Jobs dilemma
Shamubeel Eaqub on manufacturing change
The proposed closure of the Cadbury plant in Dunedin is a high-profile example of a long-standing trend. Manufacturing jobs have been disappearing from New Zealand for decades due to technological improvements and globalisation.
The reaction from politicians and policy makers should be to support those facing redundancy and help them back into work. Longer term, we need to ensure workers of tomorrow are acquiring the right kind of skills to operate in a very different world of work.
The proposed Cadbury plant closure in Dunedin could lead to 350 job losses. For Dunedin, that’s a big deal, but not new.
Over the past decade, Dunedin has lost 94 jobs a year on average. Many of the job losses have been in manufacturing, averaging around 333 a year – or almost one Cadbury factory closure a year for the past decade.
Despite the headline grabbing shock value of Cadbury, the loss of manufacturing jobs is an old and recurring wound for Dunedin.
The decline of manufacturing started long ago. In the early 1900s around 20 per cent of all jobs were in manufacturing. This peaked at 27 per cent in the mid-1960s. Today, it is around 10 per cent of all jobs.
The reasons cited by Cadbury’s parents, the need to be closer to their customers and consolidating manufacturing operations, echo factory closures in advanced economies over recent decades.
Factories are likely to be closer to customers or in places where the cost of doing business is low.
This has often meant that manufacturing has spread to different parts of the world, particularly to emerging economies.
Supply chains are spread over multiple countries, rather than making something from the beginning to end in one place and then shipping to customers. Distributed supply chains mean that manufacturing has become a more ethereal concept.
Where factories are in developed economies, they tend to be highly automated. Even in Germany, which has more manufacturing jobs than other developed countries, it is facing a declining trend.
Manufacturing jobs are in structural decline. But manufacturing businesses are not. Medium sized manufacturers with less than $100 million of sales per year, are achieving 5-8 per cent pre-tax profit margins. Larger manufacturers are barely profitable however. So, manufacturing will not disappear, but manufacturing jobs won’t be plentiful.
There is nothing magical about manufacturing jobs. The economy as a whole, is creating more jobs than the job losses in sectors like manufacturing. But they are in different sectors (usually in services), and often in different regions (usually in large urban centres).
This means that when a rural or small town manufacturing job is lost, there is no immediate comparable replacement.
This frames the first policy issue: how best to deal with job losses. There are of course no easy answers. But our welfare system needs to be generous enough to look after people losing jobs, to give them a safety net to recover and look for new employment.
Redeploying these workers is hard, but not impossible. Many provinces are facing significant labour shortages.
By working closely with neighbouring regions and businesses, there have been successful examples recently of creating a win-win for workers and businesses. This collaboration is often best led by local business and political leaders.
For young people growing up in rural or small town New Zealand, there is no guarantee there will be enough jobs for them in their hometown. There is also no guarantee they will be able to afford to move to places where jobs are plentiful. In Auckland, housing is extremely unaffordable.
This frames the second set of policy issues: how best to educate our young people and how to ensure mobility for our people across regions.
The obvious is to focus on education and admit that we do not know what skills will be needed in the future. A focus on critical thinking and creativity seem obvious. That means expanding beyond the current myopia of STEM in tertiary education right now. They are important, but social sciences are important too.
And we need to really tackle the housing crisis in Auckland, because young people should have the choice to live where they like in New Zealand.
Cadbury’s proposed closure is sad news for Dunedin. But a continuation of a trend. Reversal is not possible, but a host of tired but trusty old policy ideas keep turning up: a better welfare safety net, a local approach to redeploying workers, making education fit for a changing economy, and tackling housing.