Back in November, I observed that Australia’s economic situation felt something the opening of Nevil Shute’s 1957 novel, On the Beach, where a nuclear war has devastated the Northern Hemisphere. Australia has not been hit, but a lethal cloud of fallout is gradually drifting southwards.
The fallout has certainly hit now. Huge job losses are being announced across the board, but particularly in the mining sector, which was booming only a few months ago. The government is already contemplating radical action to respond to the likely withdrawal of most foreign banks from our financial markets, and it needs to be similarly radical in its response to the imminent collapse of the labour market. For now, I’ll restate what I wrote in November, hopefully with more to come on this topic
Job creation gets a bad name from silly projects exemplified by the (apparently apocryphal) case of ‘painting rocks white’, so they tend to be a last resort. But the alternative of wage subsidies is least effective during the initial contraction phase of a recession, when employers are cutting back or freezing their staff numbers.
It’s precisely at this time when some well-timed projects could do a lot of good. In this respect the recently-announced assistance to local governments looks like a good idea.
Finally, while there are good reasons for governments to pick up the private sector slack as regards infrastructure investment, it’s important to remember that the days of large gangs of workers swinging picks and shovels are long gone. Physical infrastructure projects have many potential merits, but large-scale job creation is not among them.
The biggest employment gains nowadays come from expanding the services sector, and particularly human services such as health and education. The financial services sector has also been an important source of growth since the 1970s, but the jobs being cut there now are unlikely to return for some years, if they ever do.