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Explaining Disparities in Employment Growth Between Metropolitan and Regional Australia Explaining disparities in employment growth between metropolitan and regional Australia Authored by: William Mitchell Ellen Carlson Centre of Full Employment and Equity University of Newcastle [email protected] Explaining disparities in employment growth between metropolitan and regional Australia Mitchell and Carlson 1. Introduction1 Over the last few decades there has been considerable change in the industrial and demographic composition of employment with substantial impacts on the spatial economy. There are significant disparities in employment growth rates across metropolitan and regional areas of Australia. These disparities are intrinsically linked to the persistence of unemployment rate differentials across the same spatial units and the accompanying social disadvantage (Mitchell and Carlson, 2003a). The capital cities experience lower unemployment rates, higher employment growth and recover from recession more easily. Demarcating the regions into Capital City and Rest of State with the Territories as single regions (based on ABS Labour Force categories) and employing an array of statistical techniques (multiple regression, contingency table analysis, causality analysis, vector autoregression, and cointegration analysis), Mitchell and Carlson (2003a) examined the relative significance of national factors and region-specific factors in explaining these disparities. They concluded that a region’s unemployment ranking is negatively influenced by its employment growth and this, in turn, is significantly influenced by aggregate (national) fluctuations. However, region-specific fluctuations were also found to be important. The regions were grouped into high growth regions (both regions in WA and QLD, NT, ACT - see Appendix for regional mnemonics), moderate growth regions (both regions in VIC and NSW) and low growth regions (both regions in TAS and SA) in terms of employment outcomes. The spatial diversity of response to aggregate fluctuations and region-specific dynamics was notable with the high growth regions able to resist the negative impacts of the national contractions more effectively than the other regions. The low growth regions have stagnant labour markets and negative shocks appear to endure for long periods. The disaggregated data set used was a development on previous studies of regional unemployment, which have used States and Territories as the regional unit (for example, Dixon and Shepherd, 2001). This research bears directly on the contested issue in regional economic debate concerning the relative importance of regional-specific versus macroeconomic factors in determining regional employment outcomes. The theoretical impasse is also evident in regional development policy (Rissman, 1999). Keynesian macroeconomics 1 The authors are Professor of Economics and Director of the Centre of Full Employment and Equity, and Senior Research Fellow, Centre of Full Employment and Equity, respectively. They thank Victor Quirk for excellent research assistance. All errors are our own. State of Australian Cities National Conference 2003 Page 2 Explaining disparities in employment growth between metropolitan and regional Australia Mitchell and Carlson typically argues that regional employment variations are caused by the impact of the national business cycle on growth rates across industries, which reflect changes in aggregate factors, such as fiscal and monetary policy settings, business and consumer confidence and productivity trends. Thus, the cyclical sensitivity of regional outcomes reflects the impact of common aggregate shocks and the specific regional industry mix. Regions dominated by goods-production allegedly lose employment share in recessions relative to service-providing regions. The solution is for aggregate policy to maintain strong growth with industry policy attenuating structural shifts. The current Australian Government has pursued a different interpretation of the “macro” view and has eschewed both stimulatory macro policy and specific regional policy. Its low-inflation policy with fiscal restraint is designed to create a macro environment within which economic growth will flourish. Supplementary microeconomic labour market and welfare reforms aim to provide market incentives to promote individual participation in economic activity. Rather than introduce regionally-targetted policies, this strategy places faith in market forces to redress the regional problems - through labour mobility away from and firm relocation into areas of low labour utilisation response to falling wages and improved local labour skills. While the national economy has demonstrated consistent output growth over the last decade, the regional disparities in labour market outcomes persist. The tight macro policy has sustained high unemployment and mobility patterns and relative wage movements have not promoted regional convergence (Martin, 1997; Debelle and Vickery, 1999). Disparities in regional incomes and employment are persistent and in many cases increasing (ALGA, 2002). For such reasons, the “macro” view (irrespective of the guise it takes) is now under challenge. There is also growing anecdotal evidence that regional development agencies are adopting a paradigm that has been termed new regionalism, which emerged in the mid-1980s and was inspired by case studies documenting economic successes in regions such as Silicon Valley and Baden Württemberg. Scott and Storper (1989) posited that regions had displaced nation states as sites of successful economic organisation. The upshot is that there is now an emphasis on localised institutions and collaborations. The status of macroeconomic policy is now considered peripheral to the growth potential of any particular region (Castells and Hall, 1994; Cooke and Morgan, 1998). Despite the growing popularity of new regionalism, the claim that the State of Australian Cities National Conference 2003 Page 3 Explaining disparities in employment growth between metropolitan and regional Australia Mitchell and Carlson region offers a convincing theoretical explanation of recent and future economic development is under-researched and has weak empirical underpinnings. There is little known about how the national economy interacts with the regions. Further, no empirical evidence exists to verify assumptions of, first, the emergence of capitalism centred on spatialised, autonomous economies, and, second, a hollowed out, macro- weakened nation state (Lovering, 1999; Markusen, 1996). In this paper we seek to extend the work of Mitchell and Carlson (2003a) to develop a better understanding of the disparities in employment growth across regions which appear to account for the observed persistence in the disparities with respect to unemployment outcomes. There is very little research on this issue in Australia. The paper also seeks to determine whether the metropolitan areas have benefited from favourable industry locations relative to the "de-industrialised" regional areas. Using dynamic shift-share analysis (Arcelus, 1984; Barff and Knight, 1988) we decompose regional employment growth into a national growth component, an industry mix component and a regional growth component and examine industry level data by full- time and part-time employment to relate these shares to the observed employment growth differentials between the metropolitan and regional labour markets. We also examine the regional impact of the increasing significance of part-time work in overall employment creation in Australia by decomposing the employment dynamics into part-time and full-time components to explore the spatial disparities more closely. The research will assist in tracing the types of influences that public policy can have to reduce the negative consequences of the changing spatial employment structure. 2. Data issues The typical unit of analysis for Australian regional studies, particularly in cross- national studies, has been the State/Territory (see Dixon and Shepherd, 2001). However more detailed regional labour force data for 64 Major Statistical Regions was first collected in 1986 through the Australian Labour Force Survey. To focus attention on industry employment movements the lowest disaggregation available is at the capital city (metropolitan)/rest of state level. Accordingly, in this paper, the capital city (metropolitan) and rest of State is used with the ACT and NT being treated as complete regions. This data are available from 1978 for the standard labour force categories and from 1985 for detailed employment data for the 17 State of Australian Cities National Conference 2003 Page 4 Explaining disparities in employment growth between metropolitan and regional Australia Mitchell and Carlson ANZSIC industries (see Appendix for description of ANZSIC classification). The latter data are available for full-time, part-time and total employment by industry by region. The following (annualised) employment growth measures are used throughout. Using quarterly data, regional employment growth is defined as: (1) gErr=100*log( t/ Ert−4 ) th where Ert is the level of employment at time t in the r region. Similarly, national employment growth (annualised) is defined as: (2) gEnt=100*log( / Et−4 ) where Et is the total national (n) employment level at time t. Net regional employment growth is the difference between regional employment growth and national net employment growth, ggrr=−tgnt. The net employment growth rate for each region thus indicates the changing share of each region in total national employment.
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