The Productivity Commission has estimated that 39,000 jobs will be lost due to the closing of the car industry. The overall effect on South Australia will be a 2.7% fall in economic activity and a 2.2% fall in Victoria.
The figures seem to be a simple addition of car manufacturing employees and the jobs of those in the component/supply industry. However it is more complicated than that.
The type of unemployment that is being caused is structural unemployment. It has been caused by a change in the structure (pattern) of the economy. The big problem with this type of unemployment is that many people in the same area and with the same skills are made redundant at the same time, leading to unemployment 'black spots'.
Reducing this type of unemployment is difficult. Simply raising demand through budgetary or monetary policy is spread out across the economy and the new jobs created will probably not need the skills the newly unemployed car industry workers have. The policy that is needed is microeconomic, or supply-side, policy.
Sensible policy to help the affected areas will provide retraining for workers so they have skills needed in growing industries and will encourage those industries to locate in the areas most affected. Sadly these policies take five or more years to be effective and there is no guarantee they will actually work.
A further point to make is that the car industry closures will have a multiplier effect. Those made redundant will suffer a fall in earnings. This will lead to a fall in consumer spending and so a fall in aggregate demand. This will reduce overall national output further. Of course this multiplier effect will be most notable in the areas that the car industry operates in as local services suffer a fall in business.
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