Transitioning Regional Economies

42.3.1 Recent trends in regional growth

43.Most regions have experienced employment growth

Almost all SA4 regions have displayed significant variability in the growth rate of employment, as indicated by the large interquartile ranges (figure 3.1).⁹ Even so, most regions have experienced overall positive growth in the number of employed persons in the past five years (about 77 per cent of regions). Most also display negative rates of growth from time to time and a number have experienced an overall fall in employment. The geographic distribution of regional growth in the number of employed persons is shown in figure 3.2.

Figure 3.1 Employment growth is variable across Australia’s regions Median annual employment growth and interquartile ranges for SA4 regions, October 2012 to October 2017, year average data^a

^a Data are for year average employment growth rates. Each blue dot represents the median annual employment growth over the period, for each region. The black lines extend to the annual growth rate for the 25^th and 75^th percentile.

Source: ABS (Labour Force, Australia, Detailed – Electronic Delivery, Oct 2017, Cat. no. 6291.0.55.001).

Over the longer term, even more regions have experienced an increase in employed persons. About 92 per cent of SA4 regions experienced positive employment growth in the past 10 years (that is, only seven regions had a decrease in the number of employed persons). Four regions had negative growth over the shorter and longer term, and included agricultural regions like Murray in New South Wales and the Western Australia – Wheat Belt. As discussed later, these regions have had more enduring employment decline than other regions.

Figure 3.2 The number of employed persons is growing in most regions Average annual employment growth from year ending October 2012 to year ending October 2017, by SA4 region

Source: ABS (Labour Force, Australia, Detailed – Electronic Delivery, Oct 2017, Cat. no. 6291.0.55.001).

An emerging theme from this analysis is that regions experiencing the lowest rates of employment growth have a large agricultural (and pastoral) base. For example, between 2012 and 2017 employment fell by 4 per cent in the Western Australia – Wheat Belt and by 15 per cent in Murray in New South Wales (as illustrated in figure 3.15 later in this chapter). This is reflective of the longterm decline in employment in agriculture over many decades, due in part to technological progress and improved management. In contrast, mining employment had been reasonably stable until a period of rapid increase from 2005, roughly coinciding with the start of the mining investment boom. Even though employment has since declined, the number of people now employed in mining is more than double what it was prior to the boom. For example, Western Australia – Outback, which is heavily mining dependent, experienced high rates of employment growth (12 per cent in the five year period up to year ending October 2017) (discussed later and illustrated in figure 3.8).

The employment rate in a region can be measured as the ratio of employment to workingage population.¹⁰ Employment rates in some mining regions (Western Australia – Outback and Mackay) are well above the Australian average. However, Fitzroy and Queensland – Outback had a decline in their employment rates in the past five years. The declines were associated with declining participation rates more so than rising unemployment.

Most agricultural regions had employment rates below the Australian average, with Murray in New South Wales having a ratio below 50, associated with rising unemployment. Riverina had a declining employment rate which was associated with declining participation. In contrast, Shepparton and Warrnambool and South West had increasing employment rates.

Finding 3.1 All Australian regions experience significant variation in their growth in employment, with many having occasional periods of negative growth. Even so, most regions (67 out of 87 SA4 regions) have seen net increases in the number of employed persons over the five years to October 2017. Many regions with low rates of employment growth have a large agricultural base.

44.Unemployment is highest in remote regions

Unemployment rates tend to be highest in remote regions, including areas of the Northern Territory, South Australia and far north Queensland (figure 3.3). At the FER level, the highest unemployment rate was in the APY Lands — a large Indigenous area in remote northwest South Australia. It has had an unemployment rate above 20 per cent for at least the past 5 years, suggesting that there are longterm underlying factors at play, such as limited economic and employment opportunities rather than shortterm disruptions.

Figure 3.3 Unemployment rates were highest in remote areas Year average unemployment rate, by functional economic region, June 2017

Source: Department of Employment (Small Area Labour Markets, June 2017).

45.Regional population has grown although some towns are in decline

Although the majority of regions experienced growth in population between 2011 and 2016, 26 per cent of FERs recorded a population decline (figure 3.4). Most of the regions with declining populations were in remote and very remote areas with large geographic areas and are sparsely populated. Thus the total geographic area of regions with declining population is large. Australia’s pattern of becoming more urbanised is similar to the experience in other OECD countries (OECD 2016b, p. 17).

These patterns of growth and decline across regions reflect longer term trends. Although Australia’s population has increased by about 40 per cent over the past 25 years, many regional areas have experienced a decline in their population during this time (section 3.4).

Patterns of population growth over the longer term might also be related to the relative abundance of economic opportunities. For example, the ‘geographic concentration of Australia’s mineral wealth has led to much stronger economic and employment growth in Western Australia, Queensland and the Northern Territory’ (PC 2014b, p. 7) and population growth since Federation has been higher in Western Australia and Queensland.

Figure 3.4 Population decline has been predominantly in inland regions Annual average population growth by functional economic region, 2011 to 2016

Source: ABS (Regional Population Growth, Australia, 2016, Cat. no. 3218.0).

46.Incomes have grown in most regions

Mean personal income¹¹ is generally higher in miningintensive regions than in other parts of the country (figure 3.5). Port Hedland – Newman and Karratha had the highest mean incomes in Australia in 201415, at about 50 per cent above the Australian average.

However, some agricultural regions, particularly those in Western Australia, recorded high rates of mean income growth during the period 201011 to 201415 (figure 3.6). In fact, the highest income growth across all regions in this period occurred in the South Wheatbelt and Central East Wheatbelt regions of Western Australia (growing at about 15 per cent per year between 201011 and 201415) where higher than average rainfall helped boost yields. In contrast, the lowest income growth between 201011 and 201415 was in Horsham (growing at less than 0.5 per cent per year).

In many states, incomes in regional areas grew more rapidly than in metropolitan areas. For instance, the median incomes in regional New South Wales, Victoria, Queensland and Western Australia all outstripped the income growth rates in their capital cities in the period 201011 to 201415. But income levels in capital cities generally remained higher than in other regions. Overall, the greater urban areas of Darwin and Perth grew at above the national average, but in Sydney, Adelaide and in particular Hobart and Melbourne, income growth was below the national average between 201011 and 201415.

Incomes where mining is the predominant industry (particularly regions in Queensland and Western Australia) increased rapidly until 201213 (roughly coinciding with the end of the construction phase of the boom). In Port Hedland – Newman and Karratha, mean incomes grew by more than 10 per cent between 201011 and 201213. As discussed further below, mining employment has an effect on regions not usually associated with mining operations because of labour market linkages, particularly flyin, flyout (FIFO) and drivein, driveout (DIDO) workers, and because many mining employees work in cities.

Figure 3.5 In 201415, incomes were highest for people living in mining regions Mean personal income, by functional economic region

Source: ABS (Estimates of Personal Income for Small Areas, 2011–2015, Cat. no. 6524.0.55.002).

However, there is emerging evidence that following the end of the investment boom incomes are growing more modestly in miningintensive regions. The growth rates in mean incomes in Port Hedland – Newman and Karratha between 201213 and 201415 were less than the Australian growth rate. In contrast, over the same period income growth in many agricultural regions in New South Wales and Victoria exceeded the Australian rate. A number of factors have contributed to the rise in incomes in agricultural regions. The value of agricultural production has increased rapidly in recent times, due to strong demand for Australia’s exports, favourable global market prices for livestock, a depreciating exchange rate and subdued growth in input costs (ABARES 2017, p. 22). However, as agriculture is subject to price cycles and weather cycles, these short term trends will not necessarily continue.

Figure 3.6 Strong income growth in many regional areas recently Annual change in mean income by functional economic region, 201011 to 201415

Source: ABS (Estimates of Personal Income for Small Areas, 2011–2015, Cat. no. 6524.0.55.002).

Although no FERs (except French Island which has very few people) experienced a decline in mean income over the period 201011 to 201415, at the more disaggregated SA2 level a handful of regions, with diverse characteristics, experienced a decline in incomes.

Finding 3.2 Almost all regions have experienced growth in average personal incomes over the four years to 201415. Incomes in agricultural regions grew faster than in mining regions in the period immediately following the end of the mining construction boom (between 201213 and 201415). But incomes in 201415 generally remained higher in mining regions compared with agricultural regions. Income growth in greater capital city areas has varied across Australia, but income levels in capital cities are, on average, higher than in other regions. Across capital cities, growth in incomes between 201011 and 201415 was highest in Perth and Darwin. Perth and Darwin also had higher average incomes compared with other capital cities.

47.Themes for further analysis

The analysis above points to regions being diverse, reflecting differences in their endowments of natural resources, economic geography, their history of development, the mix and relative size of economic activities undertaken, and the nature of economic and other shocks that have affected them. Although much of the analysis in this chapter is necessarily undertaken at a high level of regional aggregation, changes within regions themselves are often important. For example, the Hunter Business Chamber (sub. 19, p. 3) highlighted that while Newcastle itself is performing well in terms of economic activity, many smaller towns in the Hunter region are not faring as well. Similarly, areas considered to be successfully transitioning in Queensland were not those hardest hit by the slowdown in resource investment (CCIQ, sub. 17, p. 2). Economic and population growth in regional centres can indeed obscure what is happening in the wider region. However, a number of general observations have emerged which are explored further in this chapter.

Regions whose economic base is large scale mining have generally had the highest rates of growth in employment (from 2005), notwithstanding the end of the investment boom (section 3.2). That said, not all mining areas are prospering — some are in decline. Some regions have marginally economic mines and some have existing mines that are approaching the end of their economic lives. Furthermore, population and income growth in most mining areas has slowed in recent years, although income levels remain high.

Labour mobility, particularly with regard to FIFO and DIDO workers in remote resources projects, is emphasised in the study’s terms of reference and was also a key issue raised by study participants.¹² The implications of FIFO work are complex. FIFO workers can connect resources regions to labour ‘source’ regions, affecting income and employment outcomes well beyond where resources extraction occurs (RAI, sub. 12, pp. 9–14). It also facilitates matching of peak, but transient, demand for workers and avoids the development of some infrastructure and services that would only be used for a temporary population increase. The mining boom’s impact on labour mobility is explored in section 3.2.

Regions predominately based on agriculture, particularly broadacre cropping and pastoralism, tend to have lower rates of growth in employment and have experienced consolidation of small towns into larger regional towns (section 3.3). At the same time, there has been an improvement in the productivity of agriculture, enabling production to increase with fewer workers (figure 3.7), and median incomes in agricultural regions have grown strongly in recent years. The Regional Australia Institute (sub. 12, p. 24) noted the steady reduction in agricultural employment across much of regional Australia, with the Chamber of Minerals and Energy of Western Australia (sub. 28, p. 22) linking this to reduced labour requirements driven by capital intensification of broadacre agriculture.

There has also been a longterm trend of an expanding services sector and, more recently, declining manufacturing (figure 3.7) (discussed below). The extent to which regions are affected by these longterm structural changes in the broader Australian economy depend on their industry mix and how concentrated employment is in particular sectors.

Manufacturing

In 2016, the regions with the largest number of people employed in manufacturing were greater capital city regions, particularly Melbourne and Sydney. For example, over 160 000 people work in manufacturing in the Greater Melbourne region, which is about 8 per cent of total employment in the region. Manufacturing tends to be concentrated in pockets of outersuburban areas which have affordable land and where workers in manufacturing live. The growth in population and professional services sector in some cities has forced manufacturing activities further out from the CBD (DIRD 2015, pp. 65–67). At the SA4 level, Melbourne – South East, Sydney – South West, Adelaide – North, Logan – Beaudesert and Ipswich (Greater Brisbane) all have a high share of manufacturing employment (ABS 2017d).

Manufacturing employment has long been decreasing in Australia and production has been also decreasing over the past 10 years (figure 3.7). The declining share of the manufacturing sector has largely been caused by increasing international competition and the growing services sector, particularly within cities (Daley, Wood and Chivers 2017, p. 5). Many traditionally strong manufacturing regions such as Illawarra, Geelong and Newcastle have experienced large decreases in total manufacturing employment. Manufacturing employment has also decreased in Sydney, Melbourne and Adelaide (ABS 2017i).

Figure 3.7 National trends in employment and value added by industry

Mining Agriculture Manufacturing Services

Sources: ABS (Labour Force, Australia, Detailed, Quarterly, Aug 2017, Cat. no. 6291.0.55.003); ABS (Australian National Accounts: National Income, Expenditure and Product, Jun 2017, Cat. no. 5206.0).

The impact of declining manufacturing employment is likely to differ across regions, with some better placed to take advantage of employment growth in other sectors (box 3.1). The transition of manufacturing workers has been helped by governments and employers that have provided assistance to workers retraining for work in other sectors (Department of Employment, sub. DR75, p. 13; Stitt 2017).

Box 3.1 The end of car manufacturing in North Adelaide and Geelong

The closure of the Holden automobile factory in North Adelaide in October 2017 following the closure of Ford’s Geelong engine plant in October 2016, brought an end to passenger vehicle manufacturing in Australia. The two factories and local parts suppliers, have been important employers in both regions. The closure of the industry will spur significant adjustment in both regions as many retrenched workers seek to find new work and some take early retirement. Although the disruptions in North Adelaide and Geelong are similar, there are significant differences between the two regions that will likely affect how they adjust to the closures. Labour market conditions. Unemployment is about 8 per cent in Adelaide – North (SA4), compared with about 5.5 per cent in Geelong (SA4). About one in three unemployed workers in North Adelaide had been unemployed for more than a year in 2016 (ABS 2017i). Economic conditions in connecting regions. About 10 per cent of Geelong workers commute to Melbourne for work (BITRE 2015, p. 11), where employment growth is relatively high (averaging 2.2 per cent per year between 2006 and 2016). As well as service sector growth, high population growth has also helped stimulate construction in Geelong and Melbourne. By contrast, employment growth in the Greater Adelaide labour market has been considerably lower than Melbourne (averaging 0.8 per cent per year over the same period) (ABS 2017h). The capabilities of the region’s residents. It follows that differences in these capabilities are likely to contribute to adjustment outcomes. Human capital, including educational attainment, age, English proficiency as well as labour mobility affect how retrenched manufacturing workers will fare in transitioning into new employment (PC 2014a, p. 185). On average, residents of Adelaide – North have fewer formal qualifications (11 per cent with a bachelor degree or higher qualification, compared with 16.5 per cent in Geelong) and are more likely to be ‘bluecollar’ workers (37 per cent, compared with 33 per cent in Geelong) (ABS 2013a). Despite the end of car manufacturing and the general decline in manufacturing employment, Geelong has experienced high rates of employment growth and unemployment is below average (figures 3.2, 3.3). Employment growth in Adelaide – North was relatively low but remained positive prior to the closure of the Holden plant in October 2017. Early evidence suggests that Northern Adelaide is outperforming expectations in adjusting to the end of car manufacturing with many component suppliers successfully transitioning into other manufacturing production (Elston, G, SA DSD, Adelaide, pers. comm., 30 Nov 2017).

Finding 3.3 Regions with an economic base concentrated in manufacturing tend to have declining employment in manufacturing consistent with the inexorable rise in service industries and desirable shifts in technologies. Many of these are subregions within greater metropolitan areas of capital cities and have demonstrated adaptability in adjusting to declining manufacturing employment.

Services

The share of employment in services and its share of GDP has risen markedly, and is the dominant sector of the economy (figure 3.7). Employment growth in the past 10 years has been highest in arts and recreation, healthcare and social assistance and professional, scientific and technical services. Regions with economies predominantly based on services (typically cities and large regional centres) tend to have higher economic growth. Workers in these sectors often live in inner suburbs within cities. These areas tend to have high average incomes, high income growth and population growth (driven largely by overseas migration) and the highest concentrations of people with postschool education and migrants (Daley, Wood and Chivers 2017, p. 3). The growth of cities and large urban centres is further discussed in section 3.4.

Some services, such as tourism, are becoming increasingly important in some areas, including regional areas (for example, in Cairns — box 3.2). Jones and Tee (2017) also noted that regional towns such as Newcastle and Port Macquarie have seen declines in traditional sectors (including coal mining and manufacturing) and experienced an increase in employment in the services sectors (box 3.4). Strong growth in health care and social assistance in Port Macquarie has occurred due to an ageing population. Other regions have been less successful in adjusting, including the Whyalla region, which is endeavouring to diversify and grow sectors such as tourism, aged and disability care and tertiary education.

Box 3.2 Tourism in Cairns

The Cairns region is less concentrated in mining activity than other regions of northern Queensland and more dependent on agriculture, healthcare and food and accommodation (Queensland Government, sub. 26, p. 26). Tourism is also an important industry in Cairns and, as an export exposed industry, was impacted by the high value of the Australian Dollar during the mining investment boom which made Australia a relatively more expensive destination for international tourists. Between 2006 and 2011, the number of international tourists to northern Queensland dropped from 870 000 to 650 000 per year (The Australia Institute 2012). In addition, the high Australian Dollar made travelling overseas relatively cheaper for Australian holidaymakers, further reducing domestic tourism to regions such as Cairns. The decrease in commodity prices from their peak has seen the Australia dollar fall closer to its longterm average which has helped the tourism sector. In northern Queensland, the number of international tourists has increased sharply beyond preboom levels (TRA 2017). A sustained lower Australian dollar is expected to continue to encourage more international and domestic tourists to visit the region (Queensland Government, sub. 26, p. 26). The promise of increasing tourism activity because of expanding Asian markets and a low Australian dollar has helped revitalise sectors dependent on tourism around Cairns and increased investment in upgrades and developments in accommodation and entertainment facilities.