How to Fix the SA Job Shock

Hopes were high that there might be calm before the economic storm next year. Unfortunately, successive months of decline in the unemployment rate at the end of last year appear to be over.

The Australian Bureau of Statistics’ (ABS) seasonally adjusted unemployment rate soared from 6.8 percent in January to 7.7 percent in February. While this might be subject to correction next month, a spike like this indicates the more reliable trend unemployment rate of 7.2 percent will follow a similar trajectory. In any case, we have to face the fact that the situation is much worse than the headline unemployment rate indicates. The ABS labour force underutilisation rate provides us with a more complete picture of the health of the labour market. When you take account of underemployment (those who would prefer to work more hours), South Australia has an alarmingly high labour force underutilisation rate of 17 percent (19 percent for women) compared to 14 percent for the nation. So what is driving this? Well, business and public sector investment is not sufficient to generate a rate of employment growth that is capable of o ffsetting continued job losses. The winding down of the auto industry, sustained pressure on manufacturing globally, and the struggling steel, minerals and energy sectors are all contributing to this. Compounding the poor jobs outlook is the end of a mini-boom in engineering and construction projects in South Australia. Major projects such as the new RAH are about to reach completion and we don’t have enough new large-scale projects coming on stream to bridge this valley of death. One bit of good news on this front was the agreement between the federal and state governments to fund the Northern Connector road project – emblematic of a signi ficant thawing in relations between the two levels of government since the ascension of Malcolm Turnbull. On the downside, we continue to be confronted by uncertainty about whether the federal government will deliver on its ship building commitments to South Australia. We need to move beyond a myopic local debate about our jobs woes. There is pervasive naivety among some commentators about the capacity of the state government to solve unemployment. It can play a role but not a decisive one given that so many of the causes of job loss locally are driven by national and global forces and policy settings. The federal government can and must do more to assist South Australia. A prime example of this is the impact of the exchange rate on the competitiveness of our manufactured goods. We know that the high Australia dollar acted like a wrecking ball on Australian manufacturing. Driven up by the resources boom, on the back of insatiable demand for iron ore from China, this was a consequence of a national commitment to a floating exchange rate. The state government had no ability to in fluence this. It has been burdened by the economic, financial and social costs of an unfavorably high dollar while the mining states reaped great rewards from their exports to Asia. The answer, in part, to this imbalance in fortunes, is the provision of assistance from the federal government to help deal with what are exceptional circumstances. While the probability of closure of the automotive industry rose along with the Australian dollar it was not the only cause. The persistent unwillingness of the federal government to con firm a commitment to co-investment with GMH was the final nail in the co ffin of the carmaker. It had a domino e ffect on the rest of the industry. Again, the South Australian government could do little to influence the outcome except make a commitment to investing in an adjustment package to help the local industry and workers. While the federal government made a contribution to this it was based largely on inappropriate precedents – past plant closures rather than the closure of an entire industry. With the change of leadership, federally, a more constructive dialogue has to open up between the state and the federal governments about the need for additional assistance to adjust to the automotive closure. While this is very welcome it is clear that the commitments made so far by the Commonwealth won’t prevent the unemployment rate rising above 10 percent over the next few years. The labour underutilisation rate would approach 19 percent. In the regions most a ffected by the automotive closure, unemployment rates are set to rise to around 14 percent. All of this would generate great hardship for workers, businesses, families and communities. Con fidence would dive along with incomes. Health and well-being would su ffer. The crisis this represents is entirely preventable. While we can’t save the automotive industry we can mitigate much of the immediate impact of the unfolding closure on the state. The key is a commitment by the federal government to a twin-track strategy involving short-term stimulus and medium-term industry diversification and transformation. These must go hand in hand if we are to have any prospect of containing unemployment in the face of ongoing threats to our manufacturing, steel and defence industries. In the short term, the scale of the intervention must be substantial and immediate to be successful – around $6 billion worth of new federal government infrastructure investment over the next four years would help. The state government could and should use its ability to borrow at low interest rates to make a contribution to this stimulus package. Over the medium-term, there is no escaping the need for fundamental transformation of the South Australian economy. A good start to this is an unequivocal commitment from the federal government that South Australia will be home for manufacture of the 12 submarines and the fleet of o ffshore patrol vessels. In an election year, all of this and much more must be at the forefront of public debate for South Australia. John Spoehr is Director of the Australian Industrial Transformation Institute at Flinders University @JohnSpoehr