is not that these things can push out the technological frontier, but they can help us get closer to it. recommendations to improve incentives largely focus on promoting competition, such as further reducing barriers that inhibit international trade or new entrants to markets. policies on capabilities focus on the development of human capital, improving infrastructure and government services as well as the institutions for creating and transmitting knowledge ( academic institutions and their links with the business community, for instance ). the third part of the list deals with providing a more flexible regulatory environment and reducing unnecessary “ red tape ”. any one policy will be helpful by itself, but it is likely that the combined effect will be greater than the sum of each of the parts. this discussion has focused on how economies can support growth over the longer term. you will note, however, that i haven ’ t said much about the role of monetary policy. while monetary policy can help to ensure low and stable inflation, and contribute to macroeconomic stability, it cannot influence the longer - term determinants of growth. even so, monetary policy has an important role in influencing economic activity over the course of the business cycle, which is the subject of the next question. what will help generate additional growth in demand over the next couple of years? since about mid 2012, australia ’ s gdp growth has been a bit below trend and so the unemployment rate has been rising gradually ( graph 2 ). 9 the bank ’ s recent update to its forecasts has pushed out the time at which we see gdp growth picking up from its current sub - trend pace. it is not that economic growth has weakened of late. but there is little to suggest that it will increase in the near term. this implies that the unemployment rate will rise for a bit longer and peak a bit higher than previously expected. the question then is what is it that will generate an improvement in the rate of economic growth and lead to a decline in unemployment? what are the triggers for such a revival? part of the answer is that the very low level of interest rates is expected to sustain strong activity in the housing market and support household wealth. this will provide some support for consumption, although the response of consumption to low rates may be somewhat less and work in different ways from previous episodes, in part because of the higher levels of for more detail, see banks g ( 2012 ), “ productivity policies : the “ to do ” list ”, economic and social outlook conference, “ securing the future ”, melbourne, 1

graph 10 ). the first is the construction industry where, according to the abs, there has been a net decline in employment of 70, 000 over the past 12 months. activity in important parts of the industry – including in house building and commercial construction – remains subdued, as does the immediate outlook, and this has led to a fair amount of job shedding. the second industry is public administration, where employment has fallen by 50, 000 over the past year, with governments cutting back due to budgetary pressures. graph 10 one interesting aspect of the recent outcomes is that despite only modest overall employment growth, the unemployment rate has not moved up, as had been widely expected. part of the reason for this is that there has been a decline in labour force bis central bankers ’ speeches participation – that is, in the share of the working - age population either with a job or looking for a job ( graph 11 ). while one always needs to interpret short - run movements with caution, the current participation rate is around ½ a percentage point lower than the average of the past five years. this stands in contrast to the general upward trend in participation over the past 30 years. graph 11 the reserve bank has recently spent some time trying to understand what is happening here and what it says about the balance of supply and demand in the labour market. on the supply side, demographic changes are potentially an important factor. as with many other countries, the australian population is ageing. this tends to reduce labour force participation, as older people are less likely to have a job, or be looking for a job, than are younger people. our estimate is that this ageing effect, by itself, has reduced the participation rate by around 1 percentage point since the mid 2000s. over this period, however, this effect has been more than offset by the higher participation of successive generations of women in the workforce as well as a tendency for older workers in general to participate in the workforce longer than their predecessors. taking account of this so - called cohort effect, as well as the ageing effect, it would appear that these longer - term supply - side factors are not a central part of the recent decline in participation. a second potential factor is the relatively high rate of structural change in employment that i talked about earlier. with the increased rate of job turnover, it may be the case that workers who have left a job have decided not to re - enter the labour market immediately. this could be for a variety of reasons –