18/03/2009 - 22:00

Labour policies grow in importance

18/03/2009 - 22:00

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State and federal governments can work together on labour market policy.

Labour policies grow in importance

ECONOMICS students traditionally learn that governments have two major levers at their disposal - fiscal policy and monetary policy; but increasingly there is a focus on a third lever - labour market policy.

This is an area where the federal and state governments can have a big influence and need to work constructively together.

Until a few years ago, labour market policies were seen as a tool for promoting long-term economic development, particularly through investment in education and training.

Similarly, migration policies were seen as a tool for influencing long-term population growth but were not considered particularly relevant to fine tuning the economy.

That has changed in recent years, firstly as the economic boom led to acute labour shortages and latterly as the economic slowdown has created fears of a surge in unemployment.

The Rudd government, like its counterparts around the world, has used fiscal and monetary policies to try and manage the slowdown.

Interest rates have been slashed to record lows, but this has had little impact on borrowing activity by households or business, which are already loaded up with debt.

Some places, like the UK, have taken the unusual step of quantitative easing, which basically means printing extra money to try and boost economic activity.

On the fiscal front, the Rudd government has opted for multi-billion dollar handouts, which were supposed to boost consumer spending. In practice, they have had only a marginal impact, which ironically is a credit to the recipients, who have seen the merit of using their windfall to cut debts rather than inflate spending.

The Rudd government is also boosting infrastructure spending, but there is a long gap between policy decisions and real economic impact in the business sector. And that's as it should be; we don't want governments blundering into new projects that have not been properly planned or evaluated.

Tax policy is another tool at the government's disposal but to date there has been little appetite for substantive decisions in this area.

This discussion illustrates that fiscal and monetary policy are imperfect tools - though one area that has been strongly boosted is the first homebuyer market, helped by the combination of government grants, stamp duty concessions and low interest rates.

Education, training and migration policies are also imperfect tools for economic management, but they need to be used more than ever before.

There was a major shortage of skilled workers during the boom, and the recent slump in apprentice numbers in WA indicates the same problem may re-occur when economic activity starts to pick up again.

The increased use of temporary visas, most notably the section 457 visas, was a critical pressure valve during the boom. The use of these visas should adjust of its own accord, without policy changes.

Section 457 visas are only granted when employers are unable to find appropriate workers in the local labour market. That was a big problem up until mid 2008, but should be less of an issue now.

However this can quickly change. As discussed in this week's feature on planned liquefied natural gas (LNG) projects, Australia faces the prospect of multiple very large projects proceeding over the coming decade and beyond.

Chevron's Gorgon LNG project on its own will require a peak construction workforce in Australia of 6,000 people.

If companies like Exxon Mobil, Inpex and BG Group proceed with their own projects at around the same time, we will very quickly run into labour supply bottlenecks.

A lot of the fabrication and construction work on these projects happens in Asian shipyards, and that will simply increase if project developers cannot get labour at a competitive price, if at all, in the local market.

That is why the federal government's decision to cut next year's permanent skilled migration program by 14 per cent or 18,500 places is a worry.

Australia still has a tight labour market and we run the risk of running into shortages again if the government acts too quickly and harshly.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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