Published: June 19, 2020

Similar to many other developed countries, Australia has seen large increases in labour force participation for women since the 1990s. But identifying the main drivers of this trend still largely remains an open question.

A new Life Course Centre Working Paper seeks to explain Australia’s rising female labour force participation by examining the role of four key factors:
• changes in real wages i.e. wage growth and reductions in the gender wage gap
• changes in tax-transfer policies
• changes in labour supply preference parameters
• population composition changes

The Life Course Centre-supported study was undertaken by Dr Nicolas Hérault and Professor Guyonne Kalb of the Melbourne Institute: Applied Economic & Social Research at the University of Melbourne. Professor Kalb is an Associate Investigator and Dr Hérault a Research Fellow in the Life Course Centre. Their Working Paper identifies the role of tax and transfer policy reforms as well as three other factors that have been shown to matter to female labour force participation by earlier studies.

The key result is that changes in financial incentives due to tax and transfer policy reforms have contributed relatively little to the large increases in female labour force participation. Rather, it is the other three factors that have driven the increased female participation. This is despite the ongoing emphasis of public policy on improved work incentives for women and the effects of tax and transfer reforms looming large in the political discourse in Australia.

The study finds that, in some cases, the reforms are even working against increasing participation trends. It also finds that real wage growth plays an important role, confirming results from earlier studies, and that population changes such as age, education and family composition play a more important role than suggested by earlier studies.

The paper’s results point to a lack of consistency in financial incentives provided through tax-transfer policies. With more focus and consistency in these reforms, the Australian Government could better support female labour force participation through policies that provide further incentives instead of putting hurdles in the way.

Incentives could include more advantageous withdrawal rates encouraging part-time employment rather than punitive measures such as lowering single parents’ payment rates, which are likely to harm future opportunities for the children of single parents. This would take the necessity of achieving work-family balance of this population into account.

You can read the full Working Paper, ‘Understanding the Rising Trend in Female Labour Force Participation’, here.