Wednesday, April 17, 2013

Hanging out each others' washing

As the vast amounts of newspaper ink spilt around the country attests, the primary focus of attention on recent labour market statistics has been on the unemployment rate.

Last week the unemployment rate, as calculated by the Bureau of Statistics, continued upon its typical monthly pogo stick journey by increasing 0.2 percentage points to a seasonally adjusted 5.6 per cent last month.

Naturally two divergent political outtakes have emerged from this result, with the government continuing to draw favourable comparisons between Australia and other Western economies and the opposition warning that the increase is a harbinger for worse to come.

While concerns about the movement in the unemployment rate remains a legitimate concern, given the severe economic and social costs of unemployment faced by the jobless, there is a similarly profound feature of the labour market statistics that are often overlooked in policy discussions.

This concerns trends in the division of employment between the public and private sectors of the economy.

Using industry-level employment data provided by the ABS, it is possible to demarcate industry employment as being either ''private'' or ''public'', on the basis of the extent of government ownership, subsidisation and direct price regulations.

While there is some degree of judgment involved in making these distinctions, aggregate public sector employment can be calculated as including those employed in public administration and safety, education and training, health care and social assistance, arts and recreation, and utilities.

The private sector employment classification includes some key industries in the Australian economy, such as agriculture, mining, manufacturing, construction, retail and major services.

Using the ABS statistical series from 2000, when most of the privatisation efforts of the 1980s and 1990s had been completed, it can be shown that employment in the private sector is considerably greater than in the public sector however the jobs dominance of the private sector has receded.

In February 2000 for every public sector job there were 3.2 private sector jobs, however by February 2013 this has shrunk to 2.5 private sector jobs for each public sector job.

In other words, most of the jobs growth in recent years has been concentrated in industries dominated by public sector financing and output provision.

From February 2000 to February 2013 the overall growth of private sector employment was in the order of 20 per cent, which was exceeded by public sector employment growth of about 60 per cent over the same period.

The statistical evidence also tends to belie claims by governments and trade unions that harsh, deep cuts have been made across every part of the public sector since the onset of the global financial crisis in late 2008.

Since the GFC employment in public sector industries have risen by about 406,000 people, with health care and social assistance leading the charge with an extra 269,000 people employed in that industry alone followed by education with an extra 78,000 jobs.

While there is now some belated evidence of job cuts in public administration and safety over the past twelve months, with about 19,000 job losses nationally, the education, health and social assistance employment continued to rise with an additional 101,000 jobs.

The relative enlargement of public sector employment has profound consequences for the future robustness and competitiveness of the Australian economy.

Since government cannot produce anything of its own accord, but relies upon the private sector to empower its capacity to forcibly redistribute resources, extra taxes paid by the private sector to hire public sector employees reduces the employment creation potential of the private sector.

The perceived security provided by a public sector, which does not rely upon pleasing taxpayers for its very survival, appeals as a drawcard for many of the government's employees, exacerbating skills shortages faced by the private sector especially for white collar professionals.

Finally, additional public sector employment can retard private sector jobs growth because some government employees are charged with implementing and monitoring growth-inhibiting taxes and regulations, whilst others deliver services at lower levels of efficiency than if they were delivered by the private sector.

Public sector jobs growth, particularly in the ''new commanding heights'' of education, health and welfare, has proceeded on its merry way, irrespective of the economic weather, whilst major productive sectors have struggled to maintain their jobs base in an underperforming post-GFC Australian economy.

A significant reduction in public sector employment, founded upon critically assessing the economic merits of functions and activities presently undertaken by government, remains a meritorious strategy for reform-minded governments to promote long term economic growth and productivity.

It is about time that the jobs growth pendulum swings the other way.

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