Promoting job creation skills is a mutual con: job growth happens more or less regardless of policy

BOTH political parties are guilty of a sleight of hand when it comes to the art of spruiking their skills in job creation.

BOTH political parties are guilty of a sleight of hand when it comes to the art of spruiking their skills in job creation. Here's how it works.

At some point during the forthcoming budget speech, the Treasurer will make reference to the wonderful work the government has been doing in the field of job creation.

He will say that "more than 300,000 jobs have been created over the last 12 months". And of course the Treasurer will be correct. According to the Australian Bureau of Statistics, the number of people with a job (defined as having worked for one hour or more over the previous week) increased by 316,000 to 11.452 million over the year to March.

But the sleight of hand is that job growth happens more or less regardless of policy intervention. Even during the global financial crisis there was job growth in Australia: up 86,000 jobs to 10.910 million over the 12 months to March 2009. Was this because of deft intervention by government or was it because of the fact that the population aged 15 and over increased by 395,000 in this year?

The net injection of this number of people into the working and consuming stage in the life cycle in itself generates jobs. This is the beauty of cohort expansion and it is the astute politician's new best friend.

The whole process works a bit like bracket creep with regard to personal income tax. Be slow in adjusting tax brackets and allow inflation to propel more workers into higher tax brackets, thereby delivering a higher tax yield.

Although it should be understood that allowing cohort expansion to generate jobs only works in countries where there is a rising working-age population. Australia's elevated birth rate only applies from 2002, so any impact on the working-age population will not be felt until 2018 at the earliest.

The fact is that Australia's rising workforce is being driven by the ageing of young people (kids, teenagers and students) who were imported along with older workers in the early to mid-2000s.

But with the overseas-migration lever having been thrown into reverse from early 2009, there are now fewer people entering the working-age population. In the year to March, the Australian population aged 15 and over increased by 300,000 -- down 95,000 on the number recorded two years earlier.

Indeed, two years earlier the labour force participation was 65.9 per cent, which when applied to 395,000 extra people over 15 yielded 260,000 new entrants to the labour market.

In the year to March, a marginally higher workforce participation of 66 per cent applied to 300,000 extra people aged over 15 yields 198,000 extra people into the labour force.

Yes, the participation rate is important, but if we wanted for example the same net contribution to the labour market as applied two years ago, the participation rate would have to rise to a society-changing 87 per cent.

The bottom line is that the number of people added to the labour market each year is currently contracting by about 40,000. This is despite participation rising marginally; it is because overseas migration has been wound back. The solution proffered by many is to better utilise the existing population aged 15 and over.

Encourage older workers to remain in the workforce. Encourage women to remain in or to return to the workforce. Encourage people with disabilities to do work that is within their capabilities. And train the unemployed so that they are more employable.

There is no doubt that this is exactly what this nation needs to feed the rising demand for skills and labour.

But there is a problem and it involves another political sleight of hand. It is the argument that we can mobilise the under-employed when in fact many may not be motivated to be trained in the skills that this nation requires or to be relocated into the geographies that require these skills. How many unemployed people living in Broadmeadows or Blacktown want to work in a Bowen Basin mine?

The unemployment rate was 5.1 per cent last month; it was 4.1 per cent in March 2008 at the peak of the boom. This nation is now within one percentage point of what might be termed full employment in the modern era.

(I have this theory that unemployment benefits is a premium paid by rich economies to insure against the prospect of revolution. That premium in Australia is unemployment and other benefits paid to perhaps half a million people. Without these benefits, there would be rampant crime and civil unrest.)

Even if all the unemployed (of 434,000) were trained, skilled and prepared to relocate to where jobs are located, the net effect on the workforce would be to replace two years of current growth through migration (about 198,000). So what happens in year three when all the unemployed have been notionally absorbed into the workforce?

The inescapable conclusion is that while training the unemployed is a laudable objective, as much from a social as from an economic perspective, the numbers that are likely to flow through to meet the demand for labour will have to be augmented by continued targeted and skilled immigration.

The fact is that over the past decade the workforce has expanded regardless of whose hand was on the tiller. And the idea of getting the unemployed, the disabled and others into the workforce is a worthy objective, but even with the best participation outcome such a program will only be capable of delivering a temporary reprieve from the demand for labour, especially in regional areas.

If it were easy to train the unemployed and the under-employed to meet the demand for labour, business would have done it years ago. The sleight of hand is to blithely offer this as an alternative to skilled migration without spelling out how difficult it is to deliver newly skilled, committed and mostly urban workers to regional job openings.

Bernard Salt is a KPMG Partner

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