Job shifts can leave a worker at a loose end

WORK is something many of us try to forget at this time of year. But when it comes to the economy, job prospects seem to have been weighing on people's minds recently. No matter what the official figures say about the labour market, we are determined to be pessimistic.

WORK is something many of us try to forget at this time of year. But when it comes to the economy, job prospects seem to have been weighing on people's minds recently. No matter what the official figures say about the labour market, we are determined to be pessimistic.

The latest Westpac index of unemployment expectations, for instance, is 17 per cent above its long-term average. You normally see a reading like that when the jobless rate is at 6 per cent, rather than its current rate of 5.2 per cent.

More anecdotally, I was struck by the number of grim stories about redundancy that came up when my family had Christmas drinks with the neighbours. Half the people on the block seemed to know someone who had been made redundant in the past few months.

Faced with stories like this, many economists would respond by saying anecdotes are all very well, but statistics are what count, so cheer up! Reserve Bank governor Glenn Stevens has urged us all to see the glass as "half-full". Treasurer Wayne Swan is always banging on about the economy's rock-solid "fundamentals".

Despite these efforts to lift spirits, though, evidence is accumulating that supports the public's pessimistic gut-instinct about job-shedding.

In the past year, few corners of the economy have avoided layoffs. The trend has affected blue and white-collar industries alike, including manufacturing, financial services, retail, government, media and mining.

It all sounds a bit depressing, doesn't it? But to an economist, things are a bit more complex.

The media will always report when hundreds of people are sacked by one company, and give far less attention to new jobs being created. This is partly because bad news always grabs headlines, but also because measuring the many jobs being created throughout the entire economy is hard to do.

To help us get a clearer picture, recent research from the RBA's economic analysis department takes a closer look at the 2.5 million people who stop working each year.

Its basic finding is that most of these "separations" from employment are voluntary - when people leave an employer for a better job or to have kids, for instance. But the number of people forced out of work against their will has indeed picked up in recent years.

The Australian Bureau of Statistics in February 2012 said 2.5 million people had stopped working for one reason or another in the previous year. Of this group, the share of job losses that were involuntary had climbed to 37 per cent, from 32 per cent in 2006.

Those most likely to be let go against their will are workers aged under 24, but layoffs are damaging across the whole workforce. People in their 50s, for instance, tend to spend more time in unemployment if they do lose their job.

"Of those experiencing an involuntary separation during the year to February 2012, only one-third had regained employment within the year," the economists say.

So, what's behind this increase in the number of people being laid off?

Some of it is due to cost-cutting by companies and government. But it also seems to be the result of deep-seated, or "structural" change, whereby some industries expand their role in the economy, while others contract.

It's a familiar story. Growth industries such as mining are soaking up more workers, while the share of us working in manufacturing continues to fall.

Structural change is always happening, of course. The share of the population working in manufacturing and agriculture has been sliding since the 1960s, as more of us work in services industries. Now, though, the process seems to be accelerating.

"The estimated number of workers leaving manufacturing to work in other industries almost doubled in the five years to 2010, compared with the previous four years. At the same time, the number of workers moving to the mining industry from other industries more than doubled," the RBA economists note.

For the people affected, structural change can be wrenching and dispiriting. Getting work in a new industry can require extra training or moving cities - both of which often come with a big social and financial cost.

Sometimes it's simply not possible, and people give up the search for work. And this is exactly what many analysts reckon has been happening for the past couple of years. Although the unemployment rate fell to 5.2 per cent in November, it has been kept down because fewer people are looking for jobs. After all, people out of work are not classified as unemployed unless they are looking for a job.

In the past two years, the share of working-age people with a job or looking for one - known as the participation rate - has fallen from 65.9 per cent to 65.1 per cent.

Westpac analysts calculate that if it had remained constant at the level of late 2010, the unemployment rate today would be 6.5 per cent, rather than 5.2 per cent.

It's difficult to prove that this decline in participation is due to victims of "structural change" struggling to find work. But it seems likely to have played a role.

The movement of workers between industries has been a key ingredient in the past two decades of economic growth. By allowing people to shift into industries with brighter prospects, the economy has gradually become more productive. Average incomes have risen as a result.

But these long-term gains do not make it any easier for the people affected by job shedding. That's probably why we're so downbeat on the labour market at the moment, despite the best efforts of Stevens and Swan to cheer us up.

Ross Gittins is on leave.

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