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The Population Puzzle

Australias ageing population and the


Economic Consequences

27 May 2014

Paula Lorandi, James Fry, Tanvi Srinivasan


ENVM3526 Systems Thinking System Dynamics
Outline

I The Problem

II Causal Loop Diagrams (CLD) and System Archetypes

III The System Dynamic Model

IV Interventions

V Challenges and Lessons Learned


The Problem: Increasing Demand
The Problem: Decreasing Supply
CLD: The Population and Economy

Assumptions and Simplifications


Only 16 to 64 year olds migrating into Australia
Fixed unemployment, underemployment and early retirement rates
Does not take into account postponing work for further education
Deaths only in aged dependents/retirees (65+)
System Archetype: Success to the Successful
System Archetype: Shifting the Burden

Baby Bonus
introduced
Replacement level
System Archetype: Limit to Growth
System Dynamic Model
Intervention: Net Overseas Migration
Current (C) Scenario Proposed (P) Scenario
Net Migration: 245,000 per year Net Migration: 400,000 per year

Effect of Increasing Net Overseas Migration


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 0 52.46%


2034 27,839,609 9,715,033 11,983,488 43.04% 5,935,608 47.71%
2056 34,127,867 21,624,443 12,903,463 37.81% 11,158,561 43.16%
2078 41,836,483 36,223,885 14,649,003 35.01% 16,643,618 40.09%
2100 51,286,277 54,120,970 17,203,170 33.54% 22,866,690 38.01%
Intervention: Underemployment, Unemployment
and Early Retirement
Current (C) Scenario Proposed (P) Scenario
Underemployment (7.3%), Unemployment Underemployment (3.65%), Unemployment
(5.8%) and Early Retirement (14%) (2.9%) and Early Retirement (7%)

Effect of Decreasing Underemployment, Unemployment and Early Retirement rates


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 1,643,500 59.69%


2034 27,839,609 0 11,983,488 43.04% 1,653,225 48.98%
2056 34,127,867 0 12,903,463 37.81% 1,780,143 43.03%
2078 41,836,483 0 14,649,003 35.01% 2,020,955 39.85%
2100 51,286,277 0 17,203,170 33.54% 2,373,324 38.17%
Intervention: Retirement Age 1
Current (C) Scenario Proposed (P) Scenario
Retirement Age: 65 years Retirement Age: 70 years

Effect of Increasing Retirement Age


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 0 52.46%


2034 27,839,609 0 11,983,488 43.04% 394,575 44.46%
2056 34,127,867 0 12,903,463 37.81% 674,797 39.79%
2078 41,836,483 0 14,649,003 35.01% 906,613 37.18%
2100 51,286,277 0 17,203,170 33.54% 1,133,102 35.75%
Intervention: Retirement Age 2
Current (C) Scenario Proposed (P) Scenario
Retirement Age: 65 years Retirement Age: 75 years

Effect of Increasing Retirement Age


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 0 52.46%


2034 27,839,609 0 11,983,488 43.04% 734,384 45.68%
2056 34,127,867 0 12,903,463 37.81% 1,272,712 41.54%
2078 41,836,483 0 14,649,003 35.01% 1,727,639 39.14%
2100 51,286,277 0 17,203,170 33.54% 2,175,202 37.78%
Intervention: Birth Rate 1
Current (C) Scenario Proposed (P) Scenario
Birth Rate: 13.6 births/1000 people/year Birth Rate: 15 births/1000 people/year

Effect of Increasing Birth Rate


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 0 52.46%


2034 27,839,609 862,049 11,983,488 43.04% 267,475 42.68%
2056 34,127,867 2,146,248 12,903,463 37.81% 836,978 37.88%
2078 41,836,483 4,007,957 14,649,003 35.01% 1,611,465 35.47%
2100 51,286,277 6,653,460 17,203,170 33.54% 2,641,438 34.25%
Intervention: Birth Rate 2
Current (C) Scenario Proposed (P) Scenario
Birth Rate: 13.6 births/1000 people/year Birth Rate: 20 births/1000 people/year

Effect of Increasing Birth Rate


Population (C) Population Change (P) Labour Force/Participation (C) Labour Force Increase/Participation (P)

2012 22,710,000 0 11,913,000 52,46% 0 52.46%


2034 27,839,609 4,153,547 11,983,488 43.04% 1,271,393 41.43%
2056 34,127,867 10,943,117 12,903,463 37.81% 4,195,846 37.94%
2078 41,836,483 21,658,147 14,649,003 35.01% 8,581,765 36.59%
2100 51,286,277 38,163,024 17,203,170 33.54% 15,006,424 36.01%
Challenges and Lessons Learned

Important to clearly define the problem

Modeling is an iterative process

Had to make assumptions to simplify

model
Conclusion
Best policy for increasing workforce is
increasing net overseas migration
Fast and effective
However, workforce ratio decreases under
ALL scenarios
For an optimal and sustained effect, a
combination of policies run in succession
are required
References
"World Birth rate Demographics". Indexmundi.com. Viewed 15 May 2014.
The World Factbook. <https://www.cia.gov/library/publications/the-world-factbook/ rankorder/ 2066rank.html> Viewed in 15 May 2014.
ABS, 2013. Population Projections Australia. Canberra: Australian Bureau of Statistics.
http://www.humanservices.gov.au/customer/services/centrelink/age-pension
https://www.ato.gov.au/Individuals/Working/Leaving-the-workforce/Approved-early-retirement-schemes/
http://www.investorwords.com/5835/underemployment.html
International Labor Organization (October 1982). "Resolution concerning statistics of the economically active population, employment,
unemployment, and underemployment, adopted by the Thirteenth International Conference of Labor Statisticians; see page 4". Viewed 15
May 2014.
Part-Time Work Information Sheet , International Labour Organization. < http://www.ilo.org/travail/ lang--en/ index.htm>. Viewd 15 ay
2014.
http://www.abs.gov.au/ausstats/abs@.nsf/0/55425CBCD72D145ECA257810001134AE?opendocument
United Nations. Report of the Economic and Social Council for 1997. A/52/3.18 September 1997.
http://www.businessdictionary.com/definition/economic-activity.html
http://www.businessdictionary.com/definition/gross-domestic-product-GDP.html
http://www.investopedia.com/terms/s/standard-of-living.asp
Maani, KE and Cavana, RY 2000, Systems Thinking and Modelling: Understanding Change and Complexity, Prentice Hall, Auckland.
http://www.abs.gov.au/ausstats/abs@.nsf/Previousproducts/3301.0Main%20Features42011?opendocument&tabname=Summary&prodno
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http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/4125.0main+features3210Jan%202013
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http://www.abc.net.au/pm/content/2003/s860631.htm
http://www.visabureau.com/australia/immigration-points-test.aspx#age
Workforce Participation Rates How Does Australia Compare?
http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6238.0Main%20Features3July%202012%20to%20June%202013?opendocume
nt&tabname=Summary&prodno=6238.0&issue=July%202012%20to%20June%202013&num=&view=