MICHAEL KEATING. How good is the labour market?

The Australian economy has been stagnating for the last five years, with annual GDP growth averaging only 2½ per cent, and only 1¾ per cent for the last four quarters ending last September.

This compares poorly with trend GDP growth in the past at an annual rate of 3½ per cent between 1974 and 2008.

As Labor member, Andrew Leigh, put it in a recent hearing of the House of Representatives Economics Committee:

We have seen declines in labour productivity for the first time on record, the slowest wage growth on record, declining household spending per capita, record household debt, record government debt, below average consumer confidence, retail suffering its worst downturn since 1990 and construction shrinking at its fastest rate since 1999.

However, as the Governor of the Reserve Bank, Phillip Lowe, was quick to reply to Andrew Leigh: ‘One thing that you left out of that list is that a higher share of Australians have jobs today than ever before in our history’.

And certainly the Government relies almost exclusively on its record of job creation when touting its economic management credentials. As Scott Morrison boasted in his Press Club speech just before the beginning of the Parliamentary year: ‘More than 1.5 million jobs have now been created since our Government was first elected, … with over 260,000 jobs added in 2019’.

On the face of it, the labour market is apparently in good shape, but how good do many Australians actually feel about their jobs, and how confident are they about their future employment prospects?

First, many of the jobs created have been part-time jobs, and so the total number of jobs created exaggerates the increase in the demand for labour. Thus we find that over the life of the Coalition Government, between 2013 and 2019, total employment increased at an annual average rate of 2.0 per cent, but the total hours worked only increased at an average annual rate of 1.1 per cent. This rate of increase in total hours worked is not much more than half the rate of increase in employment, and not much more than half the 1.9 per cent rate of increase in hours worked achieved during the Hawke/Keating era from 1986 to 1996 (see Table 1).

The counterpart of this bias towards part-time job growth has been that the rate of underemployment has not come down as much as the unemployment rate. An increasing proportion of employees would like to work more hours than are currently available to them.

Second, the only industries where the hours worked have increased faster than the average are a few service industries. In most of the goods industries, other than construction the hours worked have fallen in the last six years[i], and in some for much longer (see Table 1). Furthermore, even among the service industries the rate of increase in hours worked has tended to fall over time – the main exception being health care and social assistance, which may reflect the increased demand from an ageing population.

Third, this changing pattern in the industrial distribution of employment is also reflected in the changing distribution of employment by occupation. Thus we find that the share of both male and female employment in the traditional blue collar jobs has fallen over time (see Table 2). In addition, this fall in the share of jobs that do not require a university degree has extended to both clerical and sales occupations. By contrast, the share of people in jobs that require higher skills as managers, professionals and community and personal service occupations has increased very markedly over the last three decades.

Fourth, by and large, this change in the distribution of jobs by industry, occupation and part-time employment opportunities has tended to favour females. Many male employees now find themselves in jobs that don’t have buoyant future growth prospects. Consequently, their job security is less than in the past, and their bargaining power for higher wages has been reduced.

In sum, the skewed distribution in where the jobs are being created suggests that many Australians, and particularly males, are missing out. If you are highly educated you can expect to get a good job, but most industries and occupations are stagnating. The people in these jobs probably have good reason to believe that they are doing it tough and wonder much more than they used to about their future job security.

One likely consequence of this much less buoyant labour market is that workers, and perhaps especially male workers, are becoming more risk averse. This increase in workers’ risk aversion may have led them to modify their demands for wage increases and would help explain the low rate of wage increases in recent years, which have been holding the economy back.

Workers are also less likely to switch their jobs if the labour market is less buoyant and they are more risk averse. Significantly, job-switching is typically associated with higher pay – especially for those who switch, but a higher rate of job-switching also flows through to the pay of job-stayers, although to a much lesser extent.

Thus, recent Treasury research found that job-switching rates fell by about 2 percentage points between 2003 and 2015 (the end-date of their data), and it is very likely that this fall has continued since. The Treasury research found that this 2 percentage point decline in job-switching was associated with a ½ percentage point decline in average annual wage growth – a substantial part of the recent decline in wage growth.

In addition, this less fluid and less dynamic labour market may also be impacting the transmission of technological change and the rate of productivity growth. Adoption of new technologies is assisted when workers switch to the most productive firms, and the Treasury research found that the difference in employment growth between a high and low productivity firm fell by 1½ percentage points after 2012, since when the rate of productivity growth has been lower.

Finally, this lack of confidence that many workers are experiencing regarding their future job prospects may also be affecting their political attitudes. Today, the Labor Party no longer has the exclusive loyalty of workers. Instead, ever since John Howard targeted and gained the support of “tradies”, the Coalition has increasingly targeted support from those workers who feel less secure, both in their jobs but also more generally, and who oppose change.

Often these people respond to what they see as a loss of security and status by embracing nativism and are attracted by strong leaders. Typically they are unquestionably loyal to inherited values, and can be hostile to pluralism, viewing it as another challenge to inherited values. They also mistrust experts, especially when that advice clashes with their inherited beliefs and traditional way of life.

My argument is that Morrison won the last election because (like Trump) he appealed to these people who feel that they have lost security and status, and who therefore oppose change. Morrison offers reassurance to this group of voters, who feel themselves threatened by change, partly because of his style, but also because of his resistance to real policy reforms.

If Labor is to be competitive, it needs to develop policies that will restore the confidence of these workers that they have a good future. I don’t think this is an impossible task.

 

Table 1: Increase in hours worked by industry

Average annual percentage increase

Industry

 

Financial Year Ending
1986 to 1996 1996 to 2007 2007 to 2019 2013 to 2019 1986 to 2019
Agriculture -1.1 -1.5 -0.7 1.0* -1.1
Mining -0.7 4.6 4.1 -3.0 2.8
Manufacturing 0.2 -0.7 -1.1 -0.7 -0.6
Electricity, gas, water & waste -4.1 1.4 2.9 0.8 0.2
Construction 2.3 4.2 1.8 2.7 2.7
Wholesale trade 1.9 -0.6 -1.0 -2.6 0.0
Retail trade 1.3 1.9 0.3 0.9 1.1
Accommodation & food services 4.1 1.1 1.5 1.4 2.2
Transport, postal & warehousing 0.8 1.4 1.7 1.6 1.3
Information media, & telecommunications 2.2 1.8 -1.0 -0.6 0.9
Finance & insurance 1.1 1.9 0.6 0.6 1.2
Rental, hiring & real estate services 1.9 4.7 0.5 0.7 2.3
Professional, scientific & technical services 6.3 3.3 2.5 1.6 3.9
Administrative & support services 5.9 2.6 1.2 0.6 3.1
Public administration & safety 1.8 2.1 1.0 0.5 1.6
Education & training 3.9 1.4 2.4 2.1 2.5
Health care & social assistance 2.6 2.9 3.7 3.4 3.1
Arts & recreation services 4.1 3.0 2.3 2.1 3.1
Other services 3.3 -0.2 1.1 1.4 1.3
All industries 1.9 1.6 1.3 1.1 1.6

* The average annual increase of 1 per cent shown for the hours worked in Agriculture between 2013 and 2019, is an anomaly. It reflects a very low number of hours worked in 2013, and in fact the hours worked fell slightly between 2012 and 2019.

Source: ABS, 2019, Australian System of National Accounts, 2018-19, Cat. No. 5204, Table 15.

 

 

Table 2: Shares of employment by occupation

Percentage of employment
Years Males
Managers & professionals Community & personal service Clerical & admin. Sales Blue Collar*
1971 17.2 8.4 58.1
1981 19.0 8.3 54.8
1986 28.9 3.7 8.4 6.0 53.0
1990 30.1 3.9 7.8 6.5 51.7
1995 30.6 4.2 7.4 7.1 50.7
2000 32.1 4.7 7.2 7.0 49.0
2005 33.1 5.0 7.0 7.3 47.6
2015 35.0 6.1 6.6 6.8 45.5
2019 34.9 6.1 7.0 6.3 45.7
Years Females
1971 16.3 32.0 19.7
1981 18.9 31.9 15.2
1986 25.4 8.4 32.3 13.2 20.7
1990 25.9 9.4 31.7 13.1 19.8
1995 27.1 10.9 30.1 13.7 18.2
2000 28.6 12.1 29.0 14.3 16.0
2005 31.7 12.9 26.4 14.3 14.7
2015 37.1 15.2 22.6 12.3 12.8
2019 38.0 16.4 21.3 11.1 13.2
  • Comprises technicians and trades, machinery operators and drivers, and labourers.

Source: Bell & Keating, 2018, Fair Share, MUP, Table 6.3, and ABS, Labour Force, Australia Detailed, Quarterly, Table 07, Cat. 6291, Nov. 2019.

[i] The average annual increase of 1 per cent shown for the hours worked in Agriculture between 2013 and 2019, is an anomaly. It reflects a very low number of hours worked in 2013, and in fact the hours worked fell slightly between 2012 and 2019.

Michael Keating was a former Secretary of Prime Minister and Cabinet and Finance.

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1 Response to MICHAEL KEATING. How good is the labour market?

  1. Wayne McMillan says:

    The nature of the jobs created is precarious. Many unskilled, skilled and professional workers are on fixed term contracts that have little in built room for wages growth. Australian workers have had to amass considerable household debt as wages have been insufficient to keep up with the cost of living. In addition the decline in unionism and collective bargaining has driven down wages. Employers have had the perfect storm to increase profits and senior executive managers in large public corporations have been able to increase shareholder value and their remuneration packages at the expense of workers.

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