Few things about the economy are worrying people - particularly older
people and those from Victoria and South Australia - more than the
decline in manufacturing. But many of our worries are misplaced, or
based on out-of-date information.
For instance, many worry that, at
the rate it's declining, we'll pretty soon end up with no manufacturing
at all. And everyone knows that, unlike other states, Victoria's economy
is particularly dependent on manufacturing.
But Professor Jeff
Borland, a labour economist at the University of Melbourne, has written a
little paper that sheds much light on these concerns.
It's true
that manufacturing's share of total employment in Australia is
declining. But this is hardly a new phenomenon, which suggests the end
may not be nigh. Half a century ago, manufacturing accounted for a
quarter of all employment. Today it's 8 per cent.
And almost none
of that dramatic decline is explained by a fall in our production of
manufactured goods. The great majority of the fall in manufacturing's
share is explained simply by the faster growth of other parts of the
economy, particularly the service industries.
It's true, however,
there's been a (much less dramatic) decline in employment in the
industry over the years. Employment in manufacturing reached a peak of
1.35 million in the early 1970s. Today, it's about 950,000. Of the
overall loss of 400,000 jobs, about 200,000 occurred during the '70s,
about 100,000 in the recession of the early '90s and the rest since the
global financial crisis in 2008.
Many people would explain this
decline in terms of the removal of protection against imports in the
'80s and the very high dollar since the start of the resources boom in
2003. But, in fact, the great majority of it is explained by nothing
more than automation.
How do I know? Because if you look at the
quantity (or real value) of manufactured goods we produce, it reached a
peak as recently as 2008, and has since fallen just 6 per cent. Nowhere
have the machines of the computer age replaced more men (and I do mean
mainly men) than in manufacturing. Is this a bad thing? It would be a
brave Luddite who said so.
The consequence is a change in the mix
of occupations within manufacturing, the proportion of machine
operators, drivers and labourers falling by 10 percentage points since
1984, with the proportion of managerial and professional workers
increasing by about the same extent. The proportion of technicians and
tradespeople is little changed.
But there's also been a change in
the types of things we manufacture, with the share of total
manufacturing employment accounted for by textiles, clothing and
footwear falling from 11 per cent to 4 per cent since 1984, while the
share accounted for by food products has risen from less than 15 per
cent to more than 20 per cent.
The share of transport equipment
(cars and car parts) is down, but the share of other machinery and
equipment is up by much the same extent.
The next thing that's
changed a lot since 1984 is the location of manufacturing in Australia.
Then, almost 70 per cent of manufacturing employment was located in NSW
and Victoria; today it's down to 58 per cent. Then, NSW had more
manufacturing workers than Victoria; today they have 29 per cent each.
(Bet you didn't know that.)
But if the big two states now have
smaller shares, which states' shares have grown? The two we these days
think of as "the mining states". Western Australia's share has risen to
10 per cent, while Queensland's share has almost doubled to 21 per cent.
(Bet you didn't know that.)
So far, South Australia's share of
national manufacturing employment has fallen only a little to 8 per
cent.
This tendency for manufacturing's distribution between the states
to become more even over time, plus the much faster growth of other
industries, has made all states less dependent on manufacturing for
employment, as well as narrowing the gap between the most dependent (SA
on 10 per cent of its total employment) and the least (WA on 7 per
cent).
Whereas in 1984 Victoria depended on manufacturing for 21
per cent of its jobs, today it's 9 per cent. (See what I mean about
out-of-date information?) Victoria's more dependent on the health
industry (12 per cent) and retailing (11 per cent), with almost as many
jobs in professional services as in manufacturing.
The wider
conclusion is that, though the faster growth of other industries has
made all states less dependent on manufacturing for jobs, this doesn't
mean manufacturing's dying. Its actual output hasn't fallen much, though
it's using fewer workers to produce that output.
The unwritten
story is there've been big changes in what Australia's manufacturers
produce: less stuff that relies on protection against imports and more
stuff that fits with Australia's comparative advantage. You see that
with food products - including things such as wine-making - now being
the biggest category within manufacturing, employing 20 per cent of all
manufacturing workers.
You see it also in the growth of manufacturing employment in the mining states - a spillover from the resources boom.
Manufacturing
is undoubtedly suffering from the high dollar. But, apart from that,
it's in good shape. It has shed some fat and is fitter and wirier than
it has ever been, better able to survive in a harsh world.
