the nation at times. 

In terms of the states population, during the five year period 2003 to 2008 Tasmania experienced positive net interstate migration in three of those years.  In the past 17 years, Tasmania has only experienced positive net interstate migration six times (the other three were in 2002, 2009 and 2010).  Importantly, however, is that during these positive periods of net interstate migration, Tasmania experienced net interstate migration losses for the ages 15 to 29.  So while Tasmania experienced population growth, this growth was contributing to the state ageing at a faster rate which will ultimately negatively impact on the state's employment to population ratio. 

While Tasmania's largest employing sectors are health care and social assistance, retail trade and accommodation and food services, the greatest employment growth experienced in the five year period February 2004 to February 2009 was in the construction, retail and professional, scientific and technical services sectors. During this time, employment contracted in manufacturing, information media and telecommunications and other services. 

Since the GFC, the greatest employment growth has occurred in health care and social services, education and training and other services (which returned to 2004 levels).  The greatest contraction occurred in construction, administration and support services, retail and manufacturing. 

While employment has contracted since the GFC, the population has continued to grow, albeit at a slower rate.  In the five years to September 2013, Tasmania's population grew by 12, 335 people (natural increase 9,845, net overseas migration 6,645 and net interstate migration minus 4,155).  As such, the employment to population ratio deteriorated significantly, placing greater pressure on both the economy and society, increasing the proportion of the population who are dependent on support from a smaller proportion of working people. 

In terms of what this means for Tasmania's future, the state is in a similar situation as it was in the early 2000s.  We are coming off another very low base, we are experiencing relative housing affordability, we have a recognised lifestyle and climate advantage, the perception of the state is changing largely thanks to the MONA effect (however our reputation as a mendicant state prevails also) and, as superannuation savings are now exceeding pre-GFC levels, more baby boomers are confident in retiring.  

Access to the island is likely to increase with an extension of the Hobart Airport runway and a re-prioritisation to passenger services by the TT-Line. The dropping of headworks charges, the introduction of a "Regulation Reduction Co-ordinator" and a renewed focus on streamlining the planning scheme/s will likely reinvigorate the construction industry.  However, construction is a cyclical sector and will only create employment in the short term if not supported by efforts to achieve long term, sustained employment growth, through structural change and increased confidence in the private sector.  The introduction of an Office of the Co-ordinator General to attract and facilitate investment in the state will assist this process, however its effectiveness will be dependent upon an appropriate budget allocation to proactively encourage investment in Tasmania.  Also working in Tasmania's favour is an increasing global demand for agribusiness products and services, as recognised and supported by the current and previous Governments as a significant growth opportunity for the state.

Future employment growth will come from sectors experiencing organic growth (e.g. health, aged care, community care and child care largely resulting from an ageing population, the NDIS, and increasing participation in the labour market by mothers) and sectors receiving strategic support from the government (e.g. agribusiness). Increased demand for employment will also come from an increasing number of people retiring due to the ageing of the workforce.  Some sectors and occupations are much older than others (e.g. health, education and farming). As the economy returns to sustained positive performance, employment growth will occur in consequential sectors (e.g. retail, hospitality, real estate and financial services).

Challenges for Tasmania's future economic prospects include fiscal constraints to proactively pursue investment opportunities, the perceived and actual risk of doing business in Tasmania, freight challenges and the potential acceleration of population ageing as a result of short term population growth (resulting in further deterioration of the employment to population ratio).  

The ability of the government to provide for the Tasmanian population as it inevitably ages will be dependent on its ability to reverse the current downward trend in the employment to population ratio as well as maintain, or preferably increase, over the longer term.   

Note: employment figures are total and are the sum of full and part time employment and in trend terms.  Source ABS.

Last week at the CEDA Economic and Political Outlook for Tasmania Ivan Colhoun, Chief Economist at the ANZ Bank, suggested that the unemployment rate is the cheat's guide to providing an indicator of economic performance.  Given slight improvements in Tasmania's unemployment rate in recent months I thought I would revisit an article I wrote in October 2011 for tasmanianjobs.com at a time when there were also "encouraging signs that our economy is on the road to recovery".  My article concluded then that the unemployment rate and the labour force participation rate demonstrated the potential for a downward spiral to continue.  My recommendations then was that we were at a point in time in the economy that we needed stability and direction to enable an increase in confidence (see the October 2011 article here).

So, this morning I have updated the data from that article, and unfortunately I was right - the downward spiral of increasing unemployment rates and decreasing labour force participation rates continued.  See the below chart.

I recap how to interpret this chart.  The gap between the two lines can be interpreted to represent the strength and confidence in the economy at a point in time.  The greater the distance in the gap between the two lines, the stronger the economy as more people are confident of participating in the labour market and less people are unemployed.  When the lines move together in an upward trajectory, labour force participation and unemployment are both increasing, indicating that there is confidence in gaining employment but there is a short time lapse between entering the labour market and securing employment (Point A). This pattern tends to be a very short lived one as employment catches up to supply.  When the lines move in different directions and the labour force participation rate is increasing and unemployment decreasing (Point B) it indicates that the supply of labour (new entrants to the labour market) can not keep up with the demand for labour.  Conversely, when the labour force participation rate is decreasing and the unemployment rate is increasing (Point C), there is a lack of confidence, people are losing their jobs and joining the unemployed status.  This may result in the unemployed eventually becoming despondent and exiting the labour market all together.  This occurs when both lines move in a downward trajectory (Point D) - that is labour force participation and unemployment are both decreasing.  This could be for a number of reasons; either a lack of confidence and growing despondency in the ability to gain employment or a factor of the age of our population. 

So, where is Tasmania now? We are currently just past Point D, experiencing a stablisation of both the labour force participation rate and the unemployment rate - but both are yet to make an upward movement (as in Point A) - the sign of momentum in a recovering economy.  We are in much the same place as we were in October 2011, however the economy didn't recover then as it was anticipated to do. 

My advice remains the same as it was then - a need for stability and direction to build confidence.  Don't take the foot off the pedal and don't count the chickens before they hatch. 

The short answer, in recent times, very little.

The below chart shows the labour force participation rate for those of prime working age (15 to 64 years) and the working age population (all those aged over 15).  The difference between the two rates can be described as the ageing effect.

When the difference between the two rates increases, this can be explained by an increasing ageing population.  From around 2010, the gap between the two rates started to widen, co-inciding with the time that the first of the Baby Boomers starting reaching retirement age, indicative of an ageing effect on the working age population labour force participation rate.

However, since around 2012, both the labour force participation rates of the prime working age population and the working age population have declined considerably which can not be explained by an ageing effect.  The decline suggests that the primary reason for the most recent drop in the labour force participation rates is due to cyclical factors such as poor economic performance and people losing confidence in finding employment - therefore withdrawing from the labour force. 

Additional explainers for the ageing effect include a preference of employers to employ younger workers, particularly in tough economic times, as well as an increase in confidence of older people to retire given that superannuation performance has returned to pre-GFC levels. 

Regardless, while the gap between the two labour force participation rates has only increased marginally in recent times, it can be expected to continue, and even increase, given that there are now more people of labour market exit age than entry age in Tasmania. When a return to positive economic performance occurs, it is likely that Tasmania's labour force participation rates will remain relatively low, compared with other states and territories) giving the accelerated rate of ageing in the state. 

Yesterday the ABS released their population projections for Australia and the states and territories for the period 2012 to 2101.  Under the medium growth scenario (Series B), Australia is projected to double the size of its population to 46 million by 2075, however, under the same medium growth scenario, Tasmania's population is projected to firstly increase slowly before leveling out by around 2046 and then decreasing marginally from 2047 onwards. 

While population projections are not intended to be predictions or forecasts (as I have explained in a previous blog), they are illustrations of growth and change in the population that would occur if assumptions made about future demographic trends were to prevail over the projection period.

Population change is a complex process, particularly in Tasmania's case, so I will use this blog to explain (as simply as I can) why Tasmania's population is likely to decline in the future. 

The two correlates for population growth are the size of the reproductive cohort[1] and economic performance, neither of which are working in Tasmania's favour at the moment (however, there are early indications that the economy is at a turning point).  Both these correlates are influenced by the age profile of inward and outward migrants from interstate and overseas.   

Size of Reproductive Cohort
Until 2012, Tasmania had the highest Total Fertility Rate (TFR) in Australia, averaging above the population replacement rate of 2.1 births per woman in her lifetime since 2005.  However, it is important to understand that a high TFR does not necessarily automatically translate into an increase in the number of births (see this previous blog).  The TFR is a synthetic measure, being the sum of the age-specific fertility rates at a point in time (calculated as the number of births per 1000 women in five year age groups).  The TFR does not take into consideration the size of the reproductive cohort (the number of women of childbearing age). 

In Tasmania, the size of the reproductive cohort has been declining both numerically and structurally (proportionately) since the largest birth cohort was born in the early 1970s.  This decline in the size of the reproductive cohort is influenced by two compounding factors.  First, a decline in the TFR (consistent with Australia and other developed nations) which until the early 2000s was persistently below the population replacement rate, and, second, persistent Net Interstate Migration (NIM) losses in the prime reproductive ages.

These factors result in a smaller proportion of women in the population of childbearing age, as reflected in the population age structure (see diagram below).  As a result the number of children being born in Tasmania is on a downward trajectory, despite a recent upturn in the early 2000s. 

Economic Performance
Popular consensus is that the rate of population growth is influenced by the economic conditions of the state at the time and that a return to positive economic performance will reverse the current downward trajectory of the rate of growth. This is partly true, however, the rate of growth is dependent on the relative economic performance of the state compared with Australia, or even other states. 

Tasmania’s greatest rates of annual population growth occurred when the state’s economic performance exceeded the national rate, most recently from 2002 to 2004.  However, as soon as Australia’s rate of economic growth surpasses that of Tasmania the state’s rate of population growth declines.  This is directly attributable to the relative perceived and actual opportunities available elsewhere and resulting NIM losses.  As such, in circumstances where Tasmania’s economic performance is not equivalent to other states and/or territories (even if positive), NIM losses in the working and reproducing ages will likely increase, creating the domino effect of decreases in the number of births, and as a result the rate of population growth will decline. 

For this reason, a reliance on a return to positive economic growth will not result in a significant reversal in the current rate of population growth in Tasmania.  In fact, without intervention, it has the potential to hasten the process to a scenario of population decline.  This is attributable to the fact that the organic growth which occurs as a result of positive economic performance is due to (net) growth in older age groups (based on historic trends).  So while in the short term, population growth occurs, over the longer term, the resulting acceleration in the rate of ageing will bring forward the point of the end of growth and population decline (as there will be more deaths than births). 

Summary
Given that the two correlates for population growth are not working in Tasmania's favour, and are further negatively impacted by the age profile trends of inward and outward migrants (both interstate and overseas), it is unlikely that Tasmania's population will increase over the longer term.  Moreover, without a level of strategic intervention, it is likely that Tasmania's population will eventually enter a state of decline. 






[1] In terms of calculating the Total Fertility Rate (TFR) the reproductive cohort includes all women aged 15 to 49 years, however when considering potential for population growth the reproductive cohort can be further defined as the ‘prime reproductive cohort’ which is those women aged 20 to 39 years.

Yesterday's release of birth data by the ABS showed a clear indication that the propensity for population growth in Tasmania is declining.

The two correlates for population growth are the size of the reproductive cohort and economic performance. In Tasmania, both of these correlates have a direct relationship with net interstate migration (NIM).

For the 2012 year, births in Tasmania decreased to 6168 (from a high in 2007 of 6775) and the Total Fertility Rate (TFR) dropped to 2.04, below replacement rate (the NT is now the highest at 2.21).  All other states and territories, apart from NSW, recorded an increase in both the number of births and the TFR. 

The drop in births is directly attributable to the declining size of the reproductive cohort as a result of NIM movements.  Furthermore, it directly impacts on Tasmania's propensity for population growth over both the short and longer term. 

Initial reactions to Tony Abbott's parental leave scheme suggest that (big) business will be opposed to the levy placed on them to pay for it.  Here is a quick snapshot of why it would be good for business, as well as the economy and society in general.

• The policy will create a level playing field for all.  There is growing evidence that women are choosing their employers based on the parental leave entitlements and this occurs a number of years prior to child-bearing intentions. 
  
• Costs may decrease or increase for some organisations and industries, but will be constant and can appropriately be budgeted for. 

• Support working mothers provide at least six months of critical infant care without the pressure to return to work
  
• Female labour force participation is likely to increase, and women will return to the workforce sooner after having children
• Protection for women from loss of income upon having children, employment security, superannuation continuity and engagement with the workforce provides greater equity for women as they age
• Women are over half the population and have greater levels of educational attainment than men, any loss of their contribution to the workforce is a cost to business
• Disincentives to employ or promote young women will be removed
• May increase incentives for some industries to improve their gender balance
  
• As population ageing increases and the supply of labour diminishes further, women will become increasingly important participants in the labour market, increasing the competition for them.
  
• Women will have greater opportunity to obtain senior positions and increase board representation (due to continuation in the workforce)
  
• The fertility rate will likely stabilise or slightly increase, providing insurance for a future supply of labour 

The empirical studies into the impact of both pronatalist policies and paid parental leave schemes in Australia suggest there is little capability of policy intervention influencing the increase of fertility rates, supporting the concept that low fertility and low female labour force participation is the result of observed market failure.  That is, it is society’s reliance on the tax transfer system which has shifted the economic benefit of having children from the private to the social domain, meaning that those who choose not to have children still have equal rights to the intergenerational transfers from other people’s future tax-paying children.  Essentially, those who have children create the future workforce and tax base, largely through their own private sacrifices.  Therefore, until greater value is placed on childbearing and rearing by society, and the opportunity cost of having children is significantly reduced, it is unlikely that fertility rates or labour force participation rates by women will increase further. 

Government and business believe that a solution to population ageing, stagnating economic growth and skill shortages is increasing immigration.  In fact, 80 per cent of the population growth projected in the 2010 Intergenerational Report will come from immigration and their yet to be born, highlighting the reliance of government on population growth to stimulate demand.  Opponents to population growth raise concerns to the carrying capacity of the nation which extend to environmental and social consequences.  However, there is another concern, that is, the economic opportunity cost of the current, and projected, high levels of immigration redirecting public monies to city-building infrastructure rather than productivity-enhancing initiatives. 

While immigrants on employment visas (as opposed to humanitarian and family visas) tend to be younger and more educated that the domestic population, there is little evidence that they are meeting the needs of employers in terms of skill shortages in regional and resource boom areas.  Most migrants flock to the metropolitan areas of Sydney and Melbourne, and given the conditions of the visa preventing access to welfare benefits in the first two years of arrival, migrants need to accept any employment offer, often crowding out domestic workers which at times also results in a dampening effect on wages, particularly in a competitive employment market as we are now experiencing.   It is estimated that migration contributes around 100,000 migrants to the workforce every year; however in 2012 only 115,000 jobs were created in Australia.  Not only are migrants not meeting skills shortage requirements, but their mass contribution to population growth not only puts pressure on existing infrastructure and pushes up costs, it creates further skill shortages in non-critical jobs to meet the demands of an increasing population, ‘justifying’ further high levels of immigration.  There is also evidence that the current high immigration and settlement in metropolitan areas is influencing domestic migration and the sea and tree change phenomena, creating similar infrastructure bottlenecks in regional and rural areas as being experienced in cities.  To cater for this increasing demand, governments (federal, state and local) are required to provide the necessary infrastructure and services to support the population (as expected from a first world country).

Given there is not a bottomless bucket of public money to spend, governments must decide how best to direct their revenue to support its population.  For a nation projected to grow from a population of 23 million in 2013 to 36 million in 2050, this spend is currently committed to city-building infrastructure.  This is despite the fact that the Commonwealth Government identifies in the 2010 Intergenerational Report that higher productivity is the key to balancing the needs of a changing demographic. 

Until the government determines the appropriate level of immigration to meet the needs of the current population, public money will be directed to supporting population growth as a result of immigration rather than to productivity-enhancing initiatives, such as information telecommunications, education and training, innovation support, research and development and regulatory reform.   As a consequence, it is likely that Australia will continue to report woeful productivity performance. 

An article published in The Conversation

https://theconversation.edu.au/tackling-the-challenge-of-tasmanias-ageing-population-11336 

I would like to provide you with my ‘wish list’ for the future provision of education in Tasmania.  These are simple dot points which I would be happy to expand on if you require further clarification.

1.       That all schools; rural, regional or urban provide education to year 12
2.       That the provision of education services be demographically informed
3.       That the provision of education be aligned with the industry make-up within the relevant rural, regional or urban context
4.       That a first class transport service be provided to students
5.       That education services be integrated with LINCs, post-school education providers (vocational and tertiary) and other education and training providers.
6.       That other public services be integrated with the provision of education so that employment opportunities and optimal health is ensured
7.       That the provision of education services are integrated on a long term basis with the State and Regional Economic Development Plans as well as the Industry Diversification Plan resulting from the Tasmanian Forests Intergovernmental Agreement. 

Historically, Tasmania has always experienced net migration losses in the younger education and working ages of 15 to 29 years as a direct result of a lack of education and employment opportunities. This is particularly exacerbated in rural and regional areas of the state where schooling is not often provided beyond year 10 and where there are no post-school education options at all.  Yet, at the same time, much of the state’s contribution to economic growth is sourced from industries in these rural and regional areas.  This results in a serious mis-match between supply of labour and demand for labour - particularly educated, skilled and experienced labour.

I believe that the above dot points can be achieved through a strategic approach to integrate education with economic development through the provision of infrastructure, services and amenities.  Following the process of identifying potential industries and areas of economic growth, investment in ‘infrastructure hubs’ should be a priority.  These hubs should include the provision of education to year 12 as well as vocational and tertiary (utilising LINCs and the NBN), health, transport and recreational services, including services such as aged, disability and child care and cater to the needs of the sub-population.  The need for these hubs should be informed by the population demographics, the industry make-up and the prospects of the region. 

An infrastructure hub approach to the provision of public services has the potential to provide opportunities to Tasmania and Tasmanians not previously possible, including reducing the disbursement of the population, the opportunity for critical mass and economies of scale.