What’s driving Participation changes across QLD’s regions? A closer look.

Many commentators have written about movements in the Participation Rate (PR) and the impact this has on unemployment rates; if participation increases then any decline in the unemployment rate is harder to achieve with more people entering the labour force (and vice versa). The discussion is certainly a valid one, but here I want to try and dig a little deeper into what is actually driving the changes in PR at a regional level.

Firstly, some definitions.

PR is the percentage of the working age population (those 15 years and older) who are in the Labour Force (those either employed or counted as unemployed). Changes in the PR tell us about the proportion of the working population who opt to be in the Labour Force, but the number itself tells us nothing about why those changes might be occurring.

If we wish to understand more fully the structure of the Labour Force we need to look at the two factors at work determining changes in the net PR.

  • Changes caused by shifts in PR within the working population age groups
  • Changes caused by shifts in the demographic make-up of the Labour Force

Fortunately, there is a way of splitting these two effects out from the PR data. The method was described and detailed in 2009 in a paper entitled Decomposing Changes in the Aggregate Labor Force Participation Rate written for the Federal Reserve Bank of Atlanta by Julie L. Hotchkiss.

The paper specifies the aggregate PR to be the population weighted average of the PR for different age groups. The difference in PR between different time periods (t and t-1) is therefore;

Where LFPR is the Labour Force PR; i are the age groups and p is the percentage of working age population.

The formula tells us that changes in PR between periods can be deconstructed into the change caused by shifts in PR within age groups (let us call this the “Propensity effect“) and change caused by shifts in the demographic make-up (which we shall call the “Demographic effect“).

The Propensity effect can be caused by a range of issues. The most often cited is the impact that a weak labour market will have in discouraging people from entering the labour force; the reverse is true when a strong labour market encourages people to return to work. However, this is not the only thing causing the Propensity effect. More young people opting to go into tertiary education, or staying longer in secondary education, would also shift the PR within their age group. Likewise, more older workers opting for early retirement, or being forced to delay retirement, would impact on PR in that age demographic.

The Demographic effect is a result of shifts in the age make-up of the population. An aging population, such as we are currently witnessing across much of the developed world, will tend to shift aggregate PR as a higher proportion of the population moves into the older age groups where PR (naturally) is lower than in middle-age.

In order to deconstruct changes in PR we need to have data for PRs and population proportions for the various age groups considered. While the ABS provide us with aggregate Trend PR levels at the National and State levels, we have had to construct our own Conus Trend PRs (based on the original ABS regional data) for the chosen age cohorts (youth 15-24 years; middle 25-44 years; older 45+ years) at the State and Regional level.

Doing so allows us to see not only how PR has changed over time but also what has been the relative importance of the factors driving that change. The table below considers PR changes in the past 20 years (from Dec 1998 to Dec 2018) for a selection of QLD regions. This shows us that the Demographic effect has been felt (negatively) across the whole State, but that the impact has been more sharply felt in the Regions. Indeed, the Gold Coast is the only Regional area where the Demographic effect has added to PR over the period (there are 3 areas within Greater Brisbane where this has been the case). We also see that Cairns is one of the only areas where the Propensity effect has been negative over the two decades.

Townsville has been heavily hit by the Demographic effect, along with the Sunshine Coast. While the 45+ cohort has increased across QLD from 43% to 50% in the 20 years these two areas have seen significantly more aging of their populations. Townsville’s over 45s have gone from 37% to 58% while the Sunshine Coast has increased from 47% to 62%.

Of course, the story can be different when considered over different time-frames. Below is the data for the periods since Dec 2008 and Dec 2013.

The Gold Coast has seen a positive Demographic effect due to a modest increase in the relative size of the younger population (where PR is higher) whereas across the State that younger cohort has fallen as a percentage of the working aged population.

Obviously Demographic effects are likely to be far less noticeable over this shorter 5-year period. Nevertheless, we can see that the decline in PR seen in the Sunshine Coast over the period is all due to these demographic shifts whereas, by comparison, Mackay’s decline in PR has been driven by the Propensity effect with demographics actually adding slightly to PR.

The Propensity effect, which had been negative across the State in the 10-years since 2008, has in these most recent 5 years had a positive effect across the State and most, although not all, regions.

Further analysis, full data for all Queensland’s regions and additional commentary are available by contacting Pete Faulkner directly at pete@conus.com.au or 0439 490088


  1. Glen says:

    February 27th, 2019 at 9:24 am

    Great analysis Pete, it will be interesting to see how a lift in the preservation age and also the pension age effect the participation rate over the coming years, we are only 2 years away from start of the lift in preservation age from 55 to 60 for people to access to their super, which leaves an early retirement less of an option for many.

  2. Pete Faulkner says:

    February 27th, 2019 at 10:35 pm

    Thanks Glen. That’s a great point that you make. In the past 20 years participation in the over 45 cohort has increased by about 5 ppts to 51.5% across QLD. Similar increases are seen in Greater Brisbane and Rest of QLD, although regional differences certainly exist. Thanks for the comment.

  3. Marcus Smith says:

    February 28th, 2019 at 1:12 am

    Fantastic work Pete and the team!

  4. Pete Faulkner says:

    February 28th, 2019 at 1:42 am

    Thanks Marcus.

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