People change jobs constantly, and the jobs lost in car manufacturing closures are insignificant in the context of total job changes - no different to everyday job changes. So say some commentators opining on the end of car manufacturing in Australia. The problem is, they’re wrong.
In reality, car industry job losses will be concentrated in particular localities and particular occupations at particular times, creating concentrated pools of workers with similar skills and experiences vying against each other for the relatively narrow range of jobs that suit their skills and experiences. This creates a long job queue that will take a long time to disperse.
Only the most highly skilled and well-connected among the job losers will find work in jobs that use their existing skill complements. There’s often a loss of skill, a loss of income in the period between job loss and eventual reemployment, and lifetime income reduction as a consequence of starting again at the bottom rung in a new occupation.
A small number of workers will flourish and do better than in their previous job; this was the case with about 2% of clothing workers but perhaps 20% of Ansett workers, for example. The concentrated nature of these job losses demands intervention to minimise adverse social impacts.
Potentially, job losses include not only the workers who are directly affected in car and component manufacturing plants but also workers in all those firms that supply those plants, from accountants to engineering consultants to cleaners, not to mention the local stores, lunch bars and services that workers buy with their wages.
The numbers of businesses that rely on auto-related work is much larger now than it was in the 1980s after tariff cuts because in the 1980s restructuring for “lean” production outsourced non-core activities. Some submissions to the Productivity Commission last year put these employment “multipliers” at 4.4 in South Australia, suggesting that for every 1,000 car maker jobs lost, 4,400 other jobs will disappear. In Detroit, the automotive multiplier effect has been estimated at 3.6. Note that the Productivity Commission rejected the multiplier effects argument as a justification for industry assistance, but based that conclusion on the questionable authority of a staff research paper.
Which workers will be hardest hit?
Workers who lose their jobs at a time of economic expansion fare much better than those who lose their jobs in a recession, when vacancies are scarce. The Mitsubishi and Ansett airlines workers, for example, fared better in the longer term than automotive workers who lost their jobs in the tariff-reduction related restructuring during the 1990-92 recession.
It would be helpful if policymakers tried to manage closure dates to avoid automotive job losses occurring at the same time as anticipated job losses in mining construction. At a minimum, the government needs to negotiate to ensure that Holden, Ford and Toyota close at different times. If Ford closed in 2016, Holden in 2017 and Toyota in 2018, the labour market would have longer to sift out with fewer casualties.
The employment prospects of automotive workers who are over 45 year of age are bleak regardless of their skills. Those with poor English language skills will also face considerable challenges. Policy interventions need to be sensitive to established social structures, and not assume that workers will be in position to find jobs outside an expected stereotypical range.
Retrenched workers that live in neighbourhoods with large numbers of unemployed workers – that is, in automotive sector feeder suburbs – will have poorer outcomes in the longer term. Younger workers without dependents or financial commitments are likely to relocate, but those with teenage children or a working spouse will face insurmountable barriers to relocation. Some marriages will end as the need to work wins out over family.
In previous large-scale retrenchments, housing prices have fallen in the most severely affected neighbourhoods as housing demand stalls. Those who relocate will realise a financial loss. In addition to the costs of relocation, moving to a location where jobs are more plentiful is likely to involve higher housing costs. Costs aside, people with strong community links are disinclined to relocate and will accept diminished occupational status instead. This outcome is a loss to the nation.
Those workers who are financially secure or who have a spouse in full-time work can usually afford to wait for an opportunity that maximises their use of skills and accords with their interests. Those in financial stress will have no option but to take any job that provides income. But careers have trajectories and the “any job” option is not the best option for sustaining a career.
Social security rules – on assets and savings - are going to penalise those former autoworkers that have saved and invested; while former colleagues who lived from week to week will qualify for full if meagre benefits. Free financial counselling for autoworkers before they finish work would help them know their position and negotiate with financial institutions regarding mortgages and loans.
Facing up to harsh realities
While policymakers like to imagine that workers in “transitional” labour markets are accustomed to and comfortable with job change, in fact there will be significant numbers of mostly loyal and long-serving workers for whom job loss is going to trigger a significant personal crisis, perhaps leading to suicide.
The circumstances of the retrenchment have a lasting impact on the outcomes of mass job losses. In a nutshell, those people who believe that they have been mistreated or singled out in some way have significantly poorer outcomes. Dramatic and unexpected shutdowns and lock-outs actively produce poorer outcomes, especially for people who took out a loan the week before the event. The longer the warning of impending closure, the more time people have to adjust to the idea and plan for new circumstances before they have to cope with the reality.
The people most at risk – as the case of Ansett airlines demonstrated – are those who view their workplace as a family and rely on workmates for social interaction. A second highly vulnerable group are employers in failing small firms who feel responsible for their workforce and carry the weight of failure. Sadly, loyalty and commitment puts workers at more risk. In the Ansett case, self-help groups of former workmates were useful. The establishment of automotive “men’s sheds” in affected suburbs would provide a venue for maintaining attachments and connecting to support services.
The adjustment has already started. The most able workers are going to be headhunted or will find better jobs quite quickly. If they are replaced, the replacement will be of a lower calibre. By the time of closure, remaining workers are likely to be less attractive to employers.
Some component manufacturers will be searching to reorient their businesses and develop export markets, but many others will be working out ways to transfer the wealth held in their business to their personal accounts and then exit for the least cost. As component suppliers exit, supply chains will be disrupted. But lots of small closures are better in labour market terms than three major events, so this process has its benefits.
People who lose their jobs unexpectedly are likely to take about six weeks to come to terms with their situation; during that time many will feel paralysed and unable to search for work effectively. Between six weeks and six months the more employable among the workforce will have found work, although often in less skilled jobs. Between six and twelve months the likelihood of finding work diminishes quickly, although percentages are boosted by the reemployment of affluent higher skilled workers who take longer to find and commence suitable work. After a year the chances of finding work are poor and people tend to leave the workforce, often permanently. In short, the employment impacts of unemployment get worse over time (this is called hysteresis), which is the reason why the metaphor of “recovery” from job loss, as though it was an illness, is usually misplaced.
Is retraining a panacea?
Retraining is a policy intervention with well documented benefits. But the options for retraining are not the same now as they were in the 1990s. The TAFE system is much diminished and those training for less skilled jobs would incur high costs unless there is ample assistance. People who have been out of the education system for a long time will need introductory preparatory courses before they can tackle skill retraining.
In the case of clothing workers, two years in retraining for low level vocational skills did not improve employment prospects but instead separated former workers from the labour market. The best retraining outcomes are achieved by workers who are able to turn a pre-existing hobby into a vocation (horse-training and scuba-diving, for example) and those who can upgrade existing skills at tertiary level.
Crucially, if retraining is to build on workers’ pre-existing skills, then it should not be targeted in “skills-in-demand” areas. Experience shows that taking groups of retrenched workers and training them all in the same occupation (security guard, forklift driver) puts them exactly where they started: competing with each other for a small number of jobs.
Has anyone seen the ‘better jobs’?
Some commentators have characterised the car industry closures as unleashing a round of creative destruction that will drive the growth of new industries and create new jobs. For that to be true, it is necessary to assume that existing investments in the car industry somehow inhibit the growth of other “better” opportunities. This is bunkum: if there were investment opportunities in these other sectors, the investments would have happened regardless of the automotive sector. In fact, spillover arguments would suggest such investments are now less likely without the critical mass of the automotive sector.
There is currently no obvious new job generator in the Australian economy except for domestic construction and infrastructure projects. This does not bode well for the future in Victoria and South Australia.