FEATURE ARTICLE: SOUTH AUSTRALIA'S CHANGING INDUSTRIAL LANDSCAPE


INTRODUCTION

This article examines the changing South Australian industrial landscape in the ten years to 2009-10, from two perspectives. Industry divisions are compared according to their employment levels and for their economic impact using the Gross Value Added (GVA) component of Gross State Product (GSP). In doing so, the intention is to identify the most prominent or newly emerging industries in terms of their contribution to South Australia's economy.

Naturally, an increase in employment for an industry can indicate growth, perhaps the entry of new businesses into that industry. However a decrease in employment does not necessarily imply a decline in the number of businesses in an industry, or a decline in the economic output from an industry. For example, the Manufacturing workforce may suffer staff 'cut-backs' because of technological improvements in processes yet still retain or increase production levels.

This article attempts to reconcile industry employment changes with a measure of production, GVA, which for an industry is the value of its output at basic prices minus the value of intermediate consumption at purchasers' prices. The basic price is defined as the amount receivable by the producer from the purchaser for a good or service produced as output, minus any tax payable, plus any subsidy receivable as a consequence of its production or sale, and excluding any transport charges invoiced separately. This basic prices approach to valuation of output removes the distortion caused by variations in the incidence of commodity taxes and subsidies across the output of any industry.

Other key points regarding GVA:

• The term can be used to describe gross product by industry.
• It's reported here on a financial year basis, the latest data being available for 2009-10.
• GVA data are expressed here as chain volume measures - to remove the effects of price changes.

The ABS Labour Force Survey, collects industry of employment details four times a year - every August, November, February and May - in original (unadjusted) series form. To better align with the reference period for the GVA data, the industry employment estimates for South Australia have been presented as financial year averages, for the four quarters to May, for the ten years to 2009-10. This 'annual averaging' approach helps smooth out some of the volatility and seasonality associated with the original series industry estimates.

Finally, with the exception of Agriculture, Forestry and Fishing, this article focuses on the state's main employing industries, with average annual employment exceeding 50,000 persons at 2009-10. This filter allows for a greater degree of statistical confidence when analysing industry employment data over time. It means that some 'high profile' but relatively low employing industries such as South Australian Mining are not covered; the sampling variability and statistical insignificance associated with movements in some estimates over time can limit their utility for analysis.


KEY POINTS

South Australia's industries with the largest employment over the past decade were Health Care and Social Assistance, Retail Trade and Manufacturing. Together they accounted for over one third of the state's average annual employment. More recently, from 2006-07 to the present, Health Care and Social Assistance has replaced Manufacturing as the industry with the largest employment in South Australia.

The main industries contributing to the 18% state employment growth over 2000-01 to 2009-10 were Health Care and Social Assistance, which accounted for 26% of the increase, followed by Construction (20%) and Professional, Scientific and Technical Services (14%). In contrast, Agriculture, Forestry and Fishing and Manufacturing employment fell in the same period. These results suggest a gradual change in the state's industrial landscape, as new or different divisions gain in prominence.

Nonetheless, in GVA terms, Manufacturing still made the greatest contribution to South Australia's GSP over 2000-01 to 2009-10, but its share decreased from 15.0% to 11.7%. Moreover, its average annual growth rate was negative (-0.1%) over the same period. The decline in Manufacturing's contribution was partly offset by the Construction industry, which increased its contribution to GSP from 4.4% to 6.6%.

The state's Manufacturing industry showed negative growth in both employment and production between 2000-01 and 2009-10. It is possible that the Global Financial Crisis (GFC) and certain industry closures had some effect. To confound this theme however, both state average annual employment (all industries) and GSP rose by 2% during GFC period, suggesting other influences within the broader economy.


MAIN EMPLOYING INDUSTRIES

South Australia's average annual employment for 2009-10 was 800,600 persons, 18% higher than for 2000-01. For the corresponding period, national average annual employment rose by 22%.

The industry in South Australia with the largest average annual employment in 2009-10 was Health Care and Social Assistance with 103,300 persons, or nearly 13% of the state average annual employment. For clarification, Health Care and Social Assistance includes: hospitals; medical and other health care services (such as dental, optometry, physiotherapy and ambulance operations); residential/aged care services; and social assistance services (including child care).

The next most prominent industries were Retail Trade (91,900 persons employed, 12% of state level), Manufacturing (83,700, almost 11%), Construction (66,300, 8%) and Education and Training (62,600, 8%). Together, these five industries accounted for 51% of state's annual average employment, with the top three contributing 36%.

A decade earlier, Health Care and Social Assistance, Retail Trade and Manufacturing again had the highest levels of annual average employment although the ranking order was different. Manufacturing was foremost with annual average employment of 88,900 persons, followed by Retail Trade (80,400). Together with Health Care and Social Assistance, these three industries contributed 36% of the state's annual average employment in 2000-01.

Interestingly, Agriculture, Forestry and Fishing, was the ninth ranked industry in 2009-10, with average annual employment of 36,800 persons, or 5% of state annual average employment. A decade earlier, this industry was fourth ranked, with average annual employment of 49,000 persons or 7% of state annual average employment .

Looking at the national picture, the same 'top three' contributors (in average annual employment terms) applied, namely Health Care and Social Assistance, Retail Trade and Manufacturing, while Agriculture, Forestry and Fishing similarly declined in prominence in the decade to 2009-10.


INDUSTRY CONTRIBUTION TO STATE EMPLOYMENT GROWTH

As mentioned, state annual average employment grew by 18% in the ten years to 2009-10. The main industries contributing to this growth were: Health Care and Social Assistance, which accounted for 26% of the increase, followed by Construction (20%) and Professional, Scientific and Technical Services (14%).

Conversely, Agriculture, Forestry and Fishing and Manufacturing both contributed negatively to state employment growth. Both divisions recorded their lowest average annual employment levels for the ten years of this study, simultaneously, in 2009-10. Certainly, recent data suggest that South Australia's industry employment profile may be changing and diversifying, as people take up job opportunities in other (less traditional) industries.

At the national level, in the ten years to 2009-10, Health Care and Social Assistance accounted for 18% of growth in average annual employment, followed by Construction (17%) and Professional, Scientific and Technical Services (11%). Similarly, Agriculture, Forestry and Fishing, and Manufacturing, both contributed negatively to national employment growth over the same reference period.

As indicated above, Professional, Scientific and Technical Services is an emerging industry, both nationally and locally. This broad industry division encompasses activities such as scientific research, architectural and engineering services, legal and accounting services, advertising and market research, management consulting and computer system design.


WHEN DID THINGS CHANGE IN SOUTH AUSTRALIA?

Health Care and Social Assistance began to displace Manufacturing as South Australia's top employing industry in 2006-07. Three years later, in 2009-10, average annual employment for Health Care and Social Assistance exceeded that of Manufacturing by 23%.

The next two graphs (see below) show changing employment levels for selected industries, with the most prominent divisions presented first:

Employment in Manufacturing in South Australia appeared to peak in 2003-04 (with an estimated 99,300 employees) and then began a general decline, with the decreases becoming more accentuated in recent years. A number of events, including the closure of Mitsubishi's Tonsley plant (around 1,000 jobs) in March 2008, the progressive closure of its engine foundry at Lonsdale and the 2002 closure of the Port Stanvac oil refinery may have had some impact.

Quite notably, state Manufacturing employment fell over two successive years, in 2008-09 and 2009-10. A similar result was observed nationally, where Manufacturing experienced a 5% decrease in average annual employment from 2007-08 to 2009-10. Interestingly, the Global Financial Crisis (GFC), which unfolded in late 2008 through to mid 2009, coincided with this most recent period of apparent decline in Manufacturing employment.

Conversely, the state's Construction industry experienced 19% employment growth over 2007-08 to 2009-10, which includes the GFC period. Average annual Construction industry employment for Australia also rose by 3% for the same period. It is possible that long-planned (state and commonwealth) government infrastructure projects - as well as newer initiatives (e.g. Government Stimulus Package, Building the Education Revolution Program, the Social Housing Initiative) may have supported Construction industry employment levels, making that industry less susceptible to GFC effects. Of the other main employing industries, only Retail Trade indicated a downturn in average annual employment over the GFC period, only to revive in the following year.

The above (second) graph suggests a slowly declining pattern in annual average employment for Agriculture, Forestry and Fishing, since 2000-01. Other than periods of drought, however, the contributing factors are unclear. Being a household rather than business based collection, the ABS Labour Force Survey cannot directly unpack the drivers within industries that lead to employment change.


INDUSTRY GROSS VALUE ADDED

In this section we change the focus to GVA data. Although Manufacturing is the state's major industry contributor in terms of GVA as percentage of Gross State Product (GSP), this contribution has declined steadily from 15.0% at 2000-01 to 11.7% at 2009-10. This loss in share has been taken up by the Health Care and Social Assistance industry (up from 6.7% to 7.4%) and Construction (increasing its contribution from 4.4% to 6.6%). Other notable growth industries (in GVA terms) were Professional, Scientific and Technical Services (up from 4.9% at 2000-01 to 5.2% at 2009-10) and Retail Trade (up from 4.0% to 4.5%). The next two graphs (see below) show recent movements in GVA relative to GSP, chain volume series, for selected industries and South Australia:

For Manufacturing in South Australia, annual changes in GVA were most pronounced over 2003-04 and 2004-05, and then during 2008-09 (see the graph below).

The percentage contribution of GVA to Gross Domestic Product (GDP) for Manufacturing in Australia has also declined, from 10.7% in 2000-01, down to almost 8.7% in 2009-10.


EMPLOYMENT AND GVA

Given recent local attention given to changes within Manufacturing and Agriculture, Forestry and Fishing in South Australia, it is of interest to compare average annual employment and GVA for both industry divisions.

When indexed to 2000-01 as the base/reference year (=100), GVA and employment for Manufacturing in South Australia do not show (or suggest) a distinct relationship over time. For example, an upwards employment 'spike' in 2003-04 was accompanied by a fall in GVA. In other periods (for example 2004-05) both measures moved in the same direction. In 2009-10, the two measures diverged; Manufacturing employment declined while GVA increased. This most recent result cannot be explained by any specific event; future data updates may provide some clarification. It should also be noted that the GVA estimates are subject to revision.

In contrast, generally decreasing annual average employment in Agriculture, Forestry and Fishing in South Australia was accompanied by mainly increasing GVA. (See graph below). Whether this was achieved through new production processes, or structural (farm-size) adjustment leading towards economies of scale, or by some other actions, are beyond the scope of these data to explain. A more concerted, targeted, industry study is required.

CONCLUSION

South Australia's industries with the largest average annual employment over the past decade were Health Care and Social Assistance, Retail Trade and Manufacturing. Together they accounted for over one third of the state's average annual employment. More recently, from 2006-07 to the present, Health Care and Social Assistance has replaced Manufacturing as the industry with the highest average annual employment in South Australia.

In GVA terms, Manufacturing still recorded the largest contribution to South Australia's GSP over 2000-01 to 2009-10, but its share decreased from 15.0% to 11.7%. Moreover, its average annual growth rate was negative (-0.1%) over the same period. The decline in Manufacturing's contribution was partly offset by the Construction industry, which increased its contribution to GSP from 4.4% to 6.6%.

It will be interesting to view upcoming data from the ABS State Accounts and the Labour Force Survey to see whether current industry growth patterns and levels of prominence persist.


SOURCES

ABS 2010, Labour Force, Australia, Detailed, Quarterly, Nov 2010 - Table 05. Employed persons by State and Industry (cat. no. 6291.0.55.003)

ABS 2009-10, Australian National Accounts, State Accounts 2009-10 (cat. no. 5220.0)