Follow-up on Labour Force Participation – by state and gender

The beauty of the methodology introduced in my post Decomposition of the Aus. Labour Force Participation Rate is that it can be applied in different ways. In this post, I follow up on the previous analysis of the drivers behind the decline in the labour force participation rate (LFPR) by applying the same methodology to gender and state based data. The objective is to see whether this approach sheds any additional light on the issue of our declining LFPR – such as whether there is a geographic influence on the decline in the participation rate. There does seem to be a geographic influence – the only states where the labour force participation provides a positive influence at a National level are WA and NT. The positive impact in WA has been due to growth in the population share (given the relatively higher participation rate in that state) and in NT, due to growth in both population share and participation. This most likely the result of mining and mining related industry.

Breaking out gender by state confirms the findings of the previous analysis – lower male participation is a large driver the National trend. The effect of the ageing population (+65yrs) was/is widely touted as the reason for the decline in the LFPR. The main finding from the previous analysis was that the ageing population was just starting to have a negative effect on the LFPR from about mid-2013. Up until then, both participation and population share had been increasing at a similar rate for those +65yrs (within the time periods under review).

To recap the issue – the LFPR has been declining in Australia since it peaked in late 2010. Below is the latest view of the trend in the change in the participation rate. Over the last four months there has been an improvement (increase) in the participation rate. In some states this has coincided with employment growth.

Source: ABS 

To recap the methodology – I’m using exactly the same time periods of Dec 2010 v Dec 2013. The data available for this analysis by the ABS is not seasonally adjusted (original), so I’m using exactly the same months to compare but using a 3 month moving average for the Dec month data. From the previous analysis, Dec 2010 was the ‘benchmark’ month because this was when the LFPR peaked.

Consideration of a change in the National LFPR needs to take into account two elements – the shift in population share and the change in participation for any group. The following methodology from the Atlanta Federal Reserve was used last time:

Source: https://www.frbatlanta.org/documents/pubs/economicreview/er09no4_Hotchkiss.pdf 

Using part (1) of the decomposition we gain the following data regarding the weighted LFPR by state and gender – this converts the state participation rates into the components of the National LFPR (state-based participation rate * population share of each state).

Source: ABS & The Macroeconomic Project 

The ‘difference’ column highlights the change in LFPR between the two points in time as a function of changes in population share and participation rate. Again, it’s clear that males contribute the larger share (-0.804pts) of the (-1.13pt) decline in the National LFPR. Both WA and NT were the only states where male participation did not fall. The results are not as severe for females, although it’s directionally identical.

Part (2) of the analysis highlights that whilst changes in population share have had some effect on the LFPR, it’s mostly been changes in participation that have affected the National LFPR. Part one in the table below looks at the influence of participation rate changes and part two looks at the influence of changes in population share.

Source: ABS & The Macroeconomic Project 

In this case population share among states has been relatively stable over the three (3) year period. The two big shifts in population share have been 1) the decline in population share in NSW and 2) the increase in population share in WA. The results depend on where the population share shifts from and to (state or demographic group) and the relative participation rates in those groups. For example, the participation rate in WA is relatively higher than in other states (for males and females). Therefore the effect of the increase in the population share of WA is a positive one on the LFPR at a National level, despite its slight decline in participation rate. But if population share shifts to a lower participation group, it will likely drag down the overall LFPR, unless there is a corresponding increase in participation for that group.

Males in NSW had the single largest negative impact on the decline in the overall LFPR (-0.353pts of the overall decline). This is due to the combined impact of declining population share and declining (male) participation in the state.

Source: ABS & The Macroeconomic Project 

In NSW, male participation and population share peaked back at the start of the data series – Feb 1978. I’ve included a long-term chart to highlight that these are long-term trends. In order to have a positive effect, the decline in population share would need to be offset by an increase in the participation rate.

Males in VIC had the second largest negative impact on the overall LFPR (-0.314pts of the overall decline). But the situation is different to NSW – and highlights why you need to view the trend along with the data in the table above.

VIC is a standout as the largest contribution to the decline in male participation. The trend is clearly down (chart below), but that decline has slowed since mid-2012. Population share appears to have shifted from decline to slight growth during that time – but that change in population share is small.

Source: ABS 

The trend between these two points in time highlights that the situation in VIC may start to improve. The decline in participation appears to have slowed and population share looks to be growing. One theory behind the poor performance in VIC is the reduction in manufacturing related industry and employment over a longer time frame. Victoria isn’t the only state with manufacturing base, but it’s one of the main ones.

Males in QLD had the third largest negative impact on the National LFPR. Again, there was a slight increase in population share, but the falling participation rate of males in QLD resulted in a -0.196pts contribution to the overall National decline.

Source: ABS 

The participation of males in QLD has gone from an average of 73.8% to just on 71% – not an insignificant decline. The reasons for the decline in male participation in QLD are less clear.

The gender/state pair that has had the strongest positive influence on the participation rate was males in WA, contributing +0.195 points overall to the National LFPR. According to the data, this has been due mostly to growth in population share.

Source: ABS

Growth in population share alone is not enough to have a positive impact on the National LFPR. But in the case of WA, it has a relatively higher participation rate than the eastern seaboard states. Therefore the shift in population share to WA has had a positive impact on the overall LFPR, despite the slight decline in participation in that state.

The objective of this analysis was to see if it provided any additional insight into the declining LFPR in Australia by looking at state and gender data. The analysis confirmed two things 1) the main mining states of WA and NT have been the only states, for both males and females, that have had a positive impact on the National LFPR (during the two points in time used in this analysis) and 2) lower male participation has been the key driver behind the declining LFPR. The previous research highlighted that the male age groups of 45-54yrs and 15-19yrs had the largest negative impact on the decline in the National LFPR.

 

 

 

 

 

 

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