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Hiring older Australians: lessons from Singapore

By Jonathan J. Ariel - posted Monday, 23 April 2012


Prime Minister Julia Gillard certainly knows how to talk mature aged workers up as she's dropping them off at the curb.

The Prime Minister and her Treasurer, Wayne Swan were lavish in their praise of the "Jobs Bonus", a plan to pay employers$1,000 for each worker aged 50 years plus who is taken on and works a minimum of three months. This was the Federal government's response to a report: The Economic Potential of Senior Australians, chaired by Everald Compton, Fairfax Media reported on Wednesday.

The charade of pretending to do something for a disadvantaged group when actually very little will be done is either cunning or naughty. The government's $10 million scheme is earmarked to subsidize 10,000 businesses hiring mature age workers for a period no less than 3-months over the next four years. That means at best a total of 10,000 Australians (on average one per business) will be hired, or an average of 2,500 new hires per year. How many will stay in the job once the three month qualifying period is up, is anyone's guess. After all, employers need real incentives to recruit and keep employed new staff, don't they? According to the vague press releases, there is no mention if these new hires must be employed full time, part time or casual. In fact there is nothing in the media releases to ensure that Australians alone are employed under this scheme.

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The Treasurer extolled the virtues of the over 45's by stressing their low absentee rates, higher rates of retention and the benefits of life experience. Truisms all to be sure. He added that governments should "do all they could to help older people stay in the workforce if that is what they wish".

This begs the question: so why isn't the government really doing "all they could"?

While Federal Opposition Leader Tony Abbott reminds the public that the Gillard's "Jobs Bonus" initiative is little more than Labor aping Liberal/National jobs policy, the real tragedy is that this policy will not only deliver very few jobs, but will turn out to be a nice earner for cunning employers. Remember the Pink Bats Fiasco?

If the Gillard government really wants to make a dent in the numbers of mature aged unemployed and underemployed persons, it can simply pull its head out of the sand and look north-northwest, to the Republic of Singapore to see how economic policy should be crafted.

Most Australians (including this writer) want to believe that the government genuinely wants to make a profound positive difference to the lives of many mature aged workers and in the process help Australian industry and give a fillip to the economy.

The problem lies with the government's ignorance of basic economics and its misunderstanding of human nature. No surprise there. After all, when it comes to running a business, how many Federal cabinet ministers ever done that? Hmmm. Labor seems to wear its lack of commercial acumen almost like a badge of honour. Here it has launched a policy that treats the hire of the low skilled identically to the hire of the very skilled. The "Jobs Bonus" initiative fulfills neither the aspirations of the low skilled jobless (i.e. enough full time long term positions for the very many who seek it) nor does it provide a long run incentive to business owners (i.e. a cash flow incentive over the long run to hire the older jobless). Oh, and as for the high pay highly skilled jobless, a $1000 sweetener will not sway an employer one iota. Such employers have bigger fish to fry.

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The Gillard "Jobs Bonus" initiative was the fruit of several studies and consultations including the June 2010 Employment and Retention Strategies of Older Workersroundtable discussion NSW Ministerial Advisory Committee on Ageing. That study showed that Australia was ranked 13th amongst the Organization for Economic Co-operation and Development (OECD) for Labour Force Participation (LFP) of workers aged 55 and over with an average of 60 percent participation across male and females in this age group. This puts Australia below Finland, New Zealand, Iceland, Japan, the UK and the US.

But as the 55 plus age group represents one seventh of the total workforce in Australia, it is therefore a significant and essential component of the labour market. The study concluded that there are two major ways to increase the Labor Force Participation rate of mature workers:

1. Extend the working life of those in employment; and

2. Bring mature workers back in to the labour force.

Extending the retirement age was not considered in Wednesday's announcement. And it should be noted that the "Jobs Bonus" is not the first incentive to be offered mature age workers. In fact it is in addition to the current "Mature Age Worker Tax Offset", where the maximum benefit per year to a mature aged worker is a princely $500.

Quite separately to the mandatory tweaking and selling of the "Jobs Bonus", the elephant in the room is the mammoth state based disincentives to hire mature workers. In NSW for instance, it is the NSW Workers Compensation Act 1987 (Section 1511A Retirement) which, when awarding damages for future economic loss due to deprivation or impairment of earning capacity or (in the case of an award of damages under the Compensation to Relatives Act) loss of expectation of financial support, directs the court to disregard any earning capacity of the injured worker after age 65.

Most states have retirement provisions which that restrict a worker's access to workers' compensation, in particular to income replacement payments when a worker reaches the age of 65. Once an injured worker reaches the age of 65 (the so-called "retirement age"), it is expected that the worker has access to other forms of income support such as the age pension or superannuation. Queensland is the only state in the Commonwealth that does not include a "retirement provision" or nominated age in its state Workers' Compensation Act 2003. Amen to that.

The stated rationale for cessation of workers compensation payments at 65 years is related to a notional retirement age, the eligibility for an aged pension or superannuation payments. The issue with this is that mature workers may want to remain in the paid workforce after age 65 or to volunteer after 65 years. Unless changes are made to Workers Compensation legislation, older Australians will no longer have coverage or access to workers compensation.

In stark contrast, when faced with its own an supply of unskilled or semi skilled mature aged unemployed and underemployed workers, Singapore went about solving the problem a whole lot differently to the Gillard government.

It created a long-term cash flow incentive for employers by reimbursing up to half of Singapore's equivalent of the Superannuation Guarantee Contributions (its contributions to the Central Provident Fund) so long as the mature aged person remained on the payroll. This program is called the "Special Employment Credit".

In the Republic of Singapore, employers contribute a percentage of an employee's salary into the Central Provident Fund (a national superannuation fund). The employer's contribution is a function of an employee's age. The older an employee is, the lower the employer's CPF contribution. In the case of a worker aged 45-50, the employer must pay 16% by way of CFP contributions. Under the SEC provisions, the employer would receive six-monthly reimbursements totaling 8% over the year, being half the employer's contributions. Quite separately, the employee makes his/her own CPF contribution, which for a 45-50 year old is 20% of his/her wage. This provision remains unchanged.

Singapore introduced the Special Employment Credit as part of the 2011 Budget.

The SEC principally targets a rise in the employability of older low-wage Singaporeans. It complements other measures to boost the employment rate of older workers, such as the existing bias in the CPF rates that favour older workers being hired (now there's an idea Mr. Treasurer?)

Singapore government reports last month revealed that than 52,000 employers were expected to receive a total of about S$19 (A$14.6) million that month under the SEC. 
The amount is for employing about a whopping 171,000 older low-wage Singaporeans in the second half of 2011. The program is to cost $100 million over 3 years.

Australia's population is 4.4 times that of Singapore. Using Singapore's SEC as a model, it is not unrealistic to expect up to 750,000 older Australians could find a new job this way. Of course if would help enormously if the Gillard government stopped cooking the jobless books as has been the custom of all governments.The SEC scheme was enhanced in Singapore's 2012 Budget to enable an even bigger pool of older workers to qualify.

Singapore's employers have found that older workers are more motivated, experienced and have better client relation skills than young job seekers. And these benefits come to employers all wrapped up with a bow, which amounts to roughly an 8% on-going wage subsidy granted, by the government.

By contrast, Prime Minister Gillard's three-year program to assist mature aged workers is determined to persuade a paltry 10,000 firms to hire a statistically insignificant 10,000 Australians at a cost of chump change: a measly $10 million.

Clearly what we could learn from Singapore could easily fill Parliament House.

Oh, and as to the matter of Workers Compensation legislation as it relates to older workers in Singapore? Once again we can take a leaf out of the Singaporean playbook. Unlike the practice in most Australian states, the Singaporeans are not ageist. Workers compensation has no employee age ceiling.

Forget a leaf. Better yet let's take the whole darn book.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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