Dealing with Unemployment

We have heard a lot in the news in recent times of loss or potential loss of jobs at Qantas, Holden, Ford, SPC Ardmona, Gove Alumina Refinery, Port Henry Aluminium Smelter and so on. There has been a lot of gnashing of teeth because the Government wouldn’t step in and have the Australian taxpayer prop up businesses under stress.

Yet in February 80,000 new jobs were created resulting in a net increase of some 40,000 more people being employed. So it seems that whilst in one very visible part of the economy things aren’t doing so well, elsewhere positive things are happening.

Inevitably we seem obsessed by the fortunes of the big corporates and those organisations that are highly unionised. To lose your job is obviously a grave outcome, but it is no less serious for an employee at the local engineering works or supermarket than it is for somebody at Holden or Ford. In fact one of the travesties that results from the selective attention we pay to these outcomes, is that if an employee of a small business loses his job, he is unlikely to have access to the generous redundancy provisions that his counterpart at Ford or Holden will. Of course those generous provisions will probably have contributed to the high labour costs that led them to lose their jobs in the first place! Then to make matters worse for that individual, because of the undue attention that governments, oppositions and unions pay to his counterpart at Ford or Holden he is deprived of the additional training, relocation and adjustment assistance that the government will provide to that counterpart.

We should never forget the fact that the biggest employer in Australia is our small to medium enterprise (SME) sector. Accordingly our employment capability is best nurtured by ensuring favourable employment conditions for SMEs. Whilst the success or failure of individual companies in this sector doesn’t attract the same publicity as the Fords and Holdens, in the end their collective welfare is more important and governments would be foolish to ignore this.

Obviously, if we are to grow employment we need to be cultivating the industry of the future and not trying to recreate the industry of the past. There are a few lessons to be learnt here. Firstly the manufacture of consumer items for mass markets is not likely to succeed in high wage economies such as Australia. In a previous blog I indicated how such industry fell naturally to developing countries and aided their economic growth and the raising of their standards of living. The only manufacturing viable in the long term in high wage economies like Australia is where there is high value add or where defensible niches exist. We have seen now how no amount of government support was likely to maintain a viable auto manufacturing industry in Australia. Our attempts to do so imposed a huge impost on Australian taxpayers. Government subsidies only delayed the inevitable and served to divert resources from more productive usage. Australia has also suffered from the fact that it has only a small domestic market making it difficult to achieve the economies of scale to render manufactures internationally competitive. The rise in the value of the Australian dollar in recent times hasn’t helped as well.

Manufacturing in Australia has fallen by almost 10% since the onset of the global financial crisis even though the Australian economy has grown by 13% over the same period. There has been a human cost associated with this change and we sympathise with those who are hurt in the process. But in the end Australians will be better off by moving resources from our less productive enterprises into more productive enterprises. So putting sentiment aside, this is a logical and wealth creating adjustment.

Economist Saul Eslake writes:

“Australia has only ever had a relatively large manufacturing sector when successive Australian governments forced Australians to pay relatively high prices for what were often poorly made goods (through combinations of high tariffs and restrictive import quotas) in order to guarantee local manufacturers a market (and their employees jobs).”

We need also to come to grips with the fact that over the last twenty years Australia has moved from having comparatively cheap energy to comparatively expensive energy. It is therefore inevitable that energy intensive industry like aluminium smelting can no longer afford to locate here. Our well-meaning carbon tax and renewable energy targets have had little impact at the global level, but at the local level they have become an impost on our economic development.

So we can see that the underlying structure of our economy is changing and that it is impossible to reclaim the past.

For many years I was active in forums exploring “the future of work”. One of the things I discovered was that the proportion of the working population with trade’s qualifications has been declining since the 1960s. I haven’t looked at those statistics for ten years or more but I am sure that trend would have continued. And it’s not hard to understand why this has happened. Over the years, since I commenced work, I saw the role of the tradesperson change.

For example in the workplaces where I first was employed, we necessarily employed large numbers of tradespeople. In those days as parts wore out they were often refurbished by the tradesmen and often new parts were manufactured by machinists. As materials science improved parts were made of more durable materials that substantially increased their lives. Similarly as we began to understand corrosion better and thus we were able to put in place systems and materials that reduced corrosion and therefore also prolonged the life of essential bits and pieces.

In those days when you employed an electrician it was imperative to find someone that was good at “fault finding” and could therefore quickly rectify issues in electrical circuits and control systems. As control technology improved and unit computers became ubiquitous the electrician was guided to the fault by the inbuilt intelligence.

Whereas in the “old days” plumbers were held in esteem for their ability to “lead wipe“ and solder, as technology and materials improved it seemed most of their work revolved around gluing plastic pipes together.

Consequently technology has been ruthlessly eroding the work required by trade staff. This is not to say we don’t need tradespeople – on the contrary their services are crucial to our economy. It is just that we are needing less of them.

Of course, whenever we have a boom we find that our productivity is constrained by the availability of tradespeople. We are often then incentivised to recruit and train more, but generally before the training can deliver additional competent trade staff the boom has waned and we are faced with more unemployed trades people!

In order then to service the new economy, we have to come to grips with the fact that the skills requirements are changing.

Unfortunately for the unskilled and the low skilled much of the work that was traditionally available to them has been automated or reduced by the use of technology. This has had implications for youth unemployment and also has fallen disproportionately on unskilled males. Youth unemployment, as we saw in a previous blog, has also been exacerbated by the re-regulation of the workforce reducing opportunities for part-time work and removing incentives for employing young people. Youth unemployment is currently running at twice the general unemployment and in some disadvantaged communities is as high as 25%.

The union movement focusses its energies in trying to grow (or at least retain) employment in those sectors of the workforce that are traditionally highly unionised. As we saw earlier they would like nothing better than to recreate the employment scenarios of the 1960s when we still had a large manufacturing workforce and restrictive work practices maximised the numbers of unionised employees. Union membership was attractive to employees under these circumstances and union membership assisted in providing job security. Unions ensured that it was difficult to dismiss employees even when there was a strong case to do so. Unions also successfully lobbied to secure such industry behind walls of protectionism and state patronage.

As the economy has become more exposed to international competition the unions’ ability to provide such protection has waned. Consequently it has become harder to recruit members.

In today’s economy, job security is determined more by an individual’s employability. Having skills that are in demand, being prepared to be mobile enough to go where those skills are in demand, and offering those skills at a competitive rate are the prime underpinnings of job security.

And to make matters worse for unions alternative forms of employment are increasing. Part-time work, working from home, self-employment, distributed work arrangements are all on the increase. The union movement however does not promote any of these employment initiatives largely of course because they cannot easily “organise” such employees. If the union movement is to remain relevant it needs to think about how it can service the needs of such employees rather than remain stuck in its 1960s mindset.

As the economy improves, as there is reasonable indication it will, employment will rise generally. Those with a reasonable skills base and who are mobile enough to go where those skills are in demand will no doubt be employed.

However, I think we need to pay special attention to how to reduce youth unemployment and deal with the unskilled. In order to do this we might need to challenge some traditional mindsets – but that I suspect might need to be the subject of another essay.

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