Education and training are key success factors too

Now here’s another view on the current shift of jobs happening between countries as a result of globalisation. The case being stated here is the jobs lost are replaced with new ones maybe due to new technology or support services that have existing vacancies that never get filled. And the role of governments worldwide is to arm its citizens with all the skills needed for this transition.

 

From Sydney Morning Herald

February 25, 2012

As the media keep reminding us, the many pressures for change in the structure of our economy are causing some workers to be thrown out of their jobs. But this is unlikely to cause a decline in overall employment. Huh?

The structure of the economy – as represented by the relative sizes of the various industry sectors – is always changing. Normally the rate of change is so slow we don’t notice it. At present, however, the pace of change is much quicker than usual.

These pressures are coming from outside Australia. Many are the consequence of the rapid transition of various populous economies from developing to developed. Some of these ”emerging” economies are in South America; most are in Asia.

One big consequence of this development is that much of the manufacturing undertaken in the world is moving from the developed to the emerging economies, where labour is more abundant and thus cheaper. This is hitting manufacturing in allthe developed economies, not just us. (They’re not enjoying it, either.)

Because the emerging economies’ immaturity means they’re growing a lot faster than the rich economies, another consequence is that most of the growth in the globaleconomy comes from them. That’s been true for years; it will be even truer in the coming decade because the North Atlantic economies damaged their prospects so badly with their financial crisis.

A further consequence is that the cycle in the world prices of primary commodities – food and fibre, minerals and energy – is now driven more by the emerging economies than the rich economies.

And the different needs of the emerging economies – for energy, steel and high-protein foodstuffs – have produced a long-lasting change in the structure of world trade, where the demand for primary commodities is growing faster than the demand for manufactures, meaning the prices and volumes of commodities are growing faster than those for manufacturing.

Because the emerging economies have much more economic development to do, and because there’s a pipeline of countries coming behind China and India, the increased global demand for commodities relative manufactures is likely to last for many moons.

This is bad news for the real incomes of most of the developed countries (which tend to import most of the primary commodities they use, while gaining most of their export income from manufactures), but great news for us, since our imports are mainly manufactures and our exports mainly commodities.

Of course, both the big advanced economies and we face painful structural change as a consequence of this shift in the structure of the global economy, but I know whose shoes I’d prefer to be in.

In Australia we have to shift resources of labour and capital to the expanding mining (and agricultural) sectors from the declining manufacturing sector and elsewhere in the economy.

The improvement in our trading fortunes relative to the rest of the world is reflected in our higher exchange rate – which is thus likely to stay high for the foreseeable future. To many people, this sounds like terribly bad luck (when they’re not thinking about their next overseas holiday, that is).

To economists, however, it’s all part of the same deal. Our trading position has improved, so our exchange rate has appreciated to help us bring about the change in the structure of our industries needed to fully exploit that improved position.

In other words, by making it harder for our manufacturers (and tourist operators and education providers) to compete on international markets, the higher dollar is helping shift resources out of manufacturing and into mining and elsewhere.

Of course, the era of the emerging economies isn’t the only factor forcing change on our industries. The other big one is the continuing information technology revolution, which is presenting considerable challenges to our established media companies, the book industry, retailers and shopping-centre owners.

I started by asserting that the job losses being caused by structural change were unlikely to lead to a fall in employment overall. Why not? Because what creates jobs is the spending of income.

Starting with the mining boom, it’s bringing a lot of additional income to Australia (first from higher prices per tonne, then from a lot more tonnes). But, people object, mining is highly capital intensive so it doesn’t employ many people. It may account for 10 per cent of the value of all we produce (gross domestic product), but it accounts for only 2 per cent of total employment.

True, but what happens to all the income the miners earn that isn’t paid to their employees? Some of it goes to foreign owners and is spent abroad, but the rest goes to local shareholders and local suppliers to the industry, with Australian governments also getting a big chunk (as they should).

When the local shareholders, suppliers and governments spend that income, jobs are created. Where? At present, a lot are in the construction industry but, more generally, all round the services sector.

How can I be so sure? Because the services sector (including construction) accounts for about 85 per cent of all employment and because it has accounted for all the net jobs growth for the past 40 years.

Next, the advent of new technology often prompts employers to retrench staff as machines replace workers. People imagine these jobs have been ”lost”, but economists know they’ve merely been ”displaced” (moved).

Why? Because when companies make changes that improve their productivity (output per worker), they raise the economy’s real income. The company shares the benefit from its higher productivity among its remaining workers, its shareholders and the taxman, but often competition forces the benefit through to its customers in the form of prices that are lower than they otherwise would be. And lower prices mean higher real incomes.

The point is that as this income is spent around the economy it creates jobs around the economy. Where? Somewhere in the services sector.

Ah, you say, but are all the workers ”displaced” from manufacturing able to take up the new jobs in mining or the services sector? A lot more are than you imagine will be able to, but some will have a struggle and some individuals won’t make it.

That’s why the smart response from governments to pressures for structural change is not to help companies carry on as if nothing in the world had changed, but to help individual workers adjust to that change with help to retrain and relocate.

Ross Gittins is the economics editor.

Read more: http://www.smh.com.au/business/most-jobs-are-not-lost-they-merely-end-up-elsewhere-20120224-1ttdx.html#ixzz1nVlcGBoR

 

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