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Governments can always create jobs if they choose

Summary:
Last week, I posted a graph in this blog post – RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action (October 2, 2019) that showed that over the 12 months to August 2019, 312 thousand jobs have been created (net) in Australia. The stunning result is that 301 thousand (96.5 per cent) of those net jobs have been in the public sector. The private labour market is thus stagnating. I was interested to delve further into that result to see if I could bring more detail to bear. That is what this blog post is about. A data exercise to enrich our understanding and knowledge. Spatial and sectoral shifts in Australian employment Since August 2014 (when this data first became available), total public sector employment has risen by 34.7 per cent whereas total private sector

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Last week, I posted a graph in this blog post – RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action (October 2, 2019) that showed that over the 12 months to August 2019, 312 thousand jobs have been created (net) in Australia. The stunning result is that 301 thousand (96.5 per cent) of those net jobs have been in the public sector. The private labour market is thus stagnating. I was interested to delve further into that result to see if I could bring more detail to bear. That is what this blog post is about. A data exercise to enrich our understanding and knowledge.

Spatial and sectoral shifts in Australian employment

Since August 2014 (when this data first became available), total public sector employment has risen by 34.7 per cent whereas total private sector employment has risen by only 7.8 per cent.

Combined, total employment has risen by 11 per cent.

The following graph shows the evolution of the two series – noting the expansion of public employment ovewr the last 12 months.

Private employment growth has stagnated over the last two years.

Governments can always create jobs if they choose

The following supporting statistics are relevant for the same period:

1. Full-time employment growth: Public 32.6 per cent; Private 6.3 per cent, Total 9.8 per cent.

2. Part-time employment growth: Public 40.6 per cent; Private 10.8 per cent, Total 14.0 per cent.

3. Public sector employment is now 15.1 per cent of the total whereas in the August-quarter 2014 the proportion was 12.6 per cent.

4. Part-time employment has risen from 31.2 per cent of the total in the August-quarter 2014 to 32 per cent in the August-quarter 2019.

As I noted in the blog post – RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action (October 2, 2019) – the shift to public sector employment has intensified in the last year (see also previous graph).

We now have the stunning result that over the 12 months to the August-quarter 2019, 312 thousand jobs have been created (net) in Australia, of which 301 thousand (96.5 per cent) of those net jobs have been in the public sector. The private labour market is thus stagnating.

The following graph shows the proportional contribution to the change in total employment from August 2018 to August 2019 (in percent) by sector (public or private) and type of employment (full-time or part-time).

Governments can always create jobs if they choose

So when the Government keeps saying that the labour market is strong, one should just reflect on this result.

Imagine what would have happened had the public sector not engaged in some large stimulus projects?

Where have all these public sector jobs been created?

The following table shows the change in thousands between the August-quarter 2018 and the August-quarter 2019.

1. The total national change has been 312.3 thousand jobs.

2. The public sector in NSW has accounted for 145.8 thousand, while the Victorian public sector has added 94.6 thousand – that is, 76 per cent of the total jobs created (net) in Australia over the last twelve months.

3. In most jurisdictions, the private sector has contracted in terms of private employment (Queensland and Victoria are the exceptions).

Governments can always create jobs if they choose

The next table shows the same data in index number form – so the August-quarter 2019 columns show the growth in relation to the corresponding adjacent column (either August-quarter 2014 or August-quarter 2018.

Governments can always create jobs if they choose

It is obvious that without this growth in public sector employment, the Australian labour market would be in dire straits.

However, most of the growth is at the state government level as the federal government continues to pursue its damaging fiscal surplus obsession.

Occupational Shifts

The Australian Occupation classification is shown in the following table along with the Average Weekly Total Cash Earnings at May 2018 (latest available).

The following table shows the Australian Occupational Classification divided by Above-average, Below-average and Low Pay (60 per cent of mean earnings in this case). The pay measure is Average Weekly Total Cash Earnings as at May 2018 (latest available).

Governments can always create jobs if they choose

At at the August-quarter 2019, Above-average pay occupations comprise 57.3 per cent of total employment. Of the 42.7 per cent of Below-average occupations, 8.5 per cent are Low pay.

In the February-quarter 2008, which marked the turning point of the cycle, the Above-average pay occupations comprised 55.7 per cent of total employment; Below-average 44.3 per cent of Low-pay 9.4 per cent.

So there has been a slight rise in the relative proportion of Above-average pay occupations.

The following graph shows the evolution of total occupational employment by pay relation to the average since the pre-GFC peak (February-quarter 2008 = 100).

There was not a major cyclical downturn in Australia following the onset of the GFC. This was due to the very large and early fiscal stimulus, which saved tens of thousands of jobs that would have otherwise been lost.

You can see that the employment trends are diverging – slower growth in Below-average occupations and faster growth in Above-average occupations.

Governments can always create jobs if they choose

The additional factor that has to be understood in relation to this data is the movement in the cash earnings in these occupational categories.

The facts are revealed in the following graph, which shows the percentage change in Weekly Cash Earnings between the August-quarter 2008 and the May-quarter 2019.

The blue bars are for Above-average occupations while the green bars are the Below-average (with the patterned bar for Sales workers denoting Low pay).

So not only is there a bias away from the Below-Average occupations, their total weekly cash earnings are mostly falling behind the growth enjoyed by the Above-average occupations. The exception is the Labourers occupation which has enjoyed strong growth and that is probably to do with the Mining boom that occurred during this period.

The Above-average occupations are enjoying disproportionately more of the net job creation and have had above-average growth in their total weekly cash earnings.

Governments can always create jobs if they choose

The period shown in has two-phases:

1. Peak (February 2008) to end of slowdown (August-quarter 2010 for Below-Average; August-quarter 2009 for Above-average). Above-average pay occupations grew by 0.2 per cent while Below-average pay occupations grew by 1.9 per cent, with a bias towards Low Pay (7.4 per cent growth).

2. Recovery period after slowdown to August-quarter 2019. Above-average pay occupations grew by 24.2 per cent while Below-average pay occupations grew by 14.9 per cent (Low Pay – 8.1 per cent).

So in the recovery period, Australian job creation has been biased towards the higher paying occupations.

The shift in employment towards the public sector also helps explain the behaviour of the cash earnings data.

In terms of Average Weekly Total Cash Earnings, the following facts are relevant (as at May-quarter 2018):

1. Private sector – $A1,227.10 per week.

2. Public sector – $A1,552.80 per week.

3. Total all sectors – $A1,288.70 per week.

Conclusion

We often hear the nonsensical claims that governments do not create jobs, only the private sector does.

Unless, of course, we are in election mode and then the government seems to create more jobs that one can easily count.

The truth is that the public sector can always create additional jobs.

At the federal level, the government can purchase anything that is available for sale in the currency that it issues, including all idle labour.

In that context, the employment rate (or if you like, the unemployment rate) is always a political choice.

Mass unemployment is the result of the federal deficit being too low (or surplus too high) relative to the spending and saving preferences of the non-government sector.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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