Talk to Fairfax Employment Network lunch March 30, 2017
There aren’t many jokes about statisticians, so you’ve probably heard the one about the statistician with his head in the oven and his feet in the freezer. On average, he was perfectly comfortable. Sometimes averages give us a good picture of the typical situation, but sometimes the average is anything but representative of what’s really going on. It’s a bit like that in the economy and the jobs market at present.
I should start by warning you that economists have a terrible forecasting record. But that never stops them having another go, so I will too. The usual story we hear about the jobs market focuses on the national figures though, unlike me, it uses the figures that jump up and down from month to month – because it makes much more exciting stories – while I use the smoothed figures because they give you a much clearer idea of what’s going on.
They show that unemployment in February was 5.8 per cent, which is the same as it was a year earlier. Over that time, total employment grew by 100 thousand – less than 1 per cent – but more than all of that was accounted for by growth in part-time employment. In other words, full-time employment actually fell over the year, by about 21 thousand. At the same time there was an increase in the rate of under-employment – that is, the proportion of workers who’d like to be working more hours- from 8.4 per cent to 8.6 per cent.
So, at the national level, the performance of the jobs market has been, at best, disappointing – not disastrous, but not good either. The economy’s growth has been below par – about 2.4 per cent over last calendar year - and so has the story on employment and unemployment. What about the future? Well, the Reserve Bank is expecting the economy to speed up a bit to 3 per cent a year, which should improve employment growth and eventually get unemployment down a bit.
Why should the economy speed up? Because we’re getting close to completing our slow transition from an economy lead by mining expansion to an economy lead by all the other industries, particularly service industries. By the end of this year, for instance, we should be close to having completed the great fall-off in mining construction. Without that big negative, the growth figures will look a lot better. Meanwhile, the main source of growth in the economy and in employment – the services sector – will continue expanding and exporting. Services exports – particularly tourism and education, but also, increasingly, business services such as consulting – have been growing well and will continue growing. Even manufacturing is stabilising and getting ready for some growth – notwithstanding the continuing bad news in the media.
But this is where we get back to our statistician who’s comfortable on average. For more than the past decade – and because of the huge change in the structure of our economy brought about by the resources boom – the national-average story has been quite unrepresentative of any of the states of Australia. It gave us a two-speed economy and we’ve still got one – it’s just that the leaders and laggards have reversed. When export prices for coal and iron ore were shooting up and new mines and natural gas facilities being built, the two mining states – Q and WA – grew strongly, partly at the expense of the rest of Australia, particularly NSW and Victoria. Now, however, the roles are reversed. NSW and Victoria are steaming along quite strongly, helped by the big fall in interest rates and the dollar’s return to more normal levels, whereas WA and Q are still mired by the contraction in mining construction. That’s particularly true of WA, whose economy is dominated by mining, but less true of Queensland, which has a more balanced economy, being big on tourism as well as mining.
Together NSW and Vic account for more than half the national economy, whereas Q and WA account for more than a third, leaving SA, Tas and the territories accounting for the remaining eighth. This division between the mining and non-mining states turns out to have big implications all the worrying we’ve done about the weakness in non-mining business investment spending, when we need it to be growing strongly to counter the contraction in mining investment. Turns out non-mining investment is growing reasonably in Victoria, and quite strongly in NSW, but this has been masked in the national figures by falls in non-mining investment in the mining states.
Since I imagine that most of you do most of your business in Sydney and Melbourne, it’s really what’s happening in the NSW and Vic job markets that’s of most relevance. And here, as we’ve seen, the story is better. NSW’s unemployment rate of 5.2 per cent, is much better than the national average of 5.8 per cent. This too is unchanged from a year earlier. Even so, there’s been no growth in employment over the year, with a small fall in full-time employment largely offset by a rise in part-time employment. The story is best in Victoria, even though its unemployment rate of 6 per cent is a little higher than the national average. Its total employment grew by 100 thousand – more than 3 per cent – with more than half that growth coming from full-time jobs.
I conclude from all this that the economies and job markets of Melbourne and Sydney are in good shape, and likely to stay that way for the coming year and beyond.
While we’re on state differences, let me just note quickly that while WA and, to a much lesser extent, Qld, have outsized mining and construction sectors, and SA and particularly Tasmania have bigger rural sectors, dependence on manufacturing is spread fairly evenly spread between the states. Where NSW and Victoria stand out from the others is in their reliance on business services, particularly financial and insurance services, but also “professional, scientific and technical services. Sydneysiders know this, but I suspect many Victorians don’t.
Finally, let me say a few cautionary words about the recent debate about jobs and the future of jobs. Some people are taking the fact that all the extra jobs we’ve generated in recent times have been part-time, joining it with all the talk about the “gig economy” and concluding the nature of employment is about to change unrecognisably, if it hasn’t started already. Permanent full-time jobs will become a rarity, and most jobs will be based on short-term contracts, or be part-time and casual, with many people being self-employed and supplying services to a range of businesses at any one time.
It’s safe to predict that the nature of work and work relationships will change in coming years, but this dystopian vison is far-fetched. The first objection is that the present absence of new full-time jobs is a product of temporary weakness in the economy, which won’t last, not the start of a long-running trend. The second objection is that it fundamentally misunderstands the needs of employers. The futurologists of digital disruption assume that businesses want to have as little contact with and commitment to their workers as possible. This has some truth, but it assumes all labour is the same – unskilled – and always in oversupply, that work is episodic, tasks are discontinuous and employers have no reason to care who they employ. It assumes away continuing relationships with customers, costs of recruitment and training, the need for people who work in teams to know and get along with the other team members, and the presence of what economists call “firm-specific knowledge” – the way we do things around here – not to mention institutional memory – we tried that and it didn’t work. A casually employed, ever-changing workforce is OK for some things - cleaning offices, making up rooms in a hotel, serving behind a counter, stacking shelves – but not for others. For many jobs, firms need skilled workers, whose skills are not easy to come by, who will make a long-term commitment to the firm and its goals, who know a lot about the business’s procedures, products, customers and suppliers, who are engaged enough to suggest small innovations, and who won’t run off to work for a competitor just for another sixpence.
I think that’s what most of you are on about, and are here to discuss how we may be able to help you with it.
