heightened competition between firms seeking to attract and retain the right workers. for the workforce, this is a good prospect in that they might expect to enjoy somewhat stronger growth in real wages than otherwise. firms would also face greater incentives to economise on labour through labour - saving capital investment, which will raise perworker productivity. in time, we may also see a reversal of the tendency towards early retirement that we have seen over the past 20 years or so. my guess would be that the value of older, experienced employees with a lot of accumulated human capital is likely to be re - appraised by employers, so from the demand side there might be a desire to retain these employees in a world where younger workers are relatively less abundant. and on the supply side, the intersection of longer life expectancy and modest returns on assets may prompt some re - evaluation of retirement ages on the part of older workers. no doubt government policies could influence these choices too. depending on how all that plays out, a further implication is that we might find at some point that the gdp growth rate of 4 per cent or more, which has been quite sustainable for a number of years as we have gradually wound in the spare capacity in the economy, has to give way to something a bit lower. there are two obvious reasons for this which stem from the discussion above. first, the scope to harness existing under - utilised labour is finite and would be mostly used up in the scenario in question. second, the growth rate of the total labour force will be lower than in the past due to demographic factors. in other words, the economy's growth rate would have to slow to its medium - term potential rate, which is a bit lower than the actual growth we have experienced in recent years, and that potential growth rate itself is coming down a little - all assuming nothing else changes. under such circumstances, one of the things we will presumably see is continued, or even heightened, discussion of the forces which affect the economy's medium - term potential growth rate apart from the growth in factors of production ( i. e. labour and capital of various kinds ). there's only one : productivity performance. here australia's recent record has been good. in international studies, the australian economy stands out as having had a remarkable pick - up in productivity growth during the 1990s. among the reasons behind this performance, and probably the most important one, is the widespread liberalisation and opening up of the economy to competitive

the past couple of years. 4. expectations about returns on capital in the major countries are likely to be lower. it is now clear, of course, that expectations about equity returns were unrealistically high, and perceptions of risk too low, in the late 1990s. moreover, the bursting of the tech bubble, and the corporate scandals in the united states, could well leave many investors feeling unenthusiastic about equity markets for some time. if so, the search for alternative investments will see bond yields held down, and possibly greater interest in some of the emerging markets, particularly in asia. trends in the australian economy so much for global matters. assuming the above or something like it comes to pass, how might the australian economy fare over the medium term? australia has recorded growth of almost 4 per cent for most of the past decade. i think it is by now well known that this compares very favourably with virtually all developed economies. subject to some possible caveats which i will come to shortly, it is reasonable to expect, given careful public policies and sensible private behaviour, that good growth can be sustained. for the moment, let me assume it will be, and draw out some implications. i'll then return to considering what could go wrong. one implication of the growth described above, if it can be achieved, is that we would see the rate of unemployment noticeably lower than it is today. in the past 20 years or so, the australian economy has, virtually without fail, seen unemployment fall when growth is 4 per cent or more ( and rise when growth is less than 3 per cent ). on that calculus, the unemployment rate could, all other things being equal, fall from its current 6. 2 per cent to 5 per cent or below within a few years. it's worth noting in this context that demographic factors associated with population ageing mean that the supply of labour will be rising more slowly in the next decade than it has in the past. this is a long1 run tendency, but already the labour force is growing less quickly than it was a few years ago. for a detailed discussion of demographic issues as they affect the labour market, see “ demographic influences on longterm economic growth in australia ”, treasury economic roundup, spring 2000 ; “ factors influencing medium - term employment growth ”, economic roundup, winter 1999 ; “ recent movements in the labour force participation rate ” economic roundup, summer 1999. one implication of that would presumably be