Australia’s transition away from the mining investment boom to more domestic lead growth is not just a cyclical shift.
Rather, new research from the ANZ’s economics team, in conjunction with the University of Queensland, says that Australia’s services sector will continue to grow its share of economic output and employment all the way to 2030. That is, Australia will have more part-time workers, earning a greater share of income in the economy.
The report, Servicing Australia’s Future, says:
In recent years Australia’s service sector has grown at nearly double the rate of its goods counterpart and now makes up 72.4% of the Australian economy. We expect the service sector will comprise an even greater proportion of the Australian economy by 2030 (up 5% to 77.3%).
The key drivers in this continued growth in services and employment will be healthcare, as the population ages, while educational and professional services will benefit from the growth in Asia, the authors say.
That means the profile of Australia’s exports “will continue to shift towards education, tourism and professional services” as exporters in these fields “are now achieving greater scale and wider reach through the clever application of technology”.
The authors expect service exports will grow at about 3 percent every year from now until 2030.
This has implications for overall growth and investment in the economy because the service sector is less capital intensive than manufacturing or mining and relies on more workers to produce output as a result.
The increased demand for labour as the population ages will pose a challenges for business.
“The industries with the most intensive demand for labour, such as health and education, are also those with the strongest growth prospects,” the report says. “As a result, we project that demand for labour will continue to rise at a solid average pace of 1.6% per year over the next 15 years.”
With 20% of the population expected to be older than 65 by 2030, that means “business will need to adopt more flexible working arrangements”. But it also means that current notions that part-time work, and the economy’s creation of part-time jobs are somehow less important and a sign of economic weakness will need to be revisited because this is how the economy will need to balance the demand and supply of labour.
The good news for workers is that because services are labour, not capital, intensive, the growth in services “could change the distribution of wealth in Australian society” and “should support a recovery in the labour share of income”.
This has two positive implications for the economy:
- A reduction in Australia’s income inequality will mean a fairer society and less wasted potential; and
- A rising labour share would also have implications for the broader economy as lower income earners could be expected to consume more.
Naturally the downside is less investment in the economy. But an increased share of services also implies an increased level of economic stability within the overall economy, with less peaks and troughs.