The future of joblessness

Although labour demand is not quite keeping up with jobs, the labour market remains broadly stable. This is hardly surprising, given the strong fiscal and monetary stimulus. This is now expected to decrease gradually in the next few months.

Yet we are still left with very high rates of effective unemployment (which includes the under-employed and discouraged workers). For example, total unemployed has now reached about 11%, Newstart Allowance jobseekers are some 31.5% higher at 564,601, compared with last year, and young people (up to age 24) have hit almost 12 percent.

This is of concern to the Government, to people like Ross Gittins and Tim Colebatch and many of their readers but it is of no concern to the RBA (or people like Michael Stutchbury in the Australian) because they argue that the economy is not operating too far below capacity – and their forecasts of unemployment are very positive. In fact, the RBA is dead set to increase interest rates up a few notches (one of the tiny few central banks to do so).

This raises the issue which I discussed in a recent article (In Economic Papers March 2005). It is now raised by Mark Thoma: will there be a new normal for structural and frictional unemployment?

Should Australia expect an increase in structural unemployment (unemployment arising from technical change and changes in composition of output)?

The answer for Australia must be yes. If our exchange rate remains close to parity with the US dollar, there will surely require a big shift in resources required to assist the WA, Queensland, NT and SA mineral developments. Tourism, agriculture and manufacturing will have to stagnate.

This will require the Government to invest heavily in labour market programs such as in job training and encourage relocation geographically (further labour market deregulation is now largely dead). This will be a big challenge for the budget.

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Don Arthur
Don Arthur
12 years ago

According to the most recent ABS stats, the proportion of men who are employed full-time is at an all time low.

There’s been a significant decline in male full time employment. If the pattern is the same as previous recessions, the proportion of men employed full-time will not return to its pre-recession level.

Looking at male employment by occupation makes me think something structural is going on.

Tony Harris
Tony Harris(@tony-harris)
12 years ago

Fred, as you might expect, I am not convinced that we are being kept afloat by running up debt, more likely it is the Chinese demand for our stuff that is the active ingredient. As for ongoing employment, the problem is the re-regulation of the labour market and more spending on labour market programs is not the first best way to address the issue.

vanaalst.robert
vanaalst.robert(@vanaalst-robert)
12 years ago

“Looking at male employment by occupation makes me think something structural is going on.”
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How about adding these two to overall male employment, rather than just looking at employment by occupation:
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1) More long-term employment growth areas (e.g., healthcare) are dominated by women than men. Mining is the only exception that comes to mind (and things like healthcare employ far more people than mining).
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2) Most jobs in job growth areas require a degree, despite the government’s rhetoric (there is data on the ABS site about this — there is almost no job growth for unskilled labour), and the proportion of women graduating from universities has been slowly rising for a long time (it’s now around 60%). This is true across the Anglosphere (from memory, NZ is around 66% and the US is also around 60%), so it’s no doubt a cultural effect that will continue into the long term.
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Given these two, it’s no real surprise that male employment is down and will be so in the long term.

Don Arthur
Don Arthur
12 years ago

Fred – I think the long-term structural story is far more significant than short-term cyclical movements.

It’s like the movement of tectonic plates. Every recession, industries which have becoming less and less viable suddenly go to the wall. A similar thing happens when exchange rates shift.

Everyone pays attention when a manufacturer goes broke or gets bailed out, but then they lose interest when the crisis passes. Meanwhile the underlying structural shifts continue.

Looking at the data back in 2006 Paul Frijters and Bob Gregory reported:

… between 1996 and 2002 economic growth did produce more male full-time jobs, but all were at the high-skill end. It is only during the last few years, 2002 2005, that full-time employment among the less skilled has begun to increase, perhaps largely in response to the construction boom.

It seems to me that the employment to population figures are more telling than unemployment rates. Not all of these men show up in the UE figures. Many are move into part-time employment or become not in the labour force.

Frijters and Gregory noted:

Australia seems to have found a new labour market equilibrium in which 1 million, mainly low-skilled, men are without full-time employment and on long-term state support. The loss of male jobs also seems to be spilling over into female employment, witness the 1.2 million increase in welfare support among women.

As far as I can tell, governments have done little to address this problem. Labour market programs don’t transform low-skilled job seekers into high skilled workers. Typically they retrain low-skilled workers for low-skilled jobs in different industries.

And as opportunities for well-paid, secure, full-time employment diminish, welfare to work policies put more and more pressure on jobless people to accept whatever work is available.

Neither training or welfare to work policy addresses the underlying problem. And even if it’s successful, an education revolution or early childhood agenda will do nothing for today’s jobless adults.

I’d love to see an update of the Frijters and Gregory analysis.

Patrick
Patrick(@patrick)
12 years ago

I agree with Conrad and I agree that it is structural. Surely we would expect higher permanent male unemployment as the price of greater workforce participation across both genders?

Don Arthur
Don Arthur
12 years ago

Surely we would expect higher permanent male unemployment as the price of greater workforce participation across both genders?

That’s an interesting comment. Why?

Conrad suggests that there’s been a shift in the skills employers demand. I think he’s right. Manual skills and physical strength are less important, cognitive and interpersonal skills are more important — especially interpersonal skills.

This shift favours women. There’s no lump of labour that needs to be shared out between the genders.

It’s harder to see what’s going on with female employment than it is with male. Movements of less-skilled, less educated women out of employment are masked by the shift of women from household production (house work, child care etc) into paid work.

vanaalst.robert
vanaalst.robert(@vanaalst-robert)
12 years ago

“As far as I can tell, governments have done little to address this problem”
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I imagine this isn’t surprising because it’s an exceptionally hard problem to address — what does one do with a bunch of people, many that have no real skills and many who’s industries are/will move off-shore, never to return (and, being politically incorrect, some of whom are probably not especially intelligent and some of whom probably haven’t used their brains for years)? People blame governments for this, but it seems like an inevitable consequence of globalization to me — the type of work this group used to do isn’t available anymore. Thus, those caught in the middle of it are going to have a hard time. On this note, I think the government is doing a lot with the TAFE system (etc.), but I think the group we are talking about is very hard to work with. Thus whilst one can blame the government, I think you can only blame them so much.
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“Its harder to see whats going on with female employment than it is with male”
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I think the story with women is all positive — we’re seeing good employment rates despite the baby-boom of the last few years — something that presumably should be making it harder for women to get jobs (especially those returning to the workforce).
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“Surely we would expect higher permanent male unemployment as the price of greater workforce participation across both genders?”
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I don’t get that either (I could be ignorant, not being an economist). I would have thought greater workforce participation of both genders would lead to greater workplace productivity, and thus whilst males might be displaced in some industries, there should be more work in general going around. In addition, at a guess, the industries that are employing the type of males that can’t transfer jobs as easily are not the ones many females are entering (mining, building, etc.).

David Coles
David Coles(@david-coles)
12 years ago

The US has a similar problem – see this comparison broken down by age, race, sex and education level.

Don Arthur
Don Arthur
12 years ago

Can anyone tell me what’s happening with employment in construction?

Did the downturn reduce employment among skilled workers in construction trades? What’s likely to happen as we move into recovery?

I noticed a significant fall in ‘Technicians and Trades Workers’ in the ABS data.

Patrick
Patrick(@patrick)
12 years ago

Don Arthur, to be clear, I didn’t mean to imply that there was a given lump of labour to re-allocate. I fully agree that increased female workforce participation should increase productivity and increase overall employment (subject to any structural constraints).

But if female participation went from 0-50%, and unemployment was equally shared across participating males and females but remained constant as a percentage of the participating workforce, then there would be both higher absolute employment (more work) and higher male unemployment.

I don’t think I am disagreeing with anyone. This could easily co-exist with the shift in required skills that you suggest.

derrida derider
derrida derider
12 years ago

Don, pick apart the age specific employment rates of male full time emloyment (6291.0.55.001). You’ll soon see the long run decline is mostly a product of simple workforce aging, with higher male education retention rates accounting for much of the rest.

And employment in every other category has risen, often strongly. 2008 saw the highest proportion of the Australian population in paid employment since white settlement began.

Don Arthur
Don Arthur
12 years ago

derrida derider – I’ve wondered about the effect of aging and participation in education.

What do you see if you graph the proportion of 25-34 and 35-44 year old men in full-time employment? Do you see a long-term upward trend punctuated by recessions?