Wednesday, October 23, 2013

Recent Structural Changes in Employment in Australia

This month the Productivity Commission released a report (or more accurately, a supplement to its annual report) on ‘structural change’ in Australia’s economy over the past decade. The phenomenon of structural change has gotten some more notice here over the past few years, particularly from the Reserve Bank of Australia, with production in Australia shifting towards the mining industry.

But why do we care? Well, as the Commission’s report says there are benefits and costs to us from this type of change. On the plus side, resources should be flowing towards the areas of the economy where they are of highest use, therefore raising the value of what Australia produces. This includes workers moving to where they are of highest use, although this concept is often not all that palatable given the human element involved. Which brings us to the costs of structural change – there are costs from moving resources around, including workers, and some of these will find themselves unemployed, at least in the short-term.

Of course changes like this go on constantly, so by structural change we mean something bigger and more lasting than, say, a local clothes shop closing down, as much as that might initially suck for the shop’s owner and staff. Without having an exact definition, we can think of it as something like, for example, one sector increasing its share of Australia’s economic activity by 5 percentage points over several years, while another contracts by the same amount. The RBA showed a few years back, using ‘structural change indices’, that the rate of structural change appeared to have increased in recent years, although by how much depends on which economic variable you look at (i.e. output, employment or investment), and there had been increases of similar magnitude before.

In terms of employment, the Productivity Commission report shows that the recent boom in natural resources in Australia ‘has not been associated with an unprecedented rate of structural change in employment’ (p. 69). Employment has shifted from agriculture and manufacturing towards mining, and also the services sector, which is perhaps less well-known given that you do not tend to hear about a ‘services boom’ in Australia. These trends though have been going on for some time, as the Commission’s report illustrates, and some of them are not unique to Australia – the shift from manufacturing to services for example is common among the most-developed countries. Some of these service jobs will be in relatively low-paying sectors such as retail and hospitality, but others will be in relatively high-paying sectors such as professional services.

Across states, the Commission's report shows that the redistribution of employment is also not at an unprecedented level. The redistribution of employment across states is typically lower than that across sectors; which is interesting, and may or may not be surprising depending on whether you think people are more likely to move from manufacturing to services than from, say, Victoria to Queensland. The report concludes there is evidence that disparities in unemployment across regions have decreased during the 2000s (though they widened slightly between 2008 and 2012).

The report has quite a large section on recent trends in labour adjustments and mobility. Essentially, these trends are what you would expect given the shifts in overall employment between sectors – e.g. manufacturing is attracting fewer new workers.

Articles and reports on structural change in Australia often seem like they should come with a ‘DON’T PANIC’ sticker on them. The RBA said earlier this year that monetary policy cannot and should not prevent structural change from occurring. The Productivity Commission report gives much the same impression of inevitability. This is not to say that such change should be blindly accepted, but that the relative rise and fall of various sectors has happened before, and will happen again.

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