Peter Harris proposes later retirement age and a right to go back to school

By David Donaldson

Friday July 21, 2017

It’s often said we’re living through an age of uncertainty, but what’s the biggest point of uncertainty for the Australian economy?

Our polarised and often ineffectual politics? A heavily indebted China? Ageing? The budget? Trump? Brexit?

Well that’s uncertain too, Productivity Commission chair Peter Harris told the first day of the Melbourne Institute’s Economic and Social Outlook Conference yesterday. This year’s theme: new directions in an uncertain world.

“None dominate, yet all are ready to spring a nasty surprise and derail what little remains of a narrative about governing for a better tomorrow,” he said.

As Treasurer Scott Morrison spent his day arguing the Australian economy is doing better than everyone thinks, the key message from the pointy heads in the room was: things could be worse but they could be better, too.

Australia’s unemployment rate stands at 5.6%, compared at 4.3% in the United States and 4.5% in the United Kingdom.

But all is not as it seems, noted Prime Minister and Cabinet deputy secretary economic David Gruen. While Australia used to trail these countries on the proportion of the population in work, ever since the global financial crisis — which hit the US and UK hard but left Australia relatively unscathed — we’ve switched places. Part of the reason for good unemployment rates in America and Britain, Gruen suggested, appears to be that their recessions were bad enough that they pushed many to give up on seeking work altogether.

This might help explain why Australians have largely resisted the lurch towards populism seen in other developed countries — despite wage growth being the lowest and inequality the highest in a long time. Australia’s inequality sits above the Organisation for Economic Cooperation and Development average. What growth is occurring is uneven, with half of jobs created in recent years being located within two kilometres of either Melbourne or Sydney GPOs.

Productivity growth has returned to the long-run average, but significant economic headwinds due to falling terms of trade mean it will be harder for Australian incomes to continue growing at the rate people have become accustomed to.

Productivity growth is sitting around average, but other economic challenges could derail growth. Source: Productivity Commission.

Automation is changing the economy, but it’s unlikely the predictions about robots leaving us all destitute will come to pass. Gruen noted that while machines are taking some jobs, there have been plenty of very confident predictions in the past that new technology would lead to structural high unemployment — something that has not come to pass yet.

Jobs in non-routine cognitive and manual work have both been increasing relative to routine tasks as we automate repetitive or predictable jobs. Those most safe from robots are the ones most difficult to reduce down to clear rules, instead relying on judgment, common sense and context — that is, human-ness.

Automation of boring tasks often means those whose jobs are not destroyed are left with more fulfilling and often more productive work. It’s also one of the factors, however, that’s driving a polarisation of jobs. Both high-education, high-income work and low-education, low-income jobs are increasing at the expense of middle-range types of employment.

Professor Jeff Borland argued, however, that the loss of routine tasks has been occurring at the same pace since the 1960s. While structural change is happening, we aren’t seeing higher churn between jobs now than in the recent past and aren’t likely to end up with mass unemployment anytime soon.

Finding a path out of moderate malaise

Looking at the many troubles threatening to undermine Australia’s prosperity in the future, Harris made some suggestions about new policy frontiers.

He took aim at the increasingly long retirements Australians are enjoying, insisting he was not making a moral judgment, but pointing out something that needed to be addressed:

“We are living longer, but our working lives have barely increased at all in forty years,” Harris told the conference.

“Someone is paying for that, and despite the view that we are putting lots into our superannuation, it’s not offsetting those extra years in retirement. Indexing both of the access ages to future improvements in longevity has an unmistakable logic, and depoliticises the whole thing.”

While our lives are becoming ever longer, the number of years Australians spend working has barely changed in a century. Source: Productivity Commission.

Although he conceded part of the increase in time outside work was due to people spending more time in education, Harris argued the increase was mainly due to retirement. And he touched on some other interesting new ideas for policymakers to consider:

  • What about a “right to return” to education?
  • A “serious spring clean” of urban planning could also be helpful.
  • Disease prevention could be more directly addressed, as with workplace accidents.
  • View data as a new and “perpetually renewable” resource.
  • Stop creating new barriers to trade and labour mobility.

“We could, for example, restructure the approach to education throughout working lives to recognise the multiple careers people are likely to have, and make it simple and cheap to return to education,” said the Productivity Commission chair.

“A right to return is no bad thing for an uncertain future. Retraining is currently inconvenient and expensive, and our key educational institutions are still emphasising a one-career-for-life approach to qualifications. The system — both in terms of education and industrial relations — is set up against becoming a plumber at age 30, or a chef at age 40.

“Or we could take the serious broom to the accrued debris of decades of unreformed investment-sapping limitations in planning and zoning and urban infrastructure costs,” Harris argued.

“Maybe we could take a direct approach to a healthier workforce, move away from fee-based responses to disease and redirect funding towards prevention. We could use agents who make it their primary business to prevent performance-reducing disease. We do this now for accident prevention, but not for diabetes or drugs. …

“And we need to open up the use of data more generally, as one of the very few perpetually renewable resources discovered this century.

“Plus renewing effort at the removal of barriers to efficient resource allocation: eliminating non-tariff barriers, shifting the tax mix to allow greater labour mobility are good starts.”

“But,” Harris added, “we aren’t even close to doing any of that.”

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Nicholas Gruen
Nicholas Gruen
4 years ago

Good questions from Harris. I wonder how many of these ideas the PC has initiated? Genuine Question. We give the PC independence so it can explore such things – if not by direct reference from government in its research.

And how much is the RBA using its own independence to explore similarly new ideas in its own bailiwick – not much as far as I can see as I argued here.

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