The Experience of Australia and Kazakhstan in the Mineral Price Boom of 2006-2014 by Dr Ian Manning

Both Australia and Kazakhstan are large in physical area but relatively small in population. Both have extensive mineral deposits complemented by relatively fragile manufacturing sectors. Thanks to high prices for energy minerals and iron ore, the terms of trade of both countries were highly favourable from 2006 to 2014. Australia is well endowed with coal, iron ore and natural gas, all of which fetched high prices during the boom years; Kazakhstan has a similar endowment with the addition of oil. In Australia, the central and state governments have surrendered control over national investment strategy to the private sector and are also, with the exception of the petroleum sector, have foregone the capacity to exact additional revenue from the mining sector during times of high mineral prices. From 2009 high profitability in the sector triggered considerable investment in capacity expansion. Australia’s exchange rate is market-determined and followed the terms of trade, in the short term facilitating mining investment but in the long-term exacting a high cost: its manufacturing and other non-mining trade-exposed industries suffered loss of competitiveness, with a resulting lack of investment and industry closures. The Australian banks also borrowed overseas, and now that the boom has ended the Australian banking system finds itself with high levels of short-term overseas borrowing and very low levels of foreign exchange reserves.  By contrast, Kazakhstan’s market-oriented reforms over the past three decades did not surrender broad state control of the pattern of investment. Its government responded to the high mineral prices by concentrating on the oil industry, using negotiated agreements to finance developmental investment and build up an Oil Fund. This allowed control of the exchange rate to give its manufacturing industries the opportunity to upgrade their competitiveness. Royalties on other minerals were maintained at rates which discouraged exploration. The author is much more familiar with the Australian history than with that in Kazakhstan (the two countries are seldom compared) and will seek views as to whether his interpretation of Kazakhstani history is correct. The initial conclusion is that Kazakhstan managed the mineral price boom much more effectively than Australia.

Australia Kazakhstan paper

Nature of Unemployment in Australia

NIEIR’s Unemployment Rate

The NIEIR Unemployment rate is calculated by adjusting the headline unemployment rate for excess take-up of disability pension. Increases in the headline unemployment rate tend to be followed by transfer of many long-term unemployed to the disability pension. This transfer does not affect the social security take-up rate since the unemployed people who are transferred are generally already in receipt of Newstart allowances. However in regions where NIEIR unemployment is significantly higher than the headline rate we generally find a disproportionately higher rate of Social Security take-up. Though the NIEIR unemployment rate adjusts for the shift of unemployed people onto disability pensions, the Social Security take-up rate for persons of workforce age also reflects other aspects of community crisis, such as sole parents.

Nature of Unemployment in Australia

The most rapid rises in unemployment have occurred in QLD Far North Torres, SEQ Sunshine Coast, NSW North Coast, QLD Wide Bay Burnet and TAS Hobart South. Of the major cities SEQ Brisbane City has had the fastest rise of unemployment. The rise in the NIEIR unemployment rate in SEQ Brisbane City is likely the result of a general economic contraction in SEQ, a slowdown in growth and its consequences on construction workers and the like.

Once again it has fallen to NIEIR to document the disparities between regions. Whatever lip service may be made to equality of opportunity across the nation, it is manifestly not attained regionally. The mining boom has raised the pace of development in regions with large deposits of iron ore, coal and gas and has consolidated the position of the regions with high education, high social status and inherited wealth. However, it has disadvantaged regions dependent on industries depressed due to the over-valued exchange rate and has bypassed the retirement regions, which despite their attractive seascapes have maintained their established status as zones of limited economic opportunity

Employment in education grew more rapidly than the national average from 1992

to 2013. The primary driver of growth was the population of student age – hence relatively low rates of growth in rural regions and high rates in outer suburbs. The highest rate of growth was achieved in SEQ Sunshine Coast, closely followed by SEQ Gold Coast. In both these cases an element of institutional decision affected these growth rates, with new tertiary institutions taking advantage of growth in the student population. In one region a group of universities took advantage of locations at public transport nodes closely connected to the knowledge economy.

Larger regional centres will benefit from consolidation as regional population and employment concentrates in these centres. International investments in agriculture may drive agricultural initiatives. While agriculture will remain a foundation of many regional economies, it is likely that the trend towards consolidation of farms will continue. Regional economic development policies that encourage the development of new or realigned industry structures to strengthen regional capacity and retain critical mass will be important in creating new employment opportunities for young people.

How does this affect younger Australians?

Today it is much harder for new entrants to enter the job market and to gain full-time employment.  The full impact of this reality has had a major effect on the lives and prospects of young people. Job shedding and a move towards part-time or casual employment has been more severe for young people aged between 15-24 years trying to find or maintain employment than for any other cohort. Young people are of course Australia’s employment future and are critical in maintaining the participation rate, particularly when the population is ageing and the average age for employees in sectors such as manufacturing, agricultural and construction is increasing. Among other things this is a recipe for losing skills and know-how.

The ups and downs of employment opportunities for Australia’s young people have become a serious structural issue with implications which will resonate long into the future. Since the GFC the employment prospects for young people have continued to decline.  The current situation and the decline of employment opportunities for this cohort are stranding too many young people with little opportunity to learn work and job-ready skills. The financial and social costs to government and community will be high if the problem that young people are having in finding employment is not addressed.

Declining opportunities in manufacturing, structural changes to agricultural production, the decline in availability of lower skilled government employment and the significant decline in the number of apprenticeships across a range of industry sectors are all contributing to the decline of employment opportunities for young people in Australia. The trend to casual employment is having its impact on the prospects of young people, creating a general culture of insecurity as well as making it difficult for individuals engaged in casual employment to improve their higher-end skill sets.

The changes to rural communities where agricultural employment has declined as farms consolidate include the hollowing out of these communities. Tertiary education deferment rates for rural youth in a number of regions are higher than for their city counterparts because of the cost of accessing tertiary education including accommodation costs, an expenditure that can prove particularly difficult for rural families in times of drought or diminishing prices for farm produce

In rural and regional locations trade skills are more likely to provide a direct pathway to local employment opportunities than professional pathways, which tend to be more convoluted and require movement away from the town in which people grew up. Both pathways to employment offer national opportunities with trade opportunities existing (though now declining) in resource-based regions, in mines or energy developments and associated infrastructure developments. Professional opportunities are more city-based with professional services trending towards consolidation in larger centres.

Previous NIEIR studies have described the demand by employers for higher skills from their employees, due in part to the growing technology and communication needs of industry. In the Internet and social media age it is likely that young people have acquired skills that with tweaking could be turned to the advantage of business. So in some ways it is perverse that the ‘online generation’ has such difficulties in finding employment. Employment has changed and the idea that a particular qualification undertaken at a particular point of time is sufficient for a lifetime of work is out of date. The requirement is for workers to have the capacity to reinvent their skill sets through a process of lifelong learning, continually adapting skills and capabilities to stay in employment, perhaps in completely different industry sectors and employment positions.

The Internet in rural and remote regions is an important tool in providing pathways to lifelong learning strategies, particularly with the growth in uptake of MOOCs (Massive Online Open Courses). If current trends continue too many young people will be denied the opportunity to enter their first career, let alone adapt to the process of lifelong learning and employment.

Education and location are important factors in determining the prospects of young people in employment as are social status, networks and household wealth. It is also likely that those advantaged by location and wealth will benefit most from the Internet and the new employment opportunities this part of the economy provides. From an industry perspective innovation is also a key way of creating employment opportunities for young people as employment opportunities for young people in traditional industries and government employment decline.

Some of the issues

As a policy objective it will be important to create opportunities for young people in employment in emerging industry sectors. This means sophisticated careers guidance in school and planning that needs to begin at an early age so the idea of employment and work are integrated into the educational process. Then it is about providing appropriate courses that, as far as possible, match future industry demand and skills. This is not to say there should be a ‘monoculture’ approach to education, far from it in a globalising world. The need is for well targeted education that also provides broader knowledge capabilities, creative, leadership and communication skills. How well teachers in school education are equipped to teach around the idea of future skills and work culture may be an issue that needs further thought including ongoing learning opportunities for teachers.

Australia’s link to the new knowledge economy needs to start with education. Education around the world, and that includes Australia, is in a transition. The vitally important tertiary sector, both in terms of knowledge exports and high quality education and training for Australians, is under pressure from global competition, educational technologies and government cuts to spending.

These trends are a concern, because to compete in the global knowledge economy, Australia needs more research, more development of intellectual property and more knowledge economy businesses. These things are facilitated by education.

The decline of manufacturing, particularly in the automotive industry, is also a concern because this has the potential to damage the nation’s research, innovation and knowledge diffusion capacity, with these things heading offshore along with the manufacturing industry. In a few years time every car you see on Australian roads will have been finally manufactured somewhere else with perhaps a few components from Australia.

This manufacturing workforce as well as the construction workers employed in the construction phase of the mining boom will need new employment opportunities. Where are these to come from? Government policies including those relating to retraining opportunities for manufacturing workers who lose their jobs in coming months and infrastructure development policies and investment will be highly significant. There is a close supply chain link between construction and manufacturing.

The failure of the knowledge economy to take hold in regions outside of central and inner city regions is another issue facing Australia, can broadband and training opportunities change this dogged reality?

NIEIR modeling indicates that delays by industry to adapt their business models to global and knowledge economy bench marks, and this includes education (and many other sectors), will have serious consequences for the economy. We should all take the opportunities from the knowledge economy very seriously.

The 2014-15 State of the Regions Report describes many of these issues and is available through the ALGA site.