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Used by date: free trade

By Ben Rees - posted Tuesday, 20 September 2011


The end result of the push to open up Australia to international competition can be traced through the structural change in sectoral employment.

Table 1 shows the decline in employment across agriculture and manufacturing.  Other employment, which includes retailing and services, has grown strongly.
                       

Table 1
           Employment by Sectoral Percentage
Year         Rural        Mining        Manufacturing        Other
1979-80    6.5%        1.3%            20.1%        72.1%
1982-83    6.6%        1.5%            18.4%        73.5%
1989-90    5.4%        1.35            14.7%        78.5%
1999-2000    4.9%        0.9%            12%        82.2%
2009-10    3.3%        1.6%            9.1%        86%
            Source ABARE Commodity Statistics 2010, p. 3

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Much ado is made about the lack of skills particularly in the mining sector. Historic time series data shows that the two training sectors for tradesmen have been decimated by structural reform (rural and manufacturing sectors).

The retail sector gained from structural reform. Retailers enthusiastically imported cheap foreign goods, which ultimately destroyed any internationally uncompetitive manufacturing industry. Now retailers face international competition from online suppliers faced by agriculture and manufacturing over the past three decades.

As the mining sector demands skilled tradesmen, retail and services sectors cannot provide the wanted skills. Structural reform successfully removed workers out of training industries, but now cannot return them in the numbers demanded. Industrial policy has become the victim of the much vaunted modernisation of Australian industry. The only policy option is 457 visas. Trade unions have no one else but themselves to blame.

Farm viability depends upon farm gate output prices rising in line with prices in the wider community. Of particular concern to farmers and rural policy is the long-term decline in industry terms of trade (ratio of prices received to prices paid). In 1979/80 before structural reforms began, farmer terms of trade had an index value of 162.7. In 2009/10, the same index value was 91.5. Structural reform has overseen farm terms of trade decline by 43.8% or 1.9% compound annually.  

Real net value of farm production has declined from a peak index value of 278.7 in 1979/80 to a low of 105.4 in 2008/09. Prior to 1980’s structural reforms, farm debt was 34.3% of the gross value of farm production. By 2009/10, farm debt was 154% of the gross value of farm production. By any common sense measure, rural structural reform has been a failure and now threatens national food security.

Employment is another important measure of philosophical failure. We hear much about the performance of Australian fundamentals delivering full employment. However, when the IMF changed policy objectives the definition of full employment also changed.

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IMF member nations moved away from the Post World War II commitment to provide employment for all those wanting work, to the monetarist definition of the natural rate of unemployment defining full employment. Conveniently, the natural rate of unemployment is around 5% unemployment which is very different to the 1963 Vernon Committee definition of full employment being a range between 1% – 1.5% unemployment.
The true efficiency measure of the Australian labour force is given by the underutilisation rate. The underutilisation rate draws into a composite figure both the unemployed and the underemployed seeking more employment than is available.

In August 2011, the underutilisation rate for Australia was 12.3%. The two worst states were Queensland 12.9% and Tasmania 14.9%. The national unemployment rate was 5.1%, Queensland 6.3% whilst Tasmania had the strange result of 5.2%. The strange Tasmanian statistic suggests political presentation of unemployment data rather than real world analysis of national unemployment data.

 
From ABS; Australian labour market Statistics 6105.0, 2009

It is interesting to compare the underutilisation and unemployment rates of 1983 and 2011. When Labor came to power in February 1983, the unemployment rate was 9.6% with an underutilisation rate read from the ABS graph around 12%. In March 2011, the comparative figures were unemployment 4.8% with an underutilisation rate of 12.8%. The real story of failed industry policy lies inherently within these comparative figures. But, where are the trade unions?

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About the Author

Ben Rees is both a farmer and a research economist. He has been a contributor to QUT research projects such as Rebuilding Rural Australia. Over the years he has been keynote and guest speaker at national and local rural meetings and conferences. Ben also participated in a 2004 Monash Farm Forum.

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