There is a hidden story behind the surprisingly strong 2024 employment numbers — the driving force behind the vast majority of jobs created is government money rather than private capital.
As I pointed out yesterday, in the US the one constant in the Trump-Biden clash is the days of small government appear to be over — whoever emerges victorious in November.
We might be seeing the same trend developing in Australia and may be looking at the beginning of a fundamental change in western democracies.
I checked the employment trends with one of Australia’s leading employment economists Callam Pickering, the Asia Pacific economist for job site Indeed.
Pickering tells me the number of jobs in Australia has increased by 2.4 per cent over the past year, which is a really strong number at this point in the economic cycle.
The problem is government-aligned industries — namely, healthcare and social assistance; education and training; and public administration and safety — account for around 83 per cent of the increase.
Government-aligned industries aren’t necessarily the public sector, but they all tend to benefit greatly from public spending. It often leaves them less sensitive to market forces than privately funded industries.
And this can make some participants much less motivated by productivity.
Pickering says private sector trading conditions have deteriorated but the deterioration is being hidden to some extent by ongoing strength in government-aligned industries.
To illustrate, the ANZ-Indeed job advertisements index fell 2.2 per cent in June and is down 17.6 per cent over the year.
Job advertisements dropped in June on the back of lower demand for cleaners, tradies and food service workers — all occupations dominated by the private sector.
Large and small corporations around Australia have been looking very hard at their cost structures and many have started, or are planning, major restructures to reduce costs.
In the private sector there is still widespread ignorance about the enormous changes required to implement the industrial relations act, which comes into operation on August 26.
Given the looming Federal election, unions may restrain their greatly increased powers until after the polls
One of the biggest changes to the rules covers casual labour and will impact both employers and employees.
Pickering says around three-quarters of the jobs which make up the rise in employment over the past year have involved part-time employment. In 2022, the jobs boom was full-time driven.
So, while the Australian economy continues to create a lot of jobs and overall employment growth is still strong, it isn’t necessarily creating the same high-quality jobs as earlier in the pandemic recovery.
The figures do not differentiate between casual work and part-time employment.
In the case of casual work, employees do not get holiday pay and a number of other benefits, but to compensate they receive a 25 per cent premium on their take-home pay.
With so many Australians under mortgage and rent stress the 25 per cent cash premium has caused many to shift to casual work — it’s the only way they can meet their rent and mortgage obligations. And, of course, many have taken on a second job on a casual basis.
The industrial relations act has a long, complex definition setting out the circumstances which give rise to a person being entitled to take casual work.
After August 26 most employers will continue the casual employment relationship because it boosts productivity by providing flexibility — and employees need the cash.
But, employers are taking a big risk because if it is found their employee did not fit the complex definition to gain a casual employment entitlement, there will be employer penalties.
At this stage it is not known what those penalties will be and how the courts will interpret the act. But, employing people on a casual basis after August 26 will be a very high risk activity. Those who are struggling to pay their mortgage or rent will not be happy if they discover an ALP Prime Minister has forced them to take less cash each week.
They will probably blame their employer.
Some of the anger may erupt before the election and it may even impact the result, although in this area the Coalition are asleep at the wheel.
Meanwhile, in the US and Australia, we are watching a society unfold which has a much greater government sector and the sector might be a lot less productive than in previous generations.
It will mean interest rates are likely to stay higher longer than many economists are forecasting.
The potential game changer is, of course, artificial intelligence, which if developed correctly will create skills which replace large areas of ‘white collar’ jobs.
Artificial intelligence is not there yet, but it has the potential to reverse the current employment trend and lower inflation and interest rates. But, this will come with a nasty impact on many parts of the population.
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