The death of manufacturing — overrated and overstated

There’s a peculiar economic belief in Australia that is quite unrelated to partisanship or political ideology. It may reflect something more cultural than political, but it crops up right across the spectrum, from both the cultural and industrial left all the way over to the far right. It’s the belief that manufacturing jobs hold some special status in an economy, that they’re somehow more real, and thus more deserving of support and protection, than other jobs.

“Making things” seems to exercise some irrational hold on a variety of different minds. For example, on Wednesday, veteran conservative business commentator Robert Gottliebsen fretted that “we need to face the fact that, like the US, we decided to abandon our manufacturing base and overcame the standard of living implications of that decision by heavy bank borrowing to fund a housing boom”.

This idea persists despite a wealth of evidence that the loss of manufacturing jobs has been more than offset by gains in other, more important industries. In a speech this week in Sydney, deputy Reserve Bank governor Guy Debelle gave a major speech on the Australian labour market (his area of expertise) and addressed this and other myths. He noted that the majority of the jobs created over that last two years — over 600,000 — have been full time, despite years of concern from unions about casualisation and the gig economy. On a trend basis, 443,100 new full-time jobs were created, against 180,300 part-time.

The majority of these jobs have gone to women — 336,400 versus 287,500. As a result, the participation rate — which was supposed to be falling because of our ageing population — has improved from 64.8% in August 2016 to 65.6% (a record high). And the female participation rate is at, or near, record levels.

That strong growth continued in September, according to yesterday’s jobs data from the ABS, even if the participation rate came off a bit. The trend unemployment rate was 5.2%, after the August rate was revised down to 5.2%, meaning unemployment has been at the lowest it’s been since the Gillard years. Around 26,000 new jobs were created in trend terms in the month, and around 290,000 jobs were created in the year to September — a growth rate of 2.4%, still well above the 20-year rate of 2%. 

Debelle notes — as Crikey readers will know — that healthcare & social assistance has been a key source of that jobs growth. Try telling a nurse or doctor, or the patients they’re treating, that what they’re doing is “just” a service job and isn’t as real as making something. He also notes that construction has been a strong growth driver, too. And there’s another, more surprising source of new jobs: manufacturing.

 Recently, there has been a noteworthy increase in manufacturing employment as a result of export demand for high-quality food and beverage products, demand for manufactured goods from mining-related activity as well as the high levels of residential and infrastructure construction, which need manufactured inputs. This more recent pick-up in manufacturing employment takes it back to its level around 2011.

So much for abandoning our manufacturing base. And that growth is before the ridiculously expensive defence industry growth we’re going to waste tens of billions on in coming decades.

Debelle is still sticking to a more traditional line on wages growth, which he says has partly been curtailed by workers being less inclined to move jobs — although turnover is now increasing, he says. He also says there’s evidence employers are offering non-cash incentives to keep workers. But by and large he expects “a gradual increase in wages growth and, in turn, inflation”.

Except, it’s going to be very gradual, even if you don’t take into account that private sector workers have already had five years of stagnant wages. “The recent international experience indicates that the unemployment rate could decline further than historical experience would suggest before we see a material increase in wages growth. But against this, further increases in labour demand may be met more from the pool of unemployed rather than from people not currently in the labour force. That is, the unemployment rate may decline faster than we expect, rather than the participation rate increase further.” 

As we’ve observed so often before, don’t hold your breath for a pay rise. But it might help if you changed jobs.