Monday, 29 July 2013
Job creation no government miracle - Judith Sloan 27/7
ONE of the things that really gets my goat is members of the government claiming "we have created a million jobs".
Take this quote from Brendan O'Connor, Minister for Employment, Skills and Training: "Since the Labor government came to office in November 2007 we have created almost one million jobs, and our average unemployment rate is just 5.1 per cent - one of the lowest in the developed world."
Other ministers are slightly more careful with their language. For example, Health Minister Tanya Plibersek more modestly, albeit inelegantly, stated that "Australia's got almost a million jobs extra since the global finance crisis".
Even so, there are two empirical problems with these claims. The first is that the figure is actually closer to 900,000 than one million. And second, the labour force has grown considerably more than the numbers of employed persons since the Labor government was first elected in 2007.
The number of employed persons is up by 924,00 but the labour force has grown by 1.17 million. The gap is close to 250,000. There have been insufficient new jobs to absorb the growing labour force.
And why quote an average unemployment rate? Here are the facts. When Labor was first elected, the rate of unemployment was 4.3 per cent. It is now 5.6 per cent. And were it not for the fact that the participation rate has slipped noticeably - from 65.5 per cent in December 2007 to 65.2 per cent now - the rate of unemployment would be greater than 6 per cent.
The bottom line is that the government has a bit to brag about when it comes to the labour market, but it's best to keep the swagger in check. Employment did hold up well after the GFC, but has been relatively soft since the beginning of 2011.
There are now more than 700,000 unemployed people and another 900,000 who are underemployed, in the sense they would like to work more hours each week. The immediate outlook for the labour market is relatively gloomy.
But my bigger beef with the claim that "we've created a million jobs" is that it is factually untrue. Employers create jobs, or taxpayers provide the money to enable public-sector jobs to be created. Governments do not create jobs.
Governments may provide an environment which is conducive to jobs growth. Equally, they may erect barriers - regulations and taxes immediately spring to mind - which reduce the number of jobs.
If we consider where the jobs have come from over the past five years or so, we see that the strongest growth has been in healthcare and social assistance (see chart). Many of the jobs in this sector are either in the public sector or are indirectly supported by government funding. Moreover, healthcare and social assistance is now the largest single sector in employment terms, having overtaken retailing at the beginning of 2010.
Not surprisingly, employment in mining grew strongly over the period, in line with rising commodity prices, but we should not forget there are still only some 260,000 jobs in mining (out of a total of 11.7 million employed people) - and that number is now falling. In the year ending May 2013, the number of jobs in mining fell by some 16,000, or 6 per cent.
A fair proportion of the growth in professional, scientific and technical services jobs has been related to the mining boom. In the year ending May 2013, employment in this sector also declined - down by 17,000 or 1.6 per cent.
Retail trade essentially moved sideways over the period, but has declined since 2011; and manufacturing has been in freefall for most of the period.
So where will the jobs come from in the future? This was a question posed recently by Reserve Bank governor Glenn Stevens in a speech he gave to the Economic Society in Brisbane. Essentially, his argument is that we don't really know where the jobs will come from, but there is no reason to despair.
He recalled the deeply dismal atmosphere of the early 1990s when there was a widely held view that unemployment would never fall - recall that unemployment peaked above 11 per cent - and there was very little confidence in the sources of new employment.
He noted that "areas of the economy that we often don't think about have proven to be major drivers of growth. Over the 21 years to mid-2012, real GDP rose by about 100 per cent. Only three percentage points of that 100 per cent came from manufacturing.
"The largest contributions came from financial services (13 percentage points), mining (10 percentage points), construction (nine percentage points), professional services (eight percentage points) and healthcare (seven percentage points)."
Are there reasons to be optimistic about the prospects for the labour market as the economy now makes the difficult transition from one based almost entirely on mining investment to other sources of growth?
Hopefully, the falling dollar will restore some competitiveness to the traded-goods sector - manufacturing, tourism, higher education - that has struggled over the past few years.
There was another important comment made by Stevens in his speech. He posed the question: "Is the combination of regulatory structures of various kinds - however well-meaning and valid in their own terms - imposing unnecessary and excessive costs of compliance, or creating undue complexity for business?"
The key difference between now and 20 years ago is that, in the early 1990s, there was an acknowledgment that government needed to get out of the way of business. Now we have a government that has imposed more and more regulatory burdens on businesses across a range of areas from industrial relations to development approvals, taxation, workplace health and safety: the list goes on.
So don't be fooled when the government says it created a million jobs. What it's not telling you is how many jobs could have been created had it removed regulations, lowered tax and generally got out of the way.
Posted by Geoff Seidner at 8:59 am