Credible forecasts reveal the gravity of South Australia’s jobs crisis, and innovative approaches are needed to increase our competitiveness, argues economist Richard Blandy.

ABS unemployment figures always generate a lot of interest – and rightly so. But the month-to-month figures, in particular the seasonally adjusted figures, can jump about a bit and may not provide a guide as to their general trend.

The ABS’s month-to-month trend figures generally provide a more reliable indication of what the labour market is doing than the seasonally-adjusted figures.

But there are other data published about the labour market that are at least as useful in terms of knowing what is likely to happen to jobs. Every year, the Commonwealth Department of Employment provides employment projections by industry, occupation, skill level and region for the following five-year period. These employment projections are designed to provide a guide to the future direction of the labour market. Like all such exercises, they are, of course, also subject to an inherent degree of uncertainty.

By the same token, the department’s employment projections are derived from best practice forecasting techniques. These forecasts are useful for assessing what occupations look promising for young people to choose and where to go to look for work. They are also useful for assessing which States have good employment prospects, and which do not.

The most recent forecasting exercise provides projections from November 2014 to November 2019.

Employment Growth November 2014 – November 2019 by Region, %

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Employment in New South Wales, Victoria, Queensland, Western Australia,  and the Northern Territory are all expected to grow at about, or more than, the overall jobs growth rate for Australia as a whole – i.e. by 10 per cent.

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Employment growth in South Australia, Tasmania and the ACT is expected to be significantly less than elsewhere in Australia, with jobs growth in South Australia estimated to be the worst of all the states over the next five years.

This is a measure of the gravity of the jobs crisis facing South Australia.

Our jobs crisis is not temporary or short term. It is not just related to the closure of Holden’s or what happens at Osborne. It is embedded in something much more general – we are broadly uncompetitive, despite many areas of excellence.

What is particularly disturbing is that jobs growth in Adelaide over the next five years is expected by the Commonwealth Department of Employment to be far weaker than jobs growth in any other capital city, even Hobart.

In what industries are jobs likely to occur? In Australia as a whole, the sectors growing at above average pace (10 per cent) are expected to be: Health Care and Social Assistance (18.7 per cent), Education and Training (15.6 per cent), Professional, Scientific and Technical Services (14.4 per cent), Accommodation and Food Services ( (13.9 per cent), Arts and Recreation Services (13.8 per cent), Construction (13.0 per cent), Rental, Hiring and Real Estate Services (12.6 per cent), Financial and Insurance Services (11.3 per cent) and Transport, Postal and Warehousing (10.2 per cent). The only sectors expected to lose jobs are Mining (-17.8 per cent) and Manufacturing (-2.9 per cent).

In South Australia, the sectors growing at above average pace (6.7 per cent) are expected to be: Health Care and Social Assistance (15.5 per cent), Professional, Scientific and Technical Services (12.4 per cent), Education and Training (12.0 per cent), Arts and Recreation Services (11.3 per cent), Administrative and Support Services (10.5 per cent), Accommodation and Food Services (10.3 per cent), Other (9.8 per cent), Transport, Postal and Warehousing (8.7 per cent), Construction (8.3 per cent), and Retail Trade (7.0 per cent). Again, the only sectors expected to lose jobs are Mining (-16.7 per cent) and Manufacturing (-13.4 per cent).

What is striking about this list is that South Australia’s strong sectors are similar to the strong sectors nationally, but slower-growing across the board. This suggests that (manufacturing apart) there is an overarching strategic weakness about economic policy in South Australia. We are not competitive enough where competitiveness with interstate and overseas businesses matters.

Our costs, generally, are too high. As a result, the profits that our businesses make (in competition not only with each other but with interstate and overseas firms) are too low to justify the amount of business investment needed to make our economy grow faster.

We cannot get out of the economic hole that we are in without reducing the costs that our businesses incur in order to produce.

There are two ways of reducing costs: increasing the productivity with which businesses use their inputs, or reducing the cost of those inputs.

The first requires implementing more productive ways of doing things – innovation and investment in skills, technology, equipment, buildings and locations. Deregulation can play a powerful role in accelerating the rate of innovation.

The second requires reductions in wages, rents, interest rates, taxes and other costs of production. These are not easy to reduce, either in competitive markets or where markets (like the labour market) are strongly regulated. Cutting business taxes, and deregulation of labour and property markets appear to be the main options.

Deregulation of the labour market is politically unpopular. But some degree of deregulation might be achievable, like deregulating penalty rates, for example. It is also possible that schemes could be developed where wage reductions became feasible.

Wages typically make up about half (give or take) of a business’s costs. So cutting wages has a big payoff in terms of improving the competitiveness of businesses and increasing the rate of growth of jobs in our economy. Clearly, workers would want something that they value in exchange for a wage reduction.

An attractive option might be to increase their job security by making their pay cut a deferred payment, claimable when they leave their employer.

Under this scheme workers would receive their pay cut if they left their employer for any reason whatever, irrespective of whether they quit, were sacked or were made redundant. So the pay cuts would be a system of deferred pay. In the present parlous labour market climate in South Australia, such an arrangement might be valued by workers.

First, it increases the cost to their employer of making them redundant or having them quit. Hence, improved worker-management relations are likely, resulting in increased productivity.

Second, the workers do not lose their deferred pay: it has been saved for them by their employer, to be received when they leave.

Third, the pay reduction cuts the business’s costs and feeds through to greater profits for the business, providing more incentive to invest and at least some of the funds to do so.

Richard Blandy is an adjunct professor in the Business School at the University of South Australia. Read his economic analysis every Thursday in InDaily’s Business Insight.