still weak state of overall demand across the non - mining economy. • second, there ’ s been a decline in the growth of labour supply, some of which reflects a cyclical “ discouraged worker ” effect, but the ageing of the population is also a significant and enduring influence. • third, wages are adjusting to the degree of spare capacity in the labour market. moreover, slower growth of wages is playing a part in the real exchange rate adjustment that is required as the terms of trade and mining investment decline. to a large extent, these developments reflect an unwinding of some of the adjustment that was seen over the period when commodity prices were rising and the mining boom was in the midst of its investment phase. as my colleagues and i have noted elsewhere, that period saw a significant appreciation of the nominal and real exchange rates, alongside relatively strong growth in both employment and wages – particularly for mining and mining - related activities. 2 these changes are now working in reverse, with the nominal exchange rate and growth of wages lower than they had been. both are helpful parts of the necessary adjustment process. monetary policy is also playing its role by providing support to demand. labour demand : the transition away from mining - led growth in large part, subdued growth of labour demand over the past couple of years has reflected below - trend growth in output over much of that period. the economy has been facing various headwinds over that time, including : the decline in the terms of trade ; the decline in mining investment ; the high level of the exchange rate ; and weak growth of public demand. the demand for labour can be thought of as being derived from the demand for the goods and services it helps to produce. so it is not surprising that employment growth weakened and the unemployment rate turned up from around the middle of 2012. that corresponded to a noticeable slowing in the growth of economic activity, which remained relatively subdued, at least up until late 2013 ( graph 2 ). in turn, much of that owes to the decline in mining investment. meanwhile, growth of activity in the non - mining economy was subdued through that period, but it picked up slightly from late last year. that modest pick - up may have contributed, at least in part, to improved employment growth over the past few months. it may also be that some of that improvement reflects a “ catching - up ” of employment growth after only very modest growth through 2013. as discussed in plumb m, c kent and j bishop ( 2013 ),

than was the case for their predecessors. but in recent years this trend increase bis central bankers ’ speeches in the participation of older age groups has slowed, and their participation rates have been flat or even falling a touch ( graph 10 ). graph 10 what ’ s not clear though is why this upward trend has tapered off. it may be a response to the cyclical weakness in the labour market, in which case participation rates of those aged 55 years and over might trend up again, in time. alternatively, it may be more structural. perhaps earlier forces, including rising longevity and a general ability and preference to work later into life, may have largely run their course. however, given the long history of rising longevity, it seems likely that this will continue. one possibility though is that the forces underpinning the earlier rise in participation at older ages ( including longevity ) have run up against current incentives for many to retire by the age of 65 years. however, the story of lower participation rates is not entirely about ageing and the behaviour of older workers. participation has also declined for other groups, most notably younger people – many more of whom are participating in education ( graph 11 ). again, these declines may have both cyclical and structural elements. graph 11 bis central bankers ’ speeches wages while the growth rates of labour demand and supply have both been weaker over the past couple of years, we know that the former has been more significant than the latter. the fact that labour supply has not been constraining employment growth is evident in the rise in the unemployment rate and the substantial decline in the growth rate of wages over that period ( graph 12 ). graph 12 the slowing in wage growth is clear also in the leftward shift in the distribution of wage growth across individual firms ( graph 13 ). the data shown here are from the nab business survey. this is also consistent with the bank ’ s liaison which suggests that wage outcomes of more than 4 per cent have become far less common than was the case a few years ago. indeed, outcomes of 2 – 3 per cent are more common than 3 – 4 per cent. slower wage growth has also been helped by inflation expectations remaining contained. 5 graph 13 see rba ( 2013 ), “ box b : the slowing in wage growth “, statement on monetary policy, august, pp 51 – 52. bis central bankers ’ speeches the implications of a slowing in labour demand ( relative to supply ) depend significantly on the responsiveness of wages.