The health and caring boom has given us a two-speed economy. It’s hell for policymakers

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Just over a decade ago, we grappled with the problems of a two-speed economy driven by the mining investment boom. That not merely meant different economic performance between the states — unemployment in Western Australia was below 4% for most of 2012 — but differences between sectors, with Australian manufacturing smashed by a dollar above parity with the US dollar.

The impacts of a two-speed economy and the challenges it posed for policymakers only became apparent over time — the Gillard government only released what was basically a manufacturing rescue package in early 2013.

We’re now in a two-speed economy again, and again the impacts have taken a while to be clear. The two speeds are the health and caring industry, and everything else.

Australia spent around $280 billion on health and caring services — health, disability and aged care both residential and in-home, and child care — in 2021-22, or about 12% of GDP. The bulk of it, as you’d expect, is government spending.

The 6% growth in health spending that year, because of the pandemic, was a little unusual, but according to the Australian Institute of Health and Welfare, the long-term average annual increase in health spending (not aged care or child care) over the previous decade was 3.4%, well above economic growth. If anything, growth in the broader health and caring sectors has accelerated since then, with more investment in aged care, child care and the NDIS.

Together health and caring employ 2.27 million people, or 15.7% of the entire workforce. They have added more than 600,000 jobs over the past five years, or 38% of all new jobs. In that time, health and caring employment grew 36%. The rest of the workforce grew just 8.8% — that’s what we mean by two-speed.

If health and caring had only expanded as fast as the rest of the workforce, there’d be 458,000 fewer jobs in Australia now. That doesn’t mean the unemployment pool would be 458,000 people larger though. A large proportion of those jobs were filled by migrants brought in by employers because of the dearth of Australian workers in areas like aged care and child care.

And while hospitals, health services and residential aged care all saw strong employment growth — the impacts of higher wages in residential aged care are now becoming apparent in the most recent numbers for that sector — it is social care, made up of child care and aged and disability non-residential care, that has grown most rapidly: from below 500,000 during the pandemic to more than 700,000 now. That’s the NDIS at work, likely with the impacts of Labor’s childcare subsidies helping at the margins.

This creates a two-speed jobs market not merely in literal terms of job creation speed, but also in what’s driving it: government funding, either directly through public hospitals and Medicare, or indirectly through private hospitals, child care operators and aged care operators.

And while the NDIS is a favourite whipping boy for those demanding cuts to government spending, even without the NDIS, health and caring will continue to grow much faster than the economy — hospital employment, for example, has grown by around a quarter in the past five years; medical services by a third.

There’s nothing politically palatable that anyone can do: an ageing population places more demands on the primary health and hospital systems, and more demand for either residential aged care services or, as everyone would prefer, in-home aged care services. A housing market requiring two incomes necessitates childcare services. Even if we slashed disability services — as the NDIS’ harshest critics apparently want — health and caring will remain a boom area for employment.

The only recent rival for speed of job creation in the rest of the economy has been construction, which has grown around 15% over the past two years but which is far more cyclical than government-funded services. Some other sectors have also grown rapidly — infrastructure services have grown by around a third over the past five years — but are such small employers the impacts are limited to those sectors that compete for the same skills.

So when inflation hawks and monetary policy obsessives hold up the resilient jobs market as evidence that we need still more interest rate rises to kill off inflation, ask them which jobs market they mean: the booming, government-funded health and caring sectors, or the tepid rest of the workforce? Do they want governments to cut health and caring funding to slow down employment growth in those sectors, because interest rate rises won’t have any effect beyond shifting people to public health services as they slash spending?

And when the RBA says things like “the labour market was still assessed as tight relative to full employment”, the same questions apply. Does it mean the rest of the economy, where jobs growth is barely ticking over, or health and caring, which need to suck in hundreds of thousands of migrants because there are not enough Australian workers?

That’s the trouble with two-speed economies — things look very different depending on where you’re sitting.