A grim future for Arrium, Ford and Queensland Nickel workers?

The OECD report Back to Work Australia makes some grim predictions for workers who lose their jobs. That is the potential threat facing some 7,000 Arrium employees, those at Queensland Nickel and Caterpillar in Tasmania, and next year, workers in Ford’s plants in Geelong and Broadmeadows, Victoria.

The report was released just before the announcement that mining and materials company Arrium is going into voluntary administration. The company operates the Whyalla Steelworks in South Australia, a state hit hard by the closure of Holden’s vehicle manufacturing plant.

The OECD report says Australia faces a high incidence of job loss due to plant downsizing or closure (at 2.3% of the workforce per year). Based on analysis of data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, the OECD suggests that 30% of those who lost their jobs in recent years were still unemployed after 12 months and another third had moved into to less well-paid and less secure employment.

Surprisingly the OECD sees this as suggesting Australia’s “flexible” labour markets are “rather successful at providing new jobs relatively quickly”. However, HILDA data is unlikely to capture the outcomes of workers in concentrated large-scale closures, so this may underestimate the magnitude of the problem.

The OECD also notes that Australia’s spending on labour market programs is weak by international standards, at a modest 0.01% of GDP (compared to say Denmark’s at 0.98%). It finds that social stigma makes job seekers unwilling to access employment services, that the jobactive framework discourages training and that the payment system to providers rewards short-term placements that lead to labour market churning.

The report questions the utility of targeted labour adjustment programs such as the Structural Adjustment Fund that assisted South Australia’s Mitsubishi workforce in 2004. After reviewing these programs the OECD concludes that in Australia labour adjustment programs:

“coverage is arguably inequitable and potentially wasteful as it provides automatic access to employment services to all displaced workers in a particular sector or region, irrespective of whether the worker needs help, while excluding other displaced workers who have an equal or greater need for such services merely because they were employed in different sectors or regions.”

The OECD recommends that Australia move away from targeted assistance programs for large-scale closures towards a universal approach covering all sectors of the economy, with the intensity of intervention “varying according to the workers’ needs".

This recommendation underplays the benefits of targeted labour adjustment assistance. If a plant closure releases hundreds or thousands of workers with similar skills into a small local labour market, the competition for work is concentrated and intense. Many workers will be forced to accept jobs in new occupations – often with a loss of pay, seniority and skill. Some will have to retrain or relocate to places where there are more opportunities.

Relocation is not an option for everyone. Programs need to be targeted to local circumstances.

If job losses eventuate in isolated Whyalla, there will a greater demand for relocation assistance than, say, for Ford workers in Geelong, where workers can potentially access the greater Melbourne labour market. In addition, local labour adjustment programs make it possible for local organisations to contribute to revitalisation efforts.

Payments are made to people undertaking retraining help to maintain the demand for services in affected regional economies. Targeted assistance is not wasteful because the workers who do not need assistance do not access assistance.

There are economy-wide benefits from labour adjustment programs. Less skilled workers tend to search for work in their local area, while highly skilled workers might look to national or global opportunities.

How successful their search is depends on individual skills and attributes, household responsibilities, and the play of wider processes of labour supply and demand. Because there are so few suitable job opportunities for them, the workers whose careers are most damaged by large-scale closures are likely to be highly skilled and specialised workers with long tenure with one employer. The value of these workers’ skills to the economy warrants investment in preserving their skill base.

The OECD recommends establishing local pilot schemes for intensive employment services, increasing employers’ responsibilities in retrenchment by demanding longer notice periods and mandatory Centrelink notification, and instituting policies that encourage firms to limit dismissals during temporary downturns. It also advocates better research follow-up of retrenched workers’ outcomes.

These are all positive steps. Sadly, however, the OECD does not suggest offering employer incentives to stimulate demand for the labour of retrenched and other jobless workers.