The CofFEE Employment Vulnerability Index V2.0

Today our research centre – Centre of Full Employment and Equity – which is known as CofFEE, released the second version of our – Employment Vulnerability Index – which is an indicator that identifies the localities (medium-sized areas) in Australia that are most vulnerable to job losses when economic activity declines. The Australian labour market has not recovered the ground it lost in the downturn associated with the Global Financial Crisis. After showing signs of recovery as a result of the fiscal stimulus in 2009-10, the fiscal austerity that the Federal government imposed as it obsessively pursued a budget surplus has caused us to lose all the gains that were made. The Government failed in its quest because it overestimated the strength of private spending (which is still very flat) and its deficit was too low anyway when it started its austerity push. The new Federal government is finding out that all its tough talk before the September election about delivering bigger surpluses than its predecessors is just hot air and the slowing economy is pushing the deficit higher not lower. In this environment, the labour market is precariously balanced and likely to continue to deteriorate. The EVI provides a guide to where the on-going job losses are likely to be across the urban and regional space.

I should note that the EVI is the result of a collaboration with Professor Scott Baum (Griffith University) who I have a long and productive research partnership with. We are pursuing a number of regionally-focused projects at present.

The Employment Vulnerability Index (EVI) is an indicator that identifies those suburbs that have higher proportions of the types of jobs thought to be at risk in the current economic climate.

The – EVI Technical Report – includes an explanation of the methodology used to calculate the EVI, commentary and the major policy recommendations.

You will not be surprised to learn that one of the solutions to rising mass unemployment that we advocate is the introduction of a Job Guarantee.

As an aside, my colleague Warren Mosler is miffed about a book that has just come out from so-called progressives in the US now seemingly advocating employment guarantees yet failing to mention the rather substantial literature that the early Modern Monetary Theory (MMT) proponents such as Warren, Randy Wray, Stephanie Bell/Kelton, myself and others (Scott, Pavlina) have contributed on this topic.

I have received many E-mails today asking for my view on this “controversy”.

First, for years our advocacy for employment guarantees was ridiculed by all and sundry as being a Marxist plot or some other ridiculous put-down term. I am very happy that so-called progressives are now adding their names and repute to the list of advocates. Even if they haven’t been supportive in the past. Learning is a good thing.

Second, the book in question contains many errors relating to how the monetary system operates, which means it cannot be read as a truly progressive statement.

Third, academic protocols say that you fail if you do not acknowledge the key prior articles and contributions in a specific literature that you are seeking to address. You don’t have to agree with the past key contributions but you have to acknowledge them. Graduate students are trained in this art. The fact that the book authors in this case totally disregarded the extant literature on the topic of employment guarantees from the MMT authors (there are many articles) means they fail. Whether their failure is also plagiarism is another matter.

The cop out I suppose, is that the authors are not academics and so are not bound by the same ethical standards. Which also means their contribution is not to be judged by the same (high) standards.

Overall, I am relaxed. My US colleagues are venting for me. It is far too hot where I live at present to get too “hot under the collar” about people who do not have the decency or the sense of awareness and protocol to acknowledge prior work.

The following Table describes the EVI classifications for the ranked suburbs according to their index outcome.

Our economic model used data for 1561 SA2s across the 101 ABS Significant Urban Areas. Essentially, this means computing the EVI for suburbs located across the eight state and territory capital cities and 93 non-metropolitan centres.

The resulting rankings cover 85 per cent of the total Australian population.

It should be noted that the underlying modelling used to compute the EVI takes into account individual characteristics at an aggregate level.

As a result, any one person in a Red alert suburb may have little risk of job loss, while any one person in a Low risk suburb might, in fact, be very vulnerable to job loss. But in aggregate, we expect the job losses to fall predominately in the Red and Amber alert suburbs.

The EVI reveals those suburbs – Red Alert and Amber Alert suburbs – which are most exposed to potential job losses and least well placed to escape disadvantage associated with increasing unemployment.

The analysis of data for the 1561 SA2s located across the 101 urban areas resulted in just over 14 per cent (223) being identified as red alert localities for potential job loss with a further 41.6 per cent being identified as amber alert (medium to high job loss potential) localities.

The next Table provides an indication of the distribution of the entire EVI categories across the Australian States and Territories.

In order to further the analysis, we divided the suburbs designated as Red alert suburbs into two groups on the basis of their existing level of disadvantage.

We related the index scores to rankings provided by the – SEIFA Index of Relative Socio-Economic Disadvantage – which “ranks areas in Australia according to relative socio-economic advantage and disadvantage”.

We identified two broad types of localities on the basis of their general level of socio-economic disadvantage:

  • Those that are amongst Australia’s most disadvantaged places to live. We term these the existing disadvantage job loss localities.
  • Suburbs that have not been previously considered to be highly disadvantaged, but which may become so as a result of declining labour market conditions. We term these the emerging disadvantage job loss localities.

The first group of red alert suburbs (the existing disadvantage group) were identified as having an EVI greater than one standard deviation from the mean and a SEIFA index score greater than one standard deviation below the mean.

The second group was identified as sitting outside the first group (that is, having an EVI greater than one standard deviation above the mean but a higher SEIFA score indicating lower disadvantage).

The first type of disadvantaged locality are the traditional battler suburbs. These are places that have been at the forefront of decades of social and economic restructuring, including the deindustrialisation as manufacturing has declined.

Variously they have been categorised as being among Australia’s most disadvantaged places to live and home to the real battlers of Australian society.

They are among the nation’s localities which the previous Federal Government’s – Social Inclusion Board spoke about in 2011 in terms of the impact of location on issues of exclusion and multiple disadvantage:

Different kinds of disadvantage tend to coincide in particular locations and persist over time. Entrenched disadvantage is often made up of a range of problems that can be very difficult to tackle. Vulnerable people in disadvantaged communities may not finish school, find it difficult to find and keep a job and sometimes rely on income support for long periods. In some households, long term unemployment becomes intergenerational.

I note that the new conservative Federal government has disbanded the Social Inclusion Board – it was too much about assisting people for them to deal with.

The first group of disadvantaged suburbs are often termed the “old economy”.

While the places that constitute the first group of red alert suburbs and localities are a concern due to the potential for disadvantage to become further entrenched and hard to shift, the second group of employment vulnerable localities represent a different issue.

These are a group of suburbs and localities across both metropolitan and non-metropolitan Australia which although they are not considered to be at the extremes of disadvantage as measured by the ABS SEIFA index, have been identified as highly vulnerable to job loss by the EVI.

Of the 223 localities identified as belonging to the red alert group, emerging disadvantage places account for just over half (56.3 per cent). They are over represented in Victoria, Queensland and Western Australia.

These are the mortgage belt suburbs that have grown on the periphery of our major cities. The neo-liberal debt binge saw household debt in these areas rise to record levels and families buying into the property boom running very precarious home economies.

Typically the young families are way out of the margin of the cities because land and housing was cheaper there. The husband works in sectors that are highly sensitive to the economic cycle (for example, construction) and the wife works part-time (casual) in an unskilled job. The casual hours, which are the first to go in a downturn, are the difference between insolvency and being able to pay the huge mortgage each month.

In addition, these are the areas where housing prices fall the most in a downturn and leave higher proportions of home buyers in negative equity.

So while these families were lauded by successive governments as living the Australian dream and built McMansions on the periphery of our cities, clogged their driveways up with huge SUVs to run the kids to school in, and a boat or two, they are actually very exposed to an economic downturn.

A significant slowdown will see the casual hours drop quickly, the trades contract and their housing values fall. All three impacts then push these families to the brink or into insolvency.

A complete list of the rankings and different perspectives is available from the EVI Home Page at http://e1.newcastle.edu.au/coffee/evi/
The EVI V2.0 is accompanied by a fully searchable and scalable mapping tool and suburb profiles – http://e1.newcastle.edu.au/coffee/maps/evi/EVI2011.html.

Mapping Tool

This maps is an embedded version of our mapping tool. If you seriously want to explore the spatial patterns etc I suggest you visit the page noted above because the capacity of the map presented is significantly better than what you can do with this embedded version. But the following map might suffice for the casual user.

Other points to note include:

1. The EVI indicates risk or potential job loss and makes no claims to estimate or predict actual magnitude of job losses. We merely indicate where there is risk of job loss, other things equal. So if there are local offsetting factors or the downturn is mild or the government reverses direction and introduces a fiscal stimulus then there may be very few job losses.

The point is that the risk remains that Red Alert suburbs are more vulnerable to job losses if the economy enters a protracted recession.

2. The EVI is not a predictor of the economic cycle but an indicator of vulnerability to downturns in the economic cycle.

It is clear though that recessions have drawn-out aftermaths that easily last for a decade in areas that are most affected. The national unemployment rate took more than 14 years to get back to the pre 1991 recession level in the last fully-completed cycle (that end. Underemployment has never returned to its pre-1991 level (at the top of the boom it was approximately 4-5 per cent of the labour force yet was around 1.5 per cent (maximum) before the 1991 recession. There is huge short-term pain associated with a recession for sure. But then for many disadvantaged groups the pain persists for years. If a suburb is really affected by high unemployment then it is not alarmist or sensationalist at all to assume these negative effects will be long-lasting and intergenerational.

3. A question that was sometimes asked by the media in relation to the EVI V1.0 relates to the currency of the data, given that we used the 2006 Australian Bureau of Statistics Census of Population and Housing data, which was the latest available at the Suburb level at that detail when we first compiled the EVI in 2009.

Similarly, this time we use the 2011 ABS Census of Population and Housing (which was collected in August of that year) to estimate the EVI that we are just publishing in November 2013. A simple-minded claim might be that the “data used in the study is old”, which was an actual comment made to the press by the, then South Australian Employment Minister when they confronted his government over our findings in EVI V1.0.

The response is obvious. It is highly unlikely that there have been significant shifts in the main drivers of job loss risk in the period since the 2011 Census.

These factors tend to evolve relatively slowly. So the age of the data is rather irrelevant (within reasonable time frames).

To give examples: The percentage of those without post secondary schooling is a high risk factor and that will not have shifted much in its spatial distribution or level since August 2011? Further, the composition of industry in each locality will not have shifted dramatically since August 2011?

Clearly, some aspects of economic and social life can change quickly and render Census data inapplicable in the latter years of the intercensal period.

Conclusion

The major Australian daily newspapers should be carrying stories tomorrow about the release. It will be interesting what spin they put on it.

Update:

The new media outlet in Australia is the first to write about it – Looking for a job? Don’t move to these suburbs

Melbourne Age story (November 21, 2013) – Jobs at risk in Melbourne’s fringe suburbs as economy goes south

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.

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    One Response to The CofFEE Employment Vulnerability Index V2.0

    1. Ximena Lopez says:

      Thank you Bill for this enlightening article. I used the Mapping Tool to look at my own city ‘Townsville’ – looks rather grim. Those areas considered low risk are predominantly military suburbs (high income) mixed in with a few professionals. The worst performing suburbs are (you guessed it) – areas with a high public housing demographic. I read a few days ago that Townsville had an unemployment rate of 7% (same as Wollongong). The regional areas have taken a huge hit from the GFC, the job guarantee would certainly help in areas such as ours.

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