A dynamic microsimulation approach to simulating the impact of the labour force on issues relating to the ageing population

Abstract

Accelerated population ageing is expected to create severe fiscal pressures for governments. With 12 Commonwealth agencies as research partners, NATSEM is currently constructing the Australian Population and Policy Simulation Model (APPSIM),a dynamic microsimulation model, to simulate our likely social and economic futures and the future distributional impact of policy changes. The APPSIM model takes the 2001 Census one per cent sample file as its base data and then ages the individuals within the sample, year by year, to 2051. Labour force participation will become an increasingly important issue as the population ages. People who are employed pay taxes and claim less social security, improving the budget balance and making more funds available for Australia's increasing health care, pensions and aged care needs. Promoting labour force participation has been suggested by Treasury and the Productivity Commission as a means of reducing future fiscal pressures caused by the ageing population. Simulating the labour force first requires a solid understanding of labour force participation patterns in Australia; their historical context; legislation and social conditions that guided labour force participation; and how these patterns are expected to change in the future. Given the microsimulation nature of APPSIM, it is also important to understand the process undertaken at the individual level to decide on whether to work and if so, when and how much. This thesis begins by reviewing the literature on Australian labour force patterns and international examples of dynamic microsimulation models. It explains in some detail the development of the labour force module for APPSIM, including modelling methods used, the use of separate equations to model different groups and labour force processes and the explanatory variables considered. It then validates the model by comparing its outcomes to external benchmarks. Finally, the usefulness of the module is demonstrated by assessing the impact of three policy scenarios on labour force participation: increasing Year 12 and university attainment, increasing the labour force participation of single mothers with school-age children, and reducing the incidence and impact of disability among workers aged 45- 64. These policy scenarios demonstrate that higher educational attainment will result in higher savings in the future, but the gains will take decades to appear. Increasing the labour force participation of single mothers has less of an impact on overall superannuation savings, but the impact is focused on people who would have had very low levels of superannuation. Reducing the incidence and impact of disability improves superannuation balances as people are able to work for longer, and has the most immediate impact on superannuation savings. These simulations illustrate the fact that policies targeted towards people who are likely to have lower superannuation balances can be of great benefit. Future research in this area could be targeted towards a more detailed model of the labour force. As detailed longitudinal data becomes more widely available and computer power increases, there is the potential to simulate behavioural response to changes in take-home income and a wider range of explanatory factors in labour force participation.

Date of Award	2009
Original language	English
Supervisor	Ann Harding (Supervisor) & Simon Kelly (Supervisor)