Friday, November 15, 2013

Where might the workers come from?

In  Parkinson's law of government and associated matters part 1, I referred to that excruciating press conference with General Campbell. Now the Australian Government has moved to split the border protection briefings into two, saying that it wants to protect the integrity of the Australian Defence Force. It should have thought that issue through from the beginning. Meantime, Mr Abbott finds himself in a degree of trouble over the refusal to allow an asylum seeker to stay with her premature baby.

Leaving these matters aside, in yesterday's post Why Australians aren't spending - the effects of growing casual and contract work on the consumption function I looked at the ways in which the growing proportion of casual and contract work affected the consumption function, making Australians less willing to spend.

Tonight's short post focuses on another aspect of the labour market. To set the scene, we need to distinguish first between actual and potential GDP. Actual GDP is what is produced, potential GDP is what might have been produced if the economy were operating at full capacity.

This spare capacity is quite important during upturns. As the economy expands, more labour is applied to existing capital stocks. Machines are worked harder, more people are employed, output expands and productivity increases. One of the interesting if depressing things flowing from this downturn is that there is some anecdotal evidence to suggest that in at least Europe and the US, potential GDP has actually declined because of lower previous capital investment as well as declines in work force capacities. This limits the scale and speed of recoveries compared with the past.

There is, I think, some evidence of this in Australia too. Outside mining, investment has been quite low. There has been something of an investment strike to go with the consumer strike, with business focused on cost cutting. Further, while the unemployment rate has stayed relatively stable, that has occurred because the participation rate (the proportion of working age people actually in the workforce) has declined.

There are a fair number of people around at the moment already engaged in or at least connected to the workforce who would like to work more hours. They aren't making enough to meet their needs. So as the general economy expands, they can either expand hours or enter jobs. Now we run up against basic constraints.

The first is the production constraint created by low investment. Firms will invest if they can see profits, but it will take time for capacity to expand. The second is people. If expansion is to continue, people will have to be drawn back into the workforce, and those people will have to come from three main groups:

  • The young who are engaged in neither work nor study, who have been dropping out.
  • Women, for the female participation rate has declined.
  • Older men (50+) who are dropping out of the workforce at an increasing rate.

The difficulty is that none of the standard prescriptions that centre on mandated training actually see to work with any of these groups. A new way needs to be found.           


Anonymous said...

Looking at Table 01 from here my brief and entirely superficial impression is that:

- the single greatest factor inhibiting full-time employment of females is marriage, and

- the single biggest factor prodding males into looking for work of any sort is, again, marriage.

Therefore in the interests of a level playing field (and of course all other things being equal, etc. etc.) I would propose that we legislate that (between the ages of 15 and 70):

- no woman be permitted to marry, and

- all men must be married.

I expect appropriate recognition for this insight in due course :)


Jim Belshaw said...

:)Recognition will come later!

Rummuser said...

This is happening in all the so called advanced nations and the growing nations to a lesser extent. I suspect that we may be entering a period of readjustment to our life styles to a new paradigm. Something like a much simpler than the present ones. Like lower work days/hours per week, less consumption, and all the resultant adjustments! Utopian what?

Jim Belshaw said...

That would be utopian, Ramana.I fear, however, that we are entering an age where we simply have more have-nots in developed economies.

Anonymous said...

More statistics this time I think just NSW-related?

Each year, about 2200 new permanent teachers are appointed to public schools. But last year, there were about 6353 teaching graduates, up from 4669 in 2003, according to department estimates

- from

"40,000"? I cannot see the justification for ongoing public financing of what is essentially at least a ten year over-supply - be it NSW or Aus as a whole. Sooner or later that 'free that is not free' tertiary education will have to be more efficiently directed to those quals projected to be needed at graduation - with the other graduates paying their own way up front.


Jim Belshaw said...

Hi kd. I took away three messages from this piece. The first was the systemic reliance on casual teachers. The second, the oversupply. The third, the continuing shortage in certain areas despite the oversupply.

As it happened, I was talking about the second Thursday in the context of Aboriginal teachers who have been unable to get work.

The problem as I see it lies not in the number of teachers graduating, but in the expectation that just because you get a specific vocational qualification you will get a job in that area. This holds for all qualifications. It's just not possible to fine tune supply and demand. If teaching graduates can't get other jobs, then another question arises, the suitability of the qual as a general entry level qualification.

You can do something in a limited way about the third, action to meet very specific needs.

Anonymous said...

Well, even with the usual inaccuracy of most news reports these days, I still think that if I owned a widget factory and the manager presented a business plan to produce 6,000 new widgets, against projected demand of 4,000, and with 40,000 shiney new ones already in stock, then I would fire him and either redeploy the production facility, or mothball it.

And it is because of this simple analogy that I am assuming the press report is wildly wrong.


Jim Belshaw said...

Not a good analogy, kvd. Say you own a widget factory and customers (the students) demand 4,000 widgets. You supply them. The fact that the customers may have made the wrong purchase decision is a different question.

Anonymous said...

Wrong 'customer' Jim. The actual customer is the education system, demanding and extra 4,000 teachers - which can be readily supplied from the 'stock' of 40,000 without further manufacture, surely?

I think the analogy is rough but fair - but what's missing from the article is knowledge of just how many of the 40,000 are presently actually not employed as teachers. If all 40,000 are on casual teaching contracts then, yes, continue 'producing them' - and start to ask the sorts of questions you put in earlier comments.


Anonymous said...

Here's an earlier article providing some more stats, and more importantly pointing towards a tentative conclusion which I would support. Note particularly the reference to Canadian responses.

Incidentally, I got to this via a Google search for "unemployed teachers NSW", not simply because it was SMH-sourced.


Jim Belshaw said...

How can the education system be the customer, kvd? It doesn't buy anything! Students do, as does the Commonwealth Government in a general sense. Students buy specific courses that they choose, the Government pays the balance.

The question of over or under supply in particular courses - that earlier article was interesting - is a long running problem. However, attempts to cure the problem via direct controls tend to exacerbate the problem.

Anonymous said...

How can the education system be the customer, kvd? It doesn't buy anything!

- for 'education system' read NSW Dept of Education, plus the various Private and Religious Schools. They are the 'customers' buying (employing) the widgets (new teachers) from the manufacturer (the universities).

- manufacture has exceeded demand, by maybe 10 years it seems, but then what else would you expect from a system propped up at both ends by government subsidy?

- I had a wander around Qld, NZ, Canada, UK and US results of similar Google searches, and it seems we are not alone in our over production.

Or as one teacher in New Zealand put it so well: "you'd think some policy wonk might be capable of seeing we are in an era of over supply of new teacher graduates".