The 2015 Federal Budget has been delivered and a very different kettle of fish from the 2014 Budget. But how well is it tackling the underlying issues facing the economy at this time with higher unemployment now than through the GFC and its aftermath? It looks like the Government is putting a lot of its hopes on small business investment for employment growth but already troubling analysis has emerged as to how the measures introduced in the Budget may have perverse effects on small business and various unintended consequences. Not very encouraging for employment outcomes.

My article below, published in the April 2015 VCOSS Insight Magazine (hard copy only) explores some of the present dilemmas and challenges for Australian governments in invigorating employment. It raises important questions about the direction of government policy and what it needs to do to reduce unemployment and stimulate employment growth.

NB – The article was written in February 2015 using January 2015 ABS labour force stats. The 2015 Budget Papers predict an increase in the unemployment rate from 6.25 to 6.5 per cent between June quarter 2015 and the June quarter 2016. 

THE RISE WE DIDN’T SEE COMING

Victoria and Australia’s unemployment rates have risen, rather than declined, since the global financial crisis, while across the OECD generally, they have fallen. Veronica Sheen examines what is going on with our labour market and what we need to do to arrest its decline in the future.

Having survived the global financial crisis relatively well, Australia and particularly Victoria, face new challenges on the jobs front. While across the OECD unemployment peaked at 8.5 per cent in October 2009,[1]  the unemployment rate for both Australia and Victoria was 5.6 per cent. That relatively good position was attributed to the strength of the economy, related to the mining boom and most particularly, the Labor government’s stimulus package.[2] But it turns out we weren’t out of the woods.

At the start of 2015, we have an unemployment rate in Victoria of 6.6 per cent, a little higher than the national average of 6.3 per cent.[3] While Australia’s unemployment rate has drifted upwards over the last few years, for OECD countries generally, it has drifted back down, albeit from higher levels.[4] Early in 2015,  the OECD average for  unemployment hovers around 7 per cent.[5] Economic growth has picked up globally, although still uneven [6] and Australia is struggling to get back to pre-GFC levels of employment growth when it achieved an unemployment rate of just over 4 per cent. [7]

What is going on has been hard to nail down exactly. We know that the mining boom is coming off-heat and dragging down economic growth, but the boom never accounted for much employment, and none in Victoria, although it helped drive demand, which indirectly supports jobs.

The strong Australian dollar has also proved a very big challenge for many businesses, especially manufacturers trying to compete in the global marketplace. It has accelerated the departure of much industry to offshore operations.  Toyota will close its Altona plant by 2017,[8] following the trail of many other companies that for decades, have been the mainstay of much Victorian employment.[9] This divestment causes widespread multiplier effects on many other businesses, from suppliers to nearby corner shops and recreation facilities.[10]

Much of this effect is still to be felt, with one forecaster, Macroeconomics,[11] predicting an unemployment rate for Victoria of 7.3 per cent in 2016-17, notwithstanding the Victorian government’s more optimistic prediction of a reduction to 6 per cent in 2016-17 and 5.5 per cent in 2017-18.[12] Macroeconomics also notes that while there has been some jobs growth, there has been an expansion in workforce participation overall, which has contributed to the hike in unemployment rates.

The big picture on jobs

The unemployment rate is of course a very raw measure of what is going on in the labour market. Unemployment is measured by the criterion of actively looking for work, of availability for work and having had no work for a minimum of one hour in the reference week of the ABS survey.[13] But at November 2014, 8.5 per cent of the Australian workforce was underemployed, so  altogether, 15 per cent of the Australian workforce had none or not enough work.

In Victoria there are 300,000 workers without sufficient hours of work, and around 200,000 unemployed. This means altogether 500,000 people, nearly 16 per cent of its workforce of over 3 million, is ‘underutilized’.[14] By any measure this is a very large number of people competing for available work, whether as distinct jobs or more hours. Those who are underemployed are most likely to be in the casualised labour market, which makes up about 20 per cent of all jobs in Australia.[15]

We also need to consider the large numbers of people who want to work but are not currently looking for work or are discouraged – the ‘marginally attached’. The last estimate of the numbers of people in Australia who wanted to work but were not actively searching was about 1 million. For Victoria, the number was 263,000.[16]

We also need a perspective on both youth unemployment and long-term unemployment to understand what is happening in the labour market.

The Australian unemployment rate for 15-24 year olds stands at 14 per cent at the beginning of 2015, more than double the overall rate.[17] In addition there is a high level of youth underemployment, at 16 per cent for 15-24 year olds (August 2014). Altogether, about 30 per cent of the youth workforce is out of work or needing more work.[18] The Brotherhood of St Laurence provides an overview of the regional dimensions of youth unemployment across Australia.[19] It shows Victoria’s high youth unemployment rate is consistent with the national average, but also that there are high concentrations in some regions.

High general unemployment also contributes to high levels of long-term unemployment. A recent estimate based on ABS figures is that there are 175,200 people across Australia who have been out of work for more than a year at the beginning of 2015, an increase of 150 per cent since 2008.[20] We also need to consider that many older people who can’t find a job, in the end give up searching for work.

The trends in the Australian and Victorian labour markets broadly reflect the situation in many other countries, with persistent unemployment, underemployment and insecure employment, and high levels of youth and long-term unemployment.[21]

What next for jobs growth?

The Australian economy is said to be “in transition” following the end of the mining boom. [22] By some accounts, the lower Australian dollar and low interest rates will be of particular assistance to the Australian[23] and Victorian[24] economies, and employment, through stimulating investment and demand.[25]

There is international concern about the slow rate of recovery in employment following the GFC.  It was a focus for the G20 leaders who met in Brisbane last November, with their communiqué citing better living standards and quality jobs as the foremost objectives.[26] Like all these global economies, Victoria faces certain risks, challenges and opportunities.

The greatest challenge is that the economic transition and subsequent employment growth may not yield the results that we hope for – those well-paying, secure, good jobs people seek, which are the backbone for individual lives, communities and nations, as well as the basis for social participation and equality of opportunity.

One risk is that economic growth will continue apace but not generate many jobs – indeed there is concern about “jobless growth”.[27] A related risk may be that jobs growth is in low-wage and casualised sectors. For example, the USA has reduced its unemployment levels, and jobs growth has been quite significant, but not sufficiently in the type of good quality “middle class” jobs[28] President Obama has advocated for in his State of the Union addresses over recent years.[29]

There are many reasons why this should also be of concern to policy makers in Australia and Victoria. Without the growth of these good jobs, demand will remain subdued and dampen prospects for economic recovery. It will deepen and broaden inequality, which global institutions uniformly agree is a major risk for growth.[30]

Understanding the causes of the ’jobless recovery’

The causes of a jobless recovery are complex for developed countries. The International Labour Organisation (ILO) says the GFC triggered deep changes in many economies and that labour forces are deficient in the skills required for emerging industry sectors on account of skills mismatch. It also suggests that population ageing is taking a toll on workforce adjustment capacities. But the major cause, it argues, is that growth is still not at optimal levels, and in part this is due to the fiscal consolidation measures in place as governments seek to wind back public debt[31]  through austerity measures.[32] The Australian government has also been seeking to wind back government debt through reduced public spending.

Explanations for the slow rate of jobs growth in the USA also focus on the major changes in industry structure that ensued from the GFC, causing job shedding as well as organisational restructuring. In the new economy there is a growing divide between the well-paying, protected, good jobs, and the lower-paid insecure jobs, which is where the growth is.[33]

These explanations also call attention to the effect of automation, robotics, and the use of online communication technologies[34] in many industry sectors, which serve to replace workers. Some experts also say that technology is not affecting low-end jobs in the same way as in past decades. In the 21^st century the main effects of these developments may be on reducing the growth of higher-paid skilled jobs, which are those all important middle class jobs in the knowledge economy.[35]

What can governments do?

Australian federal and state governments will need to have a strong grasp on all of these potential risks for jobs growth and be prepared to use the policy instruments necessary to counter them. There must be caution in using austerity measures (cutting back government expenditure), which has the potential to further set back growth.[36]

More than that though, governments have an enormous role to play in financing investment in infrastructure, which is the backbone for a vibrant economy. This is not only investment in ports and transport,[37] but also research and development.[38] It includes high levels of investment in education and training so workers are not only well-equipped for taking up the jobs in the new economy, but are in a position to lead in entrepreneurship and innovation. This is especially important with the rapid advances in technology that have such vast effects on employment.

In 2010, the ILO and G20 produced a report, A Skilled Workforce for Strong, Sustainable and Balanced Growth.[39] It contains a crucial statement for governments to heed:

“Experience from various countries provides important lessons on the limits of skills forecasting: crucially, that it is better to focus on providing adaptable core, transversal skills, and especially on building the capacity to learn, than on planning training to meet detailed forecasts of technical skill requirements, because these may change before curricula can adjust.”

It is an important statement because it draws attention to what is most certain about the coming decades in employment – rapid, continuing and unforeseen change. It will be vital that governments take a long and broad view as to what they must do to ensure the workforce is well-equipped to take advantage of the new opportunities ahead, and able to adjust to changing conditions. It will be important for workers at all stages of life, and a cornerstone of a positive response for Australia’s ageing population.[40]

Dr Veronica Sheen is a social policy researcher. See her full profile at www.veronicasheen.net. 

[1] OECD Employment Outlook 2014, http://www.keepeek.com/Digital-Asset-Management/oecd/employment/oecd-employment-outlook-2014_empl_outlook-2014-en#page1

[2] Independent Australia, 21 Aug 2013, https://independentaustralia.net/politics/politics-display/we-really-must-talk-about-what-actually-did-save-australia,5644

[3] Australian Bureau of Statistics, Labour Force, 6202, Jan 2015, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0

[4] OECD Statextracts 2015, http://stats.oecd.org/index.aspx?queryid=36324

[5] OECD Statextracts 2015, http://stats.oecd.org/index.aspx?queryid=36324

[6] International Monetary Fund, Oct 2014, http://www.imf.org/external/pubs/ft/weo/2014/02/

[7] Australian Bureau of Statistics, Labour Force, 6202, Jan 2015, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Jan%202015?OpenDocument

[8] ABC, 11 Feb 2014, http://www.abc.net.au/news/2014-02-11/toyota-timeline/525144

[9] Sally Weller, The Conversation, 13 February 2014, https://theconversation.com/what-the-departure-of-toyota-holden-and-ford-really-means-for-workers-23137

[10] ABC, 11 Feb 2014, http://www.abc.net.au/news/2014-02-11/toyota27s-closure-to-impact-businesses-near-altona-plant/5251342

[11] The Age, 10 Nov. 2014, http://www.theage.com.au/victoria/victorias-unemployment-rate-on-track-to-exceed-tasmanias-20141110-11jybq.html

[12] 2014 Victorian Economic and Financial Update, http://www.dtf.vic.gov.au/Publications/State-Budget-publications/2014-Victorian-Economic-and-Financial-Update

[13] Australian Labour Market Statistics, 6105, July 2014, http://www.abs.gov.au/ausstats/abs@.nsf/products/FBE517ECA9B07F63CA257D0E001AC7D4?OpenDocument

[14] Australian Bureau of Statistics, Labour Force, 6202, Jan 2015, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Jan%202015?OpenDocument

[15] Australian Bureau of Statistics, Forms of Employment, Australia, 6359 November 2013 http://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/A9CA77BFF6370AA3CA2568A90013941B?opendocument

[16] Australian Bureau of Statistics, Persons Not in the Labour Force, Sept 2013.  http://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/1BC09705313BC183CA257CA6001DDC06/$File/att4qriu.pdf

[17] Australian Bureau of Statistics, Labour Force, 6202, Jan 2015, http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6202.0Jan%202015?OpenDocument

[18]  See figures in my conference presentation on youth unemployment here: http://www.slideshare.net/informaoz/tag/futureofwelfare14

[19] Brotherhood of St Laurence, 2014, file:///C:/Documents%20and%20Settings/Owner/My%20Documents/Downloads/MyChanceOurFuture_AppendixA_maps_Feb2014.pdf

[20] The Age, 27 Feb 2015, http://www.theage.com.au/national/old-and-young-hit-hard-as-the-number-of-longterm-unemployed-australians-soars-since-global-financial-crisis-20150226-13pj0q.html

[21] International Labour Organisation, 2014, Global Employment Trends 2014, http://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication/wcms_233953.pd

[22] Australian Parliamentary Library, 2013, http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook44p/AustEcon

[23] Stephen King, The Conversation, 10 Feb 2015, https://theconversation.com/turning-headwinds-into-tailwinds-the-economy-can-correct-course-37267

[24] 2014 Victorian Economic and Financial Update, http://www.dtf.vic.gov.au/Publications/State-Budget-publications/2014-Victorian-Economic-and-Financial-Update

[25] OECD Employment Outlook 2014, http://www.keepeek.com/Digital-Asset-Management/oecd/employment/oecd-employment-outlook-2014_empl_outlook-2014-en#page1

[26] G20 Leaders’ Communiqué Brisbane Summit, 15-16 November 2014, https://g20.org/wp-content/uploads/2014/12/brisbane_g20_leaders_summit_communique1.pdf

[27] World Economic Forum 2015 Persistent Jobless Growth, http://reports.weforum.org/outlook-global-agenda-2015/top-10-trends-of-2015/2-persistent-jobless-growth/

[28] Wall Street Journal, 9 June 2014, http://www.wsj.com/articles/u-s-adds-217-000-jobs-unemployment-rate-steady-at-6-3-140205804

[29] President Barack Obama, 20 January 2015, https://medium.com/@WhiteHouse/president-obamas-state-of-the-union-address-remarks-as-prepared-for-delivery-55f9825449b

[30] Veronica Sheen, The Conversation, 5 Feb 2014, http://theconversation.com/why-abbott-cant-delete-society-from-his-economic-growth-script-22636

[31] International Labour Organisation, 2014, Global Employment Trends 2014http://www.ilo.org/wcmsp5/groups/public/—dgreports/—dcomm/—publ/documents/publication/wcms_233953.pdf

[32] Remy Davison, The Conversation, 10 January 2013, https://theconversation.com/we-were-wrong-imf-report-details-the-damage-of-austerity-11533

[33] Federal Reserve Bank of St Louis, https://www.stlouisfed.org/Publications/Regional-Economist/April-2011/Jobless-Recoveries-Causes-and-Consequences

[34] ABC 7.30 Report, 28 May 2014, http://www.abc.net.au/7.30/content/2014/s4014292.htm

[35] The Guardian, 16 June 2014, http://www.theguardian.com/technology/2014/jun/15/robot-doctors-online-lawyers-automated-architects-future-professions-jobs-technology

[36] Matthew Smith, The Conversation, 11 March 2014, https://theconversation.com/crowding-out-and-the-fallacy-of-fiscal-austerity-23981

[37] Thomas Kochan, The Conversation, 19 Feb 2015, https://theconversation.com/us-must-invest-in-its-workers-and-roads-to-sustain-job-gains-37778

[38] Brian Schmidt, The Conversation, 5 March 2015, https://theconversation.com/brian-schmidt-why-funding-science-infrastructure-is-essential-38303

[39] G20 and ILO, 2010, A Skilled Workforce for Strong, Sustainable and Balanced Growth: A G20 Training Strategy International Labour Office, http://www.oecd.org/g20/topics/employment-and-social-policy/G20-Skills-Strategy.pdf

[40] Australian Government Intergenerational Report, 2015, http://treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report