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How SA dodged catastrophe after Holden and what will happen next

Business

How did South Australia avoid economic disaster when Holden closed its doors? Economic analyst John Spoehr argues that while the state dodged catastrophe, new threats loom for businesses and workers alike.

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A $1.3 billion investment hole in South Australia’s economy. Up to 24,000 jobs lost.

For the past half-decade, South Australians have been warned of the economic catastrophe posed by the closure of the automotive industry.

Thousands of Holden workers were laid off – and thousands more working in the supply chain lost their jobs.

Director of the Australian Industrial Transformation Institute at Flinders University, Professor John Spoehr, says SA’s labour market weathered the storm much better than expected, but that a new crisis is brewing as more precarious new jobs open up in the fast-growing services sector.

According to recent research by the Australia Institute, the proportion of working Australians employed in a permanent full-time paid job with leave entitlements has dipped below 50 per cent for the first time in recorded history.

And earlier this month, the Fair Work Commission ruled that Uber drivers – the archetypical gig economy worker – are not employees with entitlements to annual leave, sick leave and superannuation, but are better defined as contractors.

Spoehr argues that increasingly precarious forms of work pose a threat, not only to the quality of life for South Australian workers, but to the development of the high-tech knowledge economy the state’s businesses need.

He sat down with InDaily to discuss how the labour market overcame the Holden closure shock, and prospects for the future.

InDaily: How did South Australia’s labour market overcome the death of the automotive industry, and how do you assess its prospects now?

We’ve weathered closure really much better than anyone anticipated.

We also weathered the Global Financial Crisis in Australia much better than anyone thought we would, too. In large measure, the responses to both of those at the state and the federal level helped enormously to keep demand for labour reasonably high during those periods of crisis. The large number of construction projects that we had here in South Australia, acted as a buffer against rapidly rising unemployment. Manufacturing still remains a very large employer, relatively speaking. At its height, it was around 100,000 (jobs) and now it’s around 80,000.

And, of course, the Australian dollar also came down, and appreciably down.

That was the single largest factor influencing demand for our exported goods. Amongst that, critically – we saw a very sharp rise in the number of overseas students studying in our institutions. All of a sudden, the education industry becomes one of the most significant industries in the state. Our commodity exports have remained pretty strong as well – again, driven by the lower Australian dollar.

Then, the very large area of substantial employment growth has been health and community services.

We’re seeing demand for these services grow – principally as a consequence of the ageing of the population. The demand for health services, the demand for aged care services is rising as a consequence of aging, and those needs have to be met. That will continue to grow pretty substantially over the next five years as Baby Boomers exit the labour market and need and seek out aged care and other forms of services to support them. A good number of them are cashed up as well, so they demand a wide range of services. That has more than offset the loss of jobs in manufacturing.

But in the shift from manufacturing to services, a high proportion of those service-based jobs are part-time and casual forms of employment.

Not all of them, but a good proportion of them are. What this is fuelling is a rise in the labour underutilisation rate. While unemployment has come down as a result of growth in the services sector – I include education in that – a lot of the jobs generated in those services sector do tend to be short-term contract positions, part-time positions and casual positions. The consequence of losing that number of full-time jobs in the manufacturing sector is a rising level of precariousness.

How damaging was Holden’s closure to the South Australian economy?

It was very substantial.

All the studies of closures – particularly in the automotive sector – tell us that middle-aged men are more vulnerable to unemployment and underemployment than other parts of the workforce. That certainly was the case with the closure of Mitsubishi and I’m sure it will prove to be the case with the closure of Holden and the rest of the industry.

We have to recognise that there’s a need to support those workers for much longer than we originally anticipated – for a good number of years, because the labour market is not as healthy as is commonly understood.

Some of the tracking studies suggest that Holden workers are struggling to find secure work and struggling to make the transition. Some of them have made successful transitions to other manufacturers. But I think we’ve underestimated the challenge that they face – partly because we’ve looked at the unemployment rate and said – “well that looks pretty low”. But actually, the underemployment rate is much higher, and it has remained stubbornly high.

The labour underutilisation rate is typically double, or more, the unemployment rate.

Many of the workers that have been looking for work have found themselves in precarious forms of employment, lower salaries, and moving from job to job, or having to take on two or three jobs to make ends meet and support their families.

Some of what you have described sounds like the gig economy future-of-work types have been predicting for some time. Is that the direction the state is headed in economically?

There’s a raging debate about the future of work going on internationally and here in Australia.

The question is: do people choose the circumstances of their employment or is it involuntary? If a substantial amount of it is involuntary – they would prefer to work in more secure forms of employment – then it’s a problem. Their lifestyle and the quality of their life if negatively impacted by the more precarious labour market they find themselves in.

Is that a problem for society? Well, yes, if it has a negative impact on people’s health and wellbeing, and yes, if it leads to a decline in household incomes to an extent that their purchasing power undermines demand for goods and services in the economy, to an extent that small businesses and larger businesses see it in their bottom lines.

Arguably, that’s exactly what we’re experiencing at the moment.

Low inflation, stagnant wages and the move by the Reserve Bank to further reduce interest rates are all signals that it’s not in our interest to – as a society – to push the gig economy model beyond what would be acceptable for the group of people that might find it a useful model.

For some in the gig economy, it can be very attractive – so those who are working in high-end consulting do very, very, very well. They always have, too. But if you’re at the bottom end of the gig economy and you’re on call, essentially, then you’re really at the mercy of the gig economy business model.

Can we build commitment and trust in a workforce through gig relationships? I’d argue, no, we can’t.

But it’s fundamentally important in so many occupations to have high levels of trust and reciprocity and commitment. It’s not just a transaction relationship – it’s not just a commodity exchange, it’s actually a very, very important exchange of knowledge and skill between younger and older people, and it’s the meeting of minds that adds the value in the employment relationship and in workplaces.

Is now a good time for South Australian businesses to be employing people?

In the high-growth areas of advanced manufacturing – medical devices, electronics, technologies and so on –  that requires high skills: technical skills as well as organisational skills and management skills. Holden workers and supply chain workers have that in spades. They are really some of the most competent and highly-skilled workers in manufacturing. I’ve certainly been a strong advocate that this is a great time for those manufacturers to take advantage of some high-capability people around at the moment.

It’s a big leap from manufacturing to aged care, or manufacturing to health care, but again, many auto workers have made that leap, have done that successfully.

If you had your hands on the levers, what would you do about the current condition of the labour market?

If we accept that full-time employment is incredibly valuable for a large proportion of people, who build their lives around that – the certainty of it, and their dependence on it to have stable accommodation, to have families and to reproduce our society – then we’ve got to focus a lot of attention on accelerating the growth of those industries that generate jobs like that. Advanced manufacturing is one of them.

In all the advanced nations, there’s heavy investment in the skills and the technologies that enable the acceleration of companies – growth companies that are generating well-paid, secure, knowledge-intensive jobs. In Australia, we have to invest in 21st century, digital skills and capabilities. Otherwise, we will consign ourselves as a nation to a lower-paid, lower-skilled, less knowledge-intensive nation. That is not a good formula if you want to maintain high living standards. The country that everyone looks to is Germany – which is combining a transition to a lower-carbon economy with the growth of high-technology industries.

Lower taxes on corporations won’t do it. It’s a question of enlightened companies and government working together to steer a high-standard of living.

Are you optimistic, then, about South Australia? We do have a really high renewable energy penetration here and there is a lot of investment in new technologies – such as here at Tonsley, the former Mitsubishi site, and at Lot Fourteen in the city.

There’s no doubt about it that the uptake of wind and solar has been enormous. It’s a good start. But what we have to do is become better at making the products that we by and large import from offshore – as most other states and nations do as well.

We do have the only solar panel manufacturers in Australia and we do have a highly sophisticated electronics industry here in SA. We also do have $90 billion investment in ship-building, which presents an enormous opportunity for leverage, for the benefit of other sectors and as a catalyst, if you like, for modernisation of the South Australian economy.

If we use that, a bit like we used the auto industry, as the new technical university, that would drive the modernisation of South Australian companies.

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