Whatever flaws the Turnbull government may have, it has presided over a truly impressive achievement on jobs growth. In the 12 months to October, around 350,000 jobs were created in Australia in trend terms — over 80% of them full-time jobs. And around 55% of the 350,000 jobs have gone to women. We’ll know a bit more about where those jobs were created when the ABS releases detailed employment data in coming weeks. But data from the August quarter showed that there had been a huge — almost unbelievable — surge of over 130,000 new jobs in health and social care in the previous 12 months, with over 60,000 created in the August quarter alone.

That represents a big acceleration for health and social care, which, in 2016 and early 2017, appeared to have been dropping back from its rapid growth of recent years. And unsurprisingly, the great bulk of those additional health and social care jobs went to women. And while the rollout of the NDIS has been expected to drive jobs in this sector, around half of the new jobs — 64,000 — were in hospitals.

Further data might end up revising down that big surge in June-August, but health and social care will continue to play a big role in jobs growth in Australia because it’s simply so huge an employer. This even extends to the issue of wages stagnation. The RBA noted in its recent Statement of Monetary Policy about both health and education (which has also grown strongly):

“Wage growth remained relatively high in education and healthcare, which have recorded the largest employment gains over the past year. These industries also have a large share of employees on collective agreements and it will take some time for the current low rate of wage growth to pass through to their stock of existing enterprise bargaining agreements; average annualised wage increases for new agreements remain below those in the stock of existing agreements.”

That is, there will be some downwards pressure on wages growth in two of the biggest and fastest growing employment sectors in coming quarters. That suggests that the most recent wage price index (WPI) figure, which showed private sector wages had gone backwards in real terms after allowing for the Fair Work Commission’s annual wage review decision, is an indicator of the future direction of wages growth, not the last quarter before the long-forecast upturn.

But before critics of the government try to wave away strong jobs growth as primarily the result of a surge in doctors and nurses by state governments, it’s important to note employment growth has been strong even without that surge — leaving economists and the Reserve Bank puzzling over why it hasn’t led to wages growth of the kind that normally accompanies strong jobs growth.

Recently, we asked a number of economists and sector representatives about the problem. Adam Carr of the Australian Chamber of Commerce and Industry made the observation that “the good thing about the Australian economy is that it is much more flexible than what it has been in the past. This flexibility helped us to get through the GFC and the end of the mining boom without a recession — it helped keep people in jobs during that period and it will also help the labour  market continue to improve and wage growth pick-up as we accelerate out of it”.

Carr’s view is a welcome change from the common view of employer groups that the Australian economy is rigidly inflexible and badly in need of major industrial relations reform, and echoes the comments of the Reserve Bank and the Productivity Commission that the economy has had the flexibility to accommodate major economic challenges over the last decade. Australian workers and politicians have long been lectured by business that there is insufficient flexibility in our industrial relations to encourage employment and economic growth. Now, it appears — even if the likes of the Business Council won’t admit it — we have exactly that: an economy where lower wages are traded off for more jobs.

This is good for the unemployed, who have a greater chance of being in work. It’s good for business. But it’s not good for retailers, who end up suffering from lower sales than would be the case without the real wage cuts they’ve been in the forefront of the campaign for. It’s not good for consumer confidence generally. And it’s not good for politicians who have to deal with an angry electorate wondering why it’s no longer getting a pay rise. Much like when Treasury predicted — accurately as it turned out — that WorkChoices would actually harm labour productivity by bringing more low-skilled and marginal workers back into the workforce, there’s a downside to that much-sought “flexibility”. And unless wages growth picks up in 2018, that downside will get worse.

Peter Fray

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