Industry and Workforce
Futures
Mark Cully
Committee for Economic Development of Australia (CEDA),
State of the Nation Conference
June 2015
Writing in his Prison Notebooks in the 1930s, Antonio Gramsci observed:
“The crisis consists precisely in the fact that the old is dying and the new
cannot be born. In the interregnum a great variety of morbid symptoms
appear.”1
We are in an interregnum right now, an economic one at least. In the wake of
the Global Financial Crisis, the developed world is in an economic funk,
dubbed secular stagnation.2 In the 1970s the developed world was also in an
economic interregnum. The post-war reconstruction project came to an end
as the Bretton Woods currency system collapsed and stagflation reared its
ugly head.
I want to make some observations, from an industry and workforce
perspective, about the 1970s, the present, and the future.
Mark Cully, Chief Economist,
Department of Industry and
Science
The 1970s marked the high point of what Paul Kelly called the Australian
Settlement, before the opening up of Australia to the global economy in the
1980s, symbolised by the floating of the dollar in 1983.3
Stepping back in time to then is truly to visit a “vanished Australia”. 4 In 1971
close to two in three women spent most of their time on home duties.5 Among
those who were employed, there were more priests and ministers of religion
than lawyers, more metal trades workers than shop workers, more farmers
than teachers. There were more clerks than all of the professions and
technicians combined. One in every four people worked in factories. A tenth
of that number worked in banks. For those not at school, the most common
level of schooling completed was Year 8, and around 120,000 people (one
per cent of the population) were enrolled at universities or colleges of
advanced education or teachers college. All but one in twenty people
described their nationality as British.6
In 1971 income per head was $26,800 in today’s dollars; in 2015 it has
roughly doubled to $53,000, growth of around 1.6 per cent per annum. 7 It
would be glib to say such is the magic of compound interest. These income
gains have come about through genuine improvements in allocative
1
Cited in Barry Jones, Sleepers, Wake: Technology and the Future of Work, Oxford University
Press, 1982. Jones’s book remains remarkably prescient.
2
See the terrific collection of essays in Secular Stagnation: Facts, Causes and Cures, published
by VoxEU.org as a free e-book.
3
Paul Kelly, The End of Certainty, Allen and Unwin, 1994. The title is telling.
4
In his 2004 book Black Kettle and Full Moon, Geoffrey Blainey used this term to depict daily life
in Australia in the mid- to late 19th century. The time horizon for what has vanished has
compressed, signifying acceleration in the rate of change.
5
For men the answer was zero.
6
All statistics taken from 1971 Census, Bulletin 1: Summary of Population, Australian Bureau of
Statistics.
7
Using the best proxy, real net national disposable income per capita. Source: ABS Cat. No.
5206.001
Industry and Workforce Futures
1
efficiency and productivity, spurred by businesses pursuing profits through
investment and innovation, and governments who stood up to vested
interests to enforce greater competition and invested in productive capacities,
notably in education. Today, almost all school students complete Year 12,
and last year there were 1.2 million people (five per cent of the population)
enrolled in higher education.8
The encompassing term used to describe these processes is structural
change. More precisely, structural change is the shift of resources – people
and equipment – from one industry into another, that change occurring
because those resources are valued more in the receiving than the losing
industry. Structural change is the net outcome of constant turbulence in the
economy. Around one million people change jobs every year, and around a
quarter of a million new businesses are created, while a similar number close
up shop.9
Over the past decade mining has been ascendant and manufacturing has
not; meanwhile, the steady expansion of services has continued. To examine
this through an Australian lens though misconstrues what is happening
globally. Save for Hungary and South Korea, manufacturing has declined
relative to services in all OECD countries. In resource-rich countries, like
Australia, Canada and Norway the shift to services has been moderated.
8
9
Education and Work Australia, May 2014, ABS Cat. No. 6227.0.
Readers interested in understanding more about structural change will enjoy Chapter 2 in the
2014 Australian Industry Report, Department of Industry and Science.
Industry and Workforce Futures
2
Figure 1: Change in services and manufacturing shares of output, selected OECD
countries, 1990–2010
Change of Services share of output, 1990–2010 (per cent)
14
UK
Japan
Greece
12
Spain
Iceland
Ireland
France
Finland
Belgium
10
Italy
8
Netherlands
Germany
Denmark
USA
6
Hungary
South
Korea
Sweden
Austria
New Zealand
Australia
Canada
4
2
0
-2
Norway
-4
12
-10
-8
-6
-4
-2
0
2
4
Change in Manufacturing share of output, 1990–2010 (per cent)
Notes: Data for Germany and Hungary are for 1991-2011. Data for Greece, Iceland, Ireland,
Japan and Spain are for 1990 2009. Output is total industry GVA at current prices.
Source: EU KLEMS Database, OCED STAN Database, ABS cat. No. 5205.0, IMP World
Economic Outlook, Statistics New Zealand Table SND005AA, Statistics Canada CANSIM Tables
3790023 & 3790029.
Many people rue the relative decline of manufacturing and the closure of
iconic factories. As someone who grew up in the northern suburbs of
Adelaide I know what a deep blow the closure of Holdens represents to that
community.10
There is no question that structural change leaves victims in its wake and
does not meet the condition of Pareto improvement – that is, a reallocation of
resources which yields improvement for some with no losers.11 But this is too
stringent a criterion for judging a change, or to justify attempts to forestall it.
The Hicks-Kaldor criterion acknowledges this and says: if those who gain
from a change could compensate the losers and still come out better off, then
it is a change worth adopting.12
The benefits of structural change in Australia have been quite evenly
distributed across the population. Income gains over the past four decades
have been appreciable at the bottom, middle and top of the income
10
Besides employing several of my family members and friends over many years, Holdens have
been a long-time sponsor of the mighty Central District Football Club, nine-time SANFL
premiers.
11
Named after the 19th Century Italian economist who devised it, Vilfredo Pareto.
12
The criterion is so named from two seminal papers by Kaldor and Hicks in the Economic
Journal 1939 (‘Welfare Propositions in Economics and Interpersonal Comparisons of
Utility’, Vol. 49, No.
Industry and Workforce Futures
3
distribution, compared with the United States where they have been captured
exclusively by those at the top. 13
Figure 2: Change in employment and compensation per employee by industry
550,000
Health Care
462,000 jobs gained
Employment growth
350,000
250,000
Professional
Services
Construction
Education
Mining
Retail Trade
150,000
Other services
50,000
Arts and
Recreation
-50,000
Public
Administration
Transport
Accommodation
and Food
Employment
contraction
Change in employment, 2003–04 to 2013–14
450,000
Utilities
Real Estate
Services
Wholesale Trade
Information, Media and
Telecommunication Services
Agriculture
52,000 jobs lost
Manufacturing
92,000 jobs lost
High income
Low income
-150,000
$0
Financial
Services
Administration
Services
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
Compensation per employee, 2013–14
Notes: Industry names have been abbreviated.
Source: ABS cat. No. 6291.0.55.003 & 5204.0
This gain has arisen through vastly more higher paying new jobs created
than lower paying jobs displaced. That has gone hand-in-hand with a major
shift towards more highly skilled work, with employers readily absorbing the
huge increase in people with tertiary qualifications. There are 2.7 million
professionals employed in Australia today, against 420,000 back in 1971.
There are around 4 million people with a degree, against 180,000 in 1971. 14
This constant interplay between the demand and supply sides of the labour
market has been characterised as a race between education and
technology.15
13
Australia has superior mechanisms than the United States for more broadly distributing income
gains, such as a minimum wage with a wide reach and a recognised process for annual
increases.
14
One needs to be a little cautious about making like-for-like comparisons, particularly in
qualifications. The 1971 figure does not include those with teaching qualifications (143,000) and
nursing qualifications (131,000), neither at the time taught at degree level.
15
Claudia Goldin and Laurence Katz, The Race Between Education and Technology, Belknap
Press, 2008.
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So much for the past and the present, what of the future? Every attempt to
imagine the future is at heart an examination of the present. This is as true
for those whose realm is the purely imaginary, like novelists and film makers,
as it is for actuaries and technocrats who trade in forecasts and projections.
The word that seems to capture the zeitgeist is disruption, with portents of a
world rent apart. The fear is that technology will trump education and win the
race.
The chapter in the CEDA report released last week that drew most media
attention was the one that suggested five million jobs were at risk of
displacement to automation over the next two decades. 16 Five million is a big
scary number, but it is only one side of the ledger. On the other side are the
new jobs that will be created. Over the past two decades the new jobs
created vastly outnumbered those displaced, with the net effect that
employment grew by 3.5 million.
If history is a guide we should embrace the future, not fear it. Now of course
one might ask: are things different this time? Well, as the saying goes, “same
same but different”.
The division of labour, long a force for productivity improvement continues to
generate gains.17 The Medical Board of Australia identifies 85 discrete types
of medical specialists on its list approved by health ministers. The same
phenomenon is true in IT with new specialists constantly emerging in fields
like data analytics. Similarly, the capacity of the economy to create new
service jobs seems limitless. As wages rise, so too does the opportunity cost
of leisure time, hence rising demand for personal trainers, financial planners,
and dining out.
There is no question that automation will displace jobs and tasks within jobs.
Jobs that are the least susceptible to automation are those that involve high
levels of perception and manipulation, creative intelligence and social
intelligence –typically those that require the greatest investment in education
and training.18 Our own analysis shows that employment grew much faster in
the past two decades in jobs considered to be the least susceptible to
16
17
Australia’s Future Workforce, Committee for the Economic Development of Australia, 2015.
In Book 1, Chapter 1 of the Wealth of Nations (1776), Adam Smith says: “The greatest
improvement in the productive powers of labour, and the greater part of the skill, dexterity, and
judgment with which it is anywhere directed, or applied, seem to have been the effects of the
division of labour.”
18
Susceptibility to automation is as defined and measured in the 2013 paper by Carl Frey and
Michael Osborne (‘The Future of Employment: How Susceptible are Jobs to Computerisation’,
Oxford Martin School, University of Oxford).
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automation, 2.9 per cent per annum compared with 1.1 per cent per annum
for those most susceptible.19
Figure 3: Australian industry automation potential, 2014
Retail trade
Transport, postal and warehousing
Accommodation and food services
Rental, hiring and real estate services
Manufacturing
Construction
Wholesale trade
Administrative and support services
Financial and insurance services
Mining
Agriculture, forestry and fishing
Electricity, gas, water and waste services
Other services
Public administration and safety
Arts and recreation services
Information media and telecommunications
Health care and social assistance
Professional, scientific and technical services
Education and training
0
10
20
30
40
50
60
70
80
90
100
Automation potential
Source: Department of Industry and Science Analysis
When we examine how occupations are distributed across industries we find
that it is the faster growing service industries that have the lowest incidence
of jobs susceptible to automation. Furthermore, in almost all industries, the
profile of the workforce is adapting, becoming less susceptible to automation
over time. This makes perfect sense. As machines substitute for routine
tasks, it frees up resources that can be allocated to less routine tasks of
higher value.
19
The analysis is forthcoming in a research paper from my Office by Daniel Edmonds and Tim
Bradley which applies the Frey and Osborne results to Australian employment data and extends
them in several novel ways.
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Figure 4: Men and women in work, 1978 and 2014
100
90
80
74.6
70
66.7
60
55.0
50
40.2
40
30
20
10
0
Percent
1978
2014
Source: ABS Cat. 6201.0
Figure 5: Hours worked per month, 1978-2014
Hours worked per month
180
160
140
120
100
80
60
40
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Employed males
Adult males
Employed females
Adult females
Source: Derived from ABS Cat. 3202.0 and 6201.0
Alternatively, some of those freed-up resources might also be put to more
time spent in education and training as well as less time at work. Contrary to
popular belief, for those in a job working hours are falling. Working hours
Industry and Workforce Futures
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have also steadily fallen over time for all adult men, while for adult women
they appear to have plateaued and slightly reduced in the past decade.
There are a variety of complex demand and supply and demographic forces
at play here. There is a real prospect though that a side benefit of
automation, besides increasing productivity and therefore living standards, is
it may make us less slaves to work.20 Automation will bring major policy
challenges around education and training, and science and technology. It
may also force us to re-think what we mean by, and how we deliver, full
employment in the 21st Century.21
20
Bertrand Russell who once said “a great deal of harm is being done in the modern world by
belief in the virtuousness of work … the road to happiness and prosperity lies in an organized
diminution of work” would surely approve. In Praise of Idleness, Unwin Books, 1935
21
Full employment continues to be discussed with reference to a single number, the
unemployment rate. This is a narrowing of how the term was defined by William Beveridge in Full
Employment in a Free Society (Allen and Unwin, 1944). Beveridge’s definition also had regard to
the level of unemployment, the level of job vacancies, the duration of unemployment and fair
wages. But Beveridge’s report was written at a time when work was the domain of men, it was
full-time, it commenced in one’s early teenage years and lasted until death or sixty, whichever
came first.
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