Dark corners in a bright economy: the lack of jobs for unskilled men.

• Author: Gregory, Robert G.
• Position: Invited Article

Abstract

This paper discusses the large reductions in full-time employment among unskilled Australian males that began in the 1970s and continued over the next three to four decades. Over this period, each recession led to large falls in the male full-time employment-population ratio, and during each economic recovery the employment ratio failed to move back to its previous levels. Unemployment fell during each output recovery, not in response to employment gains, but in response to large-scale withdrawals from the labour market into the welfare system. The loss of unskilled jobs for men has been associated with falling marriage rates and increasing use of the welfare system by single women. The paper concludes by briefly assessing some of the impacts of the new resource boom on these long-run labour market and welfare trends, and discusses the potential for different labour-market outcomes emerging across mineral and non-mineral Australian states.

1. Introduction

   Between World War II and 1970, the Australian labour market could be thought of as a unified whole. When the economy did well, everyone did well. When the economy slumped, everyone shared the burden. This description, of course, is not absolutely correct--there were always some groups that did better than others at different times--but it is a reasonable generalisation. On average, income per capita grew by about 2 per cent per annum and almost everyone shared in the growth, one way or another. The employment-population ratio of men aged 15 to 64 years was between 85 and 90 per cent and subject to little change. Female employment was low, but this was expected and was not thought to be a matter of concern. The unemployment rate, with the exception of one year, was under 2 per cent. High marriage rates and low unemployment ensured that the incidence of welfare payments for the working-age population was extremely low.

   Over the next three decades, however, a second epoch emerged with two distinct male labour markets developing as employment inequality increased substantially and employment opportunities declined for the unskilled. The widening full-time employment divide between skilled and unskilled men has been substantial, and has flowed out from the male labour market into the economic well-being of their potential female partners to create, increasingly, two societies. One society is relatively affluent with high levels of male and female full-time employment, high income, and relatively stable marriage patterns. The other society has falling male full-time employment, falling marriage rates, and a high incidence of female lone parenthood. As a result, reliance on welfare has increased to unanticipated levels.

   It appears as though a third labour-market epoch may have been emerging over the last half decade, although its exact nature is not clear. There has been a remarkable change in the Australian economy and a widely held belief is strengthening among commentators that the economy has embarked on a new bright path of u n precedented wealth generated by the rapid growth of Chinese demand for Australian raw materials.

   China-led growth is having a profound effect. For example, at the beginning of what the IMF has labelled the most serious global economic downturn since the Great Depression of the 1930s, the Australian Treasury forecast in the 2009-10 budget that there would be a two-year slowdown after which GDP growth rates would return to 4.6 per cent. Unemployment was forecast to pea k at 8.5 per cent (Australian Treasury 2009). The forecast recession was regarded as likely to be so serious that Australia introduced the second largest stimulus package in the OECD (2009).

   Two years later, however, Australia is booming again and there was no substantial downturn, primarily because of the 'China effect'. Unemployment increased, but only to a peak of 5.8 per cent. Indeed, Australia now has tight monetary policy and is moving rapidly towards fiscal tightening; many commentators argue that the economy is close to full capacity and is potentially subject to a lift in inflation. The Governor of the Reserve Bank has described current outcomes as the biggest resource boom since the 1850s gold rushes that had such a fundamental effect on Australia's economic future. (1)

   The question arises as to whether the new resource-led economy, with its large investment in infrastructure, will change the nature of the labour-market divide, begin to bring skilled and unskilled outcomes closer together, and lead to a substantial reduction in welfare incidence. Perhaps it is too early to detect any significant impact, but it appears that there is a new and different labour-market divide beginning to emerge. The new feature of the labour market that is attracting increasing attention is the phenomenon of a two-speed economy. This is not an economy in which skilled and unskilled labour have very different and changing outcomes proceeding at different speeds, but one in which some geographic regions of Australia, and their labour markets, grow much quicker than others. To this point, however, it is not clear whether the economy-wide skilled-unskilled employment divide among men will narrow or widen further, or whether this skilled-unskilled divide will begin to narrow in mineral-resource states and widen further in non-mineral-resource states.

   The paper is structured as follows. Part 2 describes the post-1970 evolution of a gap between two labour markets. We discuss the loss of male unskilled fulltime jobs and the increasing male reliance on income from the welfare system.

   Part 3 documents the changing access of women to full-time employment. We show that the full-time employment-population ratio for females, unlike males, has not fallen but that despite this, women have substantially increased their access to welfare payments, at about the same rate as men. Today, one woman in five with dependent children is not in a couple relationship and, as a lone parent, is primarily reliant on income support from the welfare system. Since the 1970s, women have responded to the decreased employment opportunities for unskilled men by turning away from marriage and increasing their reliance on the welfare state, rather than increasing their full-time employment.

   Part 4 discusses some of the reasons why the labour market for the unskilled has deteriorated so much. Part 5 focuses on the new China-led economy and looks ahead to conjecture about future outcomes. Part 6 offers concluding comments.

2. Welfare Reliance and Full-time Employment among Men

   Figure 1 plots male full-time employment as a proportion of the male population aged 15 to 64 years over the period 1966 to 2011 (line A). There has been an amazing loss of full-time employment. Male full-time employment, as a proportion of males aged 15 to 64 years, fell by 25 per cent between 1970 and 1991 and then (marginally) fluctuated around this new level. One full-time job in four has disappeared. This is the largest employment fall ever in Australian official labour statistics.

   The loss of male full-time employment appears to be the outcome of long-run trends which began four decades ago. During the 1970s, the male full-time job loss occurred at a fairly steady pace but, during the 1980s and 1990s, the job loss was primarily associated with major recessions at the start of each decade, with no noticeable employment-population recovery thereafter. The inability of male full-time employment to recover from these recessions is one of the major unsolved puzzles of the Australian economy.

   [FIGURE 1 OMITTED]

   After the recession in the early 1990s, and until 2008, there was a strong economic boom as unemployment fell from around 10 per cent to 4 per cent. Yet, as is evident in Figure 1, there was little growth in full-time male employment, relative to the population. In 2008, the male employment-population ratio peaked marginally above the depths of 1991-93--the deepest labour-market recession in the post-World War II period--and then declined again to an historic low. On the basis of these data, there appears to be plenty of scope for employment expansion, despite the general belief among commentators that the economy is close to full employment. (2)

   With a 25 per cent loss of full-time jobs since the 1970s, how is it that the unemployment rate has fallen so much? Why has the job loss not produced an unemployment rate of around 25 per cent? The answer lies in the remarkable supply-side adjustments that have occurred.

   Figure 1 also includes an estimate of the full-time male labour supply, defined as full-time employment plus those seeking full-time employment divided by the male population aged 15 to 64 years (line B). The gap between line A and line B is unemployment divided by the population.

   Figure 1 suggests that the history of the three decades following 1970 can be described as follows: recessions reduce the number of male full-time jobs (line A falls), the loss of jobs creates unemployment (the gap between line A and line B widens), and subsequent supply-side adjustments (the continuous fall in line B) reduce unemployment (the gap between line A and line B narrows). Male full-time employment does not bounce back from each recession, but it remains fairly flat until the next downturn. It is also noticeable that in the absence of a significant downturn in male full-time employment over the last two decades the labour supply, with a decade lag, has ceased falling and appears to have stabilised and, with slight variations, is moving in tandem with small variations in the employment-population ratio.

   How are the increasing numbers of men without full-time jobs supporting themselves? The answer is clear. Most of the full-time job loss has been...