An Assessment of Structural Change in the Geelong Labour Market 2014-2016
Monica Keneley, Bill Dimovski, Shaun Stevenson School of Accounting, Economics and Finance Deakin University August 2014
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Acknowledgements The authors would like to acknowledge the contribution of Enterprise Geelong to this report. In particular, the work done in collecting data and constructing inputoutput tables based on the REMPLAN modelling program. We would also like to thank the Geelong Chamber of Commerce for their motivation for the study and Barry J Cooper and Pedro Gomis Porqueras for their suggestions.
This report should not be quoted without the authors’ prior written consent.
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Table of Contents An Assessment of Structural Change in the Geelong Labour Market ............ 1 2014-2016........................................................................................................................ 1 Executive Summary ..................................................................................................... 6 1. Introduction .............................................................................................................. 8 2. An Overview of the Geelong Economy ............................................................... 9 2.1 Population Trends ......................................................................................................... 9 2.2 Economic Trends .........................................................................................................10 2.3 The Structure of the Regional Economy ................................................................12 2.4 Summary ................................................................................................................18
3. Analysis of Future Impacts of Decreases in Employment and Output in the Geelong Regional Economy ............................................................................. 19 3.1 Estimated Changes to the Structure of the Geelong Labour Market .............19 3.2 The Impact of Job Losses on the Geelong Economy ...........................................21
4. Analysis of Future Impacts of Increases in Employment and Output in the Geelong Regional Economy. ................................................................................... 25 5. Comparison of the Projected Changes in Employment on the Geelong Economy ...................................................................................................................... 28 6. Adjusting to Economic Challenges: A Review of the Outcomes of Structural Change ..................................................................................................... 30 6.1 Reponses to Structural Change ................................................................................30 6.2 Policies for the affected region ..................................................................................31 6.3 Policies for the affected worker ................................................................................33
7. Summary ................................................................................................................. 35 Appendix 1: Services Classification ...................................................................... 37 Appendix 2: REMPLAN Methodology ................................................................ 38 Bibliography ............................................................................................................... 41
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FIGURES FIGURE 1 VALUE-ADDED BY SECTOR JUNE 2013 ............................................... 13 FIGURE 2 THE DISTRIBUTION OF WAGES AND SALARIES BY SECTOR JUNE 2013 ...................................................................................................................... 17 TABLES TABLE 1 THE POPULATION PROFILE OF THE GEELONG REGION 2012 ............... 9 TABLE 2 OUTPUT AND EMPLOYMENT TRENDS 2012.......................................... 10
TABLE 3 EMPLOYMENT TRENDS 2013 ................................................................ 11 TABLE 4 OUTPUT BY SECTOR JUNE 2013 ........................................................... 12 TABLE 5 MAJOR EMPLOYMENT SECTORS IN THE GEELONG REGION 2011 ..... 14 TABLE 6 MAJOR EMPLOYERS IN GEELONG 2012 .............................................. 16 TABLE 7 ESTIMATED DIRECT JOB GAINS AND LOSSES IN THE CITY OF GREATER GEELONG .................................................................................... 19 TABLE 8 IMPACT OF JOB LOSSES 2013/14 .......................................................... 21 TABLE 9 THE IMPACT OF JOB LOSSES 2014/15 AND 2015/16 ............................ 23 TABLE 10 TOTAL IMPACT ON OUTPUT, GRP AND EMPLOYMENT 2013/14 TO 2015/16......................................................................................................... 24 TABLE 11 IMPACT SUMMARY 2013/14 ................................................................ 25 TABLE 12 THE IMPACT OF JOB GAINS 2014/15 AND 2015/16 ............................ 27 TABLE 13 EXPECTED NET CHANGE IN EMPLOYMENT, OUTPUT AND GRP 2013/14 TO 2015/16 ..................................................................................... 28
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Executive Summary
The purpose of this report is to provide an assessment of the likely impact of structural changes occurring in the Geelong labour market. Specifically the study aims to estimate the impact of job losses and gains over the three year period 2013/14 to 2015/16.
The approach taken has been to identify the expected direct job losses and gains over this period.1 The results were then modelled by Enterprise Geelong using the regional economic modelling package REMPLAN. Multiplier estimates were calculated and used to assess the impact of indirect effects generated by the changing trends in employment.
Examination of current economic data indicates that Geelong is an economy in transition. Manufacturing, which has historically been the mainstay of the regional economy, is in decline, in line with trends both regionally and nationally. Evidence of structural change can be seen in the shift in employment opportunities. Employment trends have been associated with falls in job opportunities in manufacturing and gains in the service sector.
Analysis of future impacts indicates that job losses will continue to be a feature of the economic environment in the short term. However, significant job gains are also expected to occur.
Losses will continue to be experienced in manufacturing and gains are expected to continue in the services sector. Specific areas in which employment is expected to expand are health, education and other social services.
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This task was undertaken by Enterprise Geelong.
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Linkages between economic activity, output, wages and salaries create a multiplying impact through a regional economy.
Taking these effects into account it is expected that while the short term impact of job losses will impact negatively on the regional economy, in the medium to longer term the outlook will be brighter. The Geelong economy will continue to adjust and it is estimated that by 2015/16 there will be a net positive growth in employment, output and gross regional product.
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1. Introduction
Geelong is the largest regional economy in Victoria and traditionally it has been a major manufacturing centre. However this position has been challenged in recent times as the restructure of secondary industries in Australia has gathered momentum. With the departure of major manufacturers from Victoria, Geelong has had to face a number of challenges. A key question is, what will be the impact of this restructure for the future of the Greater Geelong regional economy? This report provides a preliminary analysis of projected changes in employment and output as the local economy adjusts to the exit of major manufacturing industries.
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2. An Overview of the Geelong Economy
2.1 Population Trends The Functional Economic Area (FEA) of Geelong defined as the City of Greater Geelong, the Borough of Queenscliff and the Surf Coast Shire 2 is located in the Barwon region south west of Melbourne. In 2013 the resident population was 252,855 with 88% (221,515) located in the City of Greater Geelong. Population growth has been a key driver of overall growth in the area for a number of years.3 The following provides a brief snapshot of the relative demographic and economic structure of the region. Table 1 The Population Profile of the Geelong Region 2012 10 year Av Annual Growth 19922002 % 10 year Av Annual Growth 20022012% % Population aged under 15 % Population aged 15-34 % Population aged 35-54 % Population aged 55+
City of Greater Geelong 0.66
Geelong FEA
Victoria
0.82
Regional Victoria 0.39
1.14
1.28
0.87
1.57
18.13
18.42
19.05
18.30
25.94
25.27
23.53
28.55
26.67
26.97
26.61
27.57
29.26
27.35
30.81
25.58
0.8
Regional Development Victoria: Regional Snapshot.
Table 1 indicates that the average rate of population growth both in the City of Greater Geelong and the FEA has increased over the two measurement periods. However, whilst between 1992 and 2002 it was only slightly lower than the State average, the gap between the Geelong region and the State has grown in the following decade.
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Defined by Regional Development Victoria as an economic sub region based on labour market containment. http://www.rdv.vic.gov.au/information-portal/regional-snapshot 3 Regional Development Victoria, Geelong Regional Labour Market – a Snapshot
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The age distribution, in both the City of Geelong and its FEA, is roughly equivalent to the State profile. There is a slightly lower proportion of people of working age (15-55) and a slightly higher proportion of people over 55 in the region. 2.2 Economic Trends A summary of comparative economic trends is presented in Table 2. Gross regional product measures the value of goods and services produced in the local region. In 2012 it was $9.2 billion for the City of Greater Geelong and $10.4 billion for the wider economic catchment area (FEA). This represents 14.46% of GRP for regional Victoria and 2.85% of GRP for the State. In the past, (1992-2002), average annual GRP in regional areas had been growing more strongly than for the State as a whole and the pattern of growth in the Geelong region reflected this trend.
Table 2 Output and Employment Trends 2012 Gross Regional Product 2012 10 year Av Annual GRP Growth 19922002 % 10 year Av Annual GRP Growth 20022012 % Number of jobs 2012 10 year Av Annual Jobs Growth 19922002 % 10 year Av Annual Jobs Growth 20022012 %
City of Greater Geelong $9,208 m
Geelong FEA $10,440m
Regional Victoria $63,660m
Victoria $323,135m
4.04
4.41
4.46
3.94
2.75
2.73
2.22
2.83
97,696
108,174
340,019
2,904,292
1.90
2.00
1.89
1.58
2.12
2.19
1.94
2.27
Regional Development Victoria: Regional Snapshot. In the more recent decade (2002-2012) this trend was reversed. Not only did average annual growth in GRP fall across the State, it did so more particularly in regional Victoria. Compared to the previous decade, average annual growth in GRP has broadly halved. The trend in the Geelong region has been slightly better but remains less than the State average.
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In respect to employment, the Geelong FEA provided 32% of jobs in regional Victoria and 3.7% of jobs within the State in 2012. Over 90% of jobs in the Geelong FEA were located within the City of Greater Geelong. Similar trends in employment to that of GRP are evident over time. From 1992-2002 the average annual growth in jobs was greater than the rate of growth in regional Victoria and the State overall. This trend changed in the following decade. Even though the rate of growth in job numbers was above that for regional Victoria it was below that for the State. The change in the pattern of growth in GRP and jobs is indicative of the beginnings of a change in the employment and output trends that have become more apparent in recent times.
Even before the major announcements concerning the future of manufacturing within the region were made, it would appear that a weakness in the regional economy was emerging.
Table 3 provides a picture of the employment ratios in the Geelong region relative to the rest of Victoria. Table 3 Employment Trends 2013
%Labour Force Participation %Unemployment Rate Q4 2013 %Youth Unemployment
City of Greater Geelong 62.06
Geelong FEA
Regional Victoria
Victoria
62.50
62.27
65.19
6.36
6.05
5.39
5.82
12.03
11.75
11.06
12.04
Regional Development Victoria: Regional Snapshot
Labour force participation, which measures the proportion of people of working age in employment, is nearly equivalent to that in the rest of regional Victoria. A little more than 62% of the available workforce have some type of employment in 2013. The ratio for Victoria was 65.19% however for Australia as a whole it was 61.4%. Thus whilst participation is less than the State total, it is higher than the national level. Unemployment in Greater Geelong and its FEA was slightly higher than the national average, which was 5.80% in the 4th quarter 2013. Recently released monthly statistics, for August 2014, suggests that the gap between unemployment rates in the Geelong and the rest of the nation has widened. 11
It is also higher than the State and regional Victoria average, reflecting the degree of structural change occurring in the Geelong economy.
Youth unemployment in 2013 was equivalent to the State average and higher than that for regional Victoria. In all cases, youth unemployment is significantly higher than the total unemployment rate.
2.3 The Structure of the Regional Economy Manufacturing forms an important part of the Geelong economy. Table 4 highlights this point. Nearly 43% of the value of output, as of June 2013, was attributed to the manufacturing sector. Table 4 Output by Sector June 2013 Sector
Output $m
%
10,776.80
42.57
4,148.70
16.39
Social Services
3,447.01
13.61
Distribution Services
3062.40
12.10
Construction and Utilities
2,470.51
9.76
Personal Services
803.345
3.17
Other Services
372.391
1.47
236.75
0.94
25,317.99
100.00
Manufacturing Producer Services
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Primary Industry Total
Source: Constructed from data obtained from http://www.economicprofile.com.au/geelong/economy/output, accessed July 2014. The services sector accounts for around 56% of output with a minor contribution (less than 1%) from mining and primary production. Within the services sector, Producer Services (services provided to businesses specifically) account for 16.39% of output. Social Services, (which includes health, education and public administration), accounts for 13.61%. Distribution Services (including transport, retail and wholesale services) account for 12.10% and Construction and Utilities 9.76%.
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See Appendix 1 for classification of services
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With a large manufacturing sector, it would be expected that businesses providing services to these enterprises would also represent a large proportion of output. However, a level of diversification in the economy is evident in that Social services and Distribution Services represent more than 25% of output. Figure 1 Value-Added by Sector June 2013 Value Added $m 3000 2500 2000 1500 1000 500
Value Added $m
0
Source: Constructed from data obtained from http://www.economicprofile.com.au/geelong/economy/output, accessed July 2013. Although the manufacturing sector accounts for a large proportion of Geelong regional output, this is not the case for the value it adds to the local economy. Figure 1 indicates the relative amount of value-added by the various sectors of the economy. Value-added represents the extra value in dollar terms, a sector adds to the regional economy. Manufacturing contributed $1.7 billion or 18.6% of the total value-added by economic activity in the region. Producer Services added $2.5 billion (26%), Distribution Services $1.9 billion (20.6%) and Social Services $1.8 billion (19%).
A measure of diversity within the region can be determined by the application of a variation of the Herfeindahl index. This is calculated based on the share of jobs by industry in a region relative to the Victorian economy. The lower the index the greater the level of industrial diversity. 13
The index for the City of Greater Geelong in 2011 was 56 and for the Geelong FEA 46. This compares to the index for Regional Victoria, which was 75.5 This indicates that the Geelong region has a greater level of industrial diversity than regional Victoria. The extent of diversity can be seen in Table 5. The top ten industries/services accounted for 81.5% of residents employed. The top five accounted for 55.8%. Table 3 above also points to quite a significant change in the structure of the labour market between the two census dates 2006 and 2011. Employment in manufacturing and retail trade has declined by 17.3% and 12.4% respectively. This represents a loss of 4,843 jobs.6 However at the aggregate level, this decline has been offset by large gains in other areas. Accommodation and food services as well as public administration and safety have both experienced considerable gains. Between 2006 and 2011 this has represented an increase of 61% or 4,731 jobs. Table 5 Major Employment Sectors in the Geelong Region 2011 Industry/Services Number
Per cent
Change 20062011 Per cent
1. Health Care and Social Assistance
15810
13.4
26.60
2. Retail Trade
14415
12.2
-17.30
3. Manufacturing
12944
11
-12.40
4. Construction
11866
10.1
26.80
5. Education and Training
10775
9.1
20.70
6. Accommodation and Food Services
7985
6.8
61.60
7. Public Administration and Safety
7090
6
61.20
8. Professional, Scientific and Technical Services 9. Transport, Postal and Warehousing 10. Other Services
6095
5.2
50.30
5017
4.3
23.70
4227
3.6
2.30
Top 10 Division
96224
81.5
13.80
All other industries
26031
18.5
-11.70
Total Employed
118028
8.00
Source: Derived from Skilling the Bay Geelong Regional Labour Market Final Report Table 23. Based on Census 2011 data.
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Regional Development Victoria: Regional Snapshot.
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Skilling the Bay Geelong Regional Labour Market Final Report, Table 23.
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Other major sources of employment have also expanded and notably these are largely in the tertiary or services sector. Breaking this down further, it can be seen that the largest source of employment in the service sector is in Social Services, which represent 32.9% of jobs in 2011.7 Distribution Services represents 20.7% of employment. Producer Services account for 10.2% and Personal Services for 9.2%, while Construction and Utilities represent 8.5%. In summary the data indicates that a structural shift in employment within the Geelong region was evident in 2011. The move away from secondary sector employment has been mirrored by an increase in employment opportunities in the services sector, primarily in the area of the provision of Social Services.
Like many regional economies, Geelong has a small number of relatively large manufacturing concerns that in turn support a large number of much smaller businesses. Large businesses, employing more than 100 people only represented 0.7% of the total number of businesses operating in 2011. Small firms employing less than 20 people made up the majority (97.42%) of businesses in operation. Medium sized enterprises employing between 20 and 99 people made up 1.87% of the total. 8 The business profile of the region is highly skewed to small and medium enterprises. It could be assumed that a percentage of these SME’s are linked to the supply chain of larger manufacturers in the region. The extent to which this is the case is difficult to determine. Fairbrother et. al. (2013, p.106) estimates that between 60% to 70% of the business of some small manufacturing companies is reliant on larger manufacturers. Whilst this does not apply to all SME’s, it does highlight the issue of dependence on key businesses for the health of the regional economy.
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See Appendix 1 for details of occupational categories in the various service classifications. Regional Development Victoria: Regional Snapshot.
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Table 6 indicates the major employers within the local economy. Table 6 Major Employers in Geelong 2012 Employers Barwon Health
3,842
% Change 2011-2012 6.20
Department of Education (Barwon South West Region) Deakin University (Waurn Ponds & Waterfront Campuses) City of Greater Geelong
2,975
19.40
1,693
5.80
1,418
-1.90
Ford Motor Company of Australia Ltd
1,919
-5.00
1,213*
NA
1,005
9.10
Catholic Education System
950
2.40
Karingal Inc
851
18.60
Transport Accident Commission (TAC)
757
0.70
Avalon Airport (All Activities)
756
-69.30
The Gordon
632
8.30
Alcoa World Alumina Australia Ltd (Victoria Operations) Cotton On (Head Office & Retail)
616
1.00
850
32.00
G-Force Recruitment
790
29.00
Barwon Water
431
5.60
Shell Refining (Australia) Pty Ltd
427
-7.30
Godfrey Hirst Australia Ltd
422
-11.40
Golden Farms (Turi Foods)
440
-12.72
400*
NA
St Laurence Community Services Victoria
381
-0.80
St John of God Hospital
367
-1.90
Alcoa Australia Rolled Products
285
1.80
Woolworths Target (Head Office & Retail)
Bulla Dairy Foods
Total FTE Employed
Employees FTE 2012
23,420
Source: Derived from Skilling the Bay Geelong Regional Labour Market Final Report Table 26 * 2011 data, 2012 not available
The shifts in employment evident in the Census data (Table 3) are also apparent in Table 4. Services are a growth area, particularly in health, education and recruitment, where major employers have increased the number of full time equivalent positions between 2011 and 2012. Notable declines in employment opportunities have occurred in manufacturing and transport.
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Within the manufacturing sector the reduction has occurred not only in motor vehicles but also in textiles and food processing. The retail industry presents a variable case. Whilst there has been an apparent increase with the establishment of head office services for two large retailers, a contraction has since occurred as one major retailer moved to downsize service provision in the area in 2013. Figure 2 The Distribution of Wages and Salaries by Sector June 2013 Total Wages and Salaries $m 2000 1800 1600 1400 1200 1000 800 600 400 200 0
Wages and Salaries $m
Source: Constructed from data obtained from www.economicprofile.com.au/geelong retrieved July 2014. Figure 2 presents the pattern of total wages and salaries paid by sector of employment. The proportion of total wages and salaries earned by people employed in the Social Services sector is much higher than other sectors. Total wages and salaries paid in manufacturing is less than half that, as is those paid in Distribution Services and Producer services.
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2.4
Summary
Gross Regional Product in 2012 for Geelong FEA was $10.4 billion of which $9.2 billion was generated within the City of Greater Geelong.
Average annual growth in GRP for the decade 2002-2012 within Geelong FEA was 2.73%. This was lower than the State average and represents a change on the previous decade where the annual growth was greater than the State average.
108,174 people were employed in the Geelong region in 2012. 90% of these jobs were located in the City of Greater Geelong. Average annual growth in jobs (2002-2012) in the regions is slightly less than that of the State.
Changes in the pattern of GRP and employment are indicative of a shift in the regional economy. The trend suggests that a change in the economic fundamentals was emerging before the recent 2013 retrenchment announcements.
Unemployment is above the State and national level.
Manufacturing accounts for 43% of the region’s output and services account for 56%. Producer Services, Social Services and Distribution Services are important sources of service sector output.
Manufacturing accounts for 18.6% of value added to the regional economy. Producer Services add 26%, Distribution Services 20.6% and Social Services 19%.
Evidence of structural change in the local economy can be seen with the shift in employment opportunities towards the services sector. This is particularly apparent in the Social Services sector, which represented 32.9% of jobs in 2011.
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3. Analysis of Future Impacts of Decreases in Employment and Output in the Geelong Regional Economy 3.1 Estimated Changes to the Structure of the Geelong Labour Market In 2012/13 several major businesses gave advanced notice of the scaling down and eventual closure of significant manufacturing concerns in the Geelong regional economy. These announcements will have important implications for future employment and output in the region. This section provides an analysis of the projected outcome of this type of structural change. It is important to recognise that although the closure of major manufacturers will impact on employment opportunities, the diversity of the Geelong economy means that other opportunities will open up. Table 7 provides a snapshot of expected employment trends over the three years 2013/14 to 2015/16. This table was constructed on the basis of information gathered by Enterprise Geelong and includes data reported in the media. It provides an estimation of likely trends based on the best information available to July 2014. Table 7 Estimated Direct Job Gains and Losses in the City of Greater Geelong Year 2013/14 2014/15 2015/16
Total Losses -770 -800 -410
Total Gains 984 1600 1742
Net Gain/Loss 214 800 1332
Source: Enterprise Geelong. Job losses have occurred principally in manufacturing, specifically motor vehicle, aircraft, petroleum and cement production. Job gains will occur primarily in retail9, health, education and other social services. Overall it is expected that a net gain in employment will occur. The structural shift in economic activity identified in Section 2 will be reinforced by these trends.
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Some sections of retailing are expected to suffer a loss of employment opportunities but this will be offset by gains in other parts of the retail sector.
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The nature of economic activity means that reductions in employment in some industries are not entirely cancelled out by gains in others. Labour and skills immobility limit the extent to which employment transfer can take place. Although a net gain in jobs is expected, the flow-on effects of job losses have wider implications for the well-being of the region. An assessment of this issue is outside the scope of this report. The following section analyses the full impact of job losses on the Geelong economy. The modelling program REMPLAN is used as a predictive tool.10 REMPLAN uses an input-output methodology to estimate the impact of changes to key economic variables. Input-output analysis takes into account inter-industry relationships and displays these relationships in inputoutput tables.
From these tables the economic impacts in terms of direct effects on output, employment, income and value added can be determined. Another important function of input-output analysis is that it can be used to estimate indirect flow on effects generated by the activities of particular sectors of the economy. In this context there are two types of effects, which can be determined.
Production induced effects are the extra output, employment and income effects that result from the spending of firms as they earn income from the sale of their products.
Consumption induced effects relate to the extra output, employment and income created by the spending of households which receive wages and salaries through employment in specified industries.
These indirect impacts can be gauged by the estimation and application of a multiplier. Multipliers are ratios, which measure the overall change in economic parameters, such as income or employment, resulting from an initial change in economic activity. There are two categories of multipliers:
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Type 1 multipliers which measure the impact of direct and production induced effects Type 2 multipliers which measure the impact of direct, production induced and consumption induced effects.
An explanation of the REMPLAN methodology is presented in Appendix 2.
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3.2 The Impact of Job Losses on the Geelong Economy Job losses are projected to occur over a period of time, as major manufacturers restructure their operations nationally. The following analysis considers the impact from 2013/14 to 2015/16. Table 8 provides a summary of the impact for 2013/14. Table 8 Impact of Job Losses 2013/14 Impact Summary 2013/14 Impact Summary Output ($M) Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Direct Effect -834.585 -770
Industrial Effect -225.193 -571
Consumption Effect -158.706 -666
Total Effect -1,218.485 -2,007
Type 1 Multiplier 1.270 1.742
Type 2 Multiplier 1.460 2.606
-98.465
-42.329
-37.644
-178.438
1.430
1.812
-152.053
-74.525
-84.032
-310.610
1.490
2.043
Source: REMPLAN In 2013/14, 770 jobs are expected to be lost to the Geelong economy. This will be associated with a direct loss in output of $834.585 million. The contraction in output in the industries directly affected will generate further flow-on effects, which will magnify the initial impact.
Output
In terms of output, it is estimated that the demand for intermediate goods and services would fall by $225.193 million. This represents a Type 1 Output multiplier of 1.270. These industry effects include multiple rounds of flow-on effects, as servicing sectors decrease their own output and demand for local goods and services in response to the direct change in economic activity. The decrease in output is associated with a loss of jobs in the economy. Corresponding to this change in employment there will be a decrease in the total of wages and salaries paid to employees. A proportion of these wages and salaries are spent on consumption and a proportion of this expenditure is captured in the local economy. The consumption effects under this scenario are estimated at $158.706 million. Total output, including all direct, industrial and consumption effects is estimated to decrease by up to $1,218.485 million. This represents a Type 2 Output multiplier of 1.460.
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Employment
The initial loss of 770 jobs generates flow-on industry effects in terms of local purchases of goods and services. It is estimated that these indirect impacts would result in the loss of a further 571 jobs. This represents a Type 1 Employment multiplier of 1.742. Consumption effects, as the next round of job losses occur, will lead to a further estimated reduction of 666 jobs. Total employment, including all direct, industrial and consumption effects, is estimated to decrease by up to 2,007 jobs. This represents a Type 2 Employment multiplier of 2.606.
Wages and Salaries
It is expected that direct wages and salaries would decrease by $98.465 million. The loss of additional employment through industry effects would reduce wages and salaries by a further $42.329 million. This represents a Type 1 Wages and Salaries multiplier of 1.430. Further consumption effects under this scenario are expected to further reduce employment in sectors such as retail therefore further decreasing wages and salaries by $37.644 million. Total wages and salaries, including all direct, industrial and consumption effects is estimated to decrease by up to $178.438 million. This represents a Type 2 Wages and Salaries multiplier of 1.812.
Value Added
Value-added to the region will also be affected by the contraction of the local economy. The decrease in direct value-added is estimated at $152.053 million. Further indirect production impacts would result in a decrease to value-added of $74.525 million. This represents a Type 1 Value-added multiplier of 1.490. The consumption effects generated are expected to further reduce value-added by $84.032 million. Total value-added, including all direct, production and consumption effects is estimated to decrease by up to $310.610 million. This represents a Type 2 Value-added multiplier of 2.043. In summary the total impact of job reductions in 2013/14 for the economy of Geelong is estimated to be a fall in output of $1.2 billion and a loss of 2007 jobs.
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Table 7 indicated that further job losses are expected into the future, (800 in 2014/15 and 410 in 2015/16) this will have a similar effect on the regional economy. The estimated impact of this change is illustrated in Table 9.
Table 9a indicates that for an initial loss of 800 jobs in 2014/15 a further loss of 1003 jobs will occur as production and consumption effects work through the economy. This will be associated with a loss of $1.6 billion in output and $334.639 million in value added. The total value of wages and salaries lost to the local economy is estimated at $134.108 million. Table 9 The Impact of Job Losses 2014/15 and 2015/16 Table 9a Impact Summary Output ($M)
Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Impact Summary 2014/15 Direct Effect 1,141.22 3 -800
Production Effect -351.247
Consumption Effect -119.279
-513
-500
-65.371
-40.446
-28.292
-180.129
-91.354
-63.156
Table 9b Impact Summary Output ($M) Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Total Effect 1,611.7 49 -1,813 134.108 334.639
Type 1 Multiplier 1.308
Type 2 Multiplier 1.412
1.641
2.266
1.619
2.052
1.507
1.858
Impact Summary 2015/16 Direct Effect -306.183 -410
Production Effect -104.683 -285
Consumption Effect -45.932 -192
Total Effect -456.798 -887
Type 1 Multiplier 1.342 1.695
Type 2 Multiplier 1.492 2.163
-21.124
-19.623
-10.895
-51.642
1.929
2.445
-35.669
-33.156
-24.320
-93.145
1.930
2.611
Source: REMPLAN The impact of the estimated 410 jobs initially lost in 2015/16 is detailed in Table 9b. A total of 887 jobs will be lost as a result of production and consumption effects. The value of the loss in output will be $456.798 million and $93.145 million in value-added. The value of wages and salaries lost will be $51.462 million.
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A summary of the total effect on output and employment over the three year period is given in Table 10. This data represents the estimated impact for each year once all multiplier effects are taken into account. Table 10 Total Impact on Output, GRP and Employment 2013/14 to 2015/16 Year Output $m Employment GRP 2013/14 2014/15 2015/16
-1,218.485 -1,611.749 -456.798
-310.610 -334.639 -93.145
-2,007 -1,813 -887
Source: Tables 8 and 9
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4. Analysis of Future Impacts of Increases in Employment and Output in the Geelong Regional Economy.
Using the same methodology as that applied in section 3, it is possible to estimate the impact of expected increases in employment over the period from 2013/14 to 2015/16. Table 11 Impact Summary 2013/14 Impact Summary Output ($M) Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Direct Effect 193.670 984
Production Effect 77.626 281
Consumption Effect 78.027 327
Total Effect 349.322 1,592
Type 1 Multiplier 1.401 1.286
Type 2 Multiplier 1.804 1.618
52.036
17.185
18.507
87.728
1.330
1.686
88.250
31.182
41.314
160.746
1.353
1.821
Source: REMPLAN In 2013/14, 984 new jobs were expected to be created, 53% in the retail sector, 35% in Social Services (particularly in health care services) and 12% in manufacturing. The expansion in employment opportunities will be associated with an estimated increase in output of $193.670 million. 
Output
In terms of output, it is estimated that the demand for intermediate goods and services would increase by $77.626 million. This represents a Type 1 multiplier of 1.401. The consumption effects under this scenario are estimated at $78.027 million. Total output, including all direct, production and consumption effects is estimated to increase by up to $349.322 million. This represents a Type 2 Output multiplier of 1.804. 
Employment
The initial increase of 984 jobs generates flow-on production effects in terms of local purchases of goods and services. It is estimated that these indirect impacts would result in the creation of a further 281 jobs. This represents a Type 1 Employment multiplier of 1.286. Consumption effects will lead to a further estimated increase of 327 jobs.
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Total employment, including all direct, production and consumption effects is estimated to increase by up to 1,592 jobs. This represents a Type 2 Employment multiplier of 1.618. 
Wages and Salaries
It is estimated that direct wages and salaries would increase by $52.036 million. The creation of additional jobs through production effects would increase wages and salaries by a further $17.185 million. This represents a Type 1 Wages and Salaries multiplier of 1.330. Consumption effects are expected to further increase wages and salaries by $18.507 million. Total wages and salaries, including all direct, production and consumption effects are estimated to increase by up to $87.728 million. This represents a Type 2 Wages and Salaries multiplier of 1.686. 
Value Added
Value-added to the region will also be affected by the expansion of the local economy. The increase in direct value-added is estimated at $88.250 million. Further indirect production impacts would result in an increase to value-added of $31.182 million. This represents a Type 1 Value-added multiplier of 1.353. The consumption effects generated are expected to further increase value-added by $41.314 million. Total value-added, including all direct, production and consumption effects is estimated to increase by up to $160.746 million. This represents a Type 2 Value-added multiplier of 1.821.
In summary the total impact of job creation in 2013/14 for the economy of Geelong is estimated to be a rise in output of $349 million and an increase of 1,592 jobs. Table 12 presents the outlook for the medium term 2014/15 to 2015/16. Table 12a indicates that for an initial gain of 1,600 jobs in 2014/15, a further increase of 1,160 jobs will occur as production and consumption effects work through the economy. This will be associated with an increase of $704.720 million in output and $281.616 million in value added. The total value of wages and salaries added to the economy is estimated at $165.742 million.
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Table 12 The Impact of Job Gains 2014/15 and 2015/16 Table 12a Impact Summary Output ($M) Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Impact Summary 2014/15 Direct Effect 387.350 1,600
Production Effect 169.955 541
Consumption Effect 147.414 619
Total Effect 704.720 2,760
Type 1 Multiplier 1.439 1.338
Type 2 Multiplier 1.819 1.725
93.862
36.915
34.965
165.742
1.393
1.766
138.735
64.828
78.053
281.616
1.467
2.030
Table 12b Impact Summary Output ($M) Employment (Jobs) Wages and Salaries ($M) Value-added ($M)
Impact Summary 2015/16 Direct Effect 369.265 1,742
Production Effect 168.674 617
Consumption Effect 191.116 802
Total Effect 729.054 3,161
Type 1 Multiplier 1.457 1.354
Type 2 Multiplier 1.974 1.815
127.918
41.628
45.331
214.876
1.325
1.680
194.221
71.630
101.192
367.044
1.369
1.890
Source: REMPLAN The impact of the estimated 1,742 directly jobs created in 2015/16 is detailed in Table 12b. An additional 1,419 jobs will be created as a result of production and consumption effects. The value of the gain in output will be $729.054 million and $367.044 million in value-added. The value of wages and salaries added will be $214.876 million.
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5. Comparison of the Projected Changes in Employment on the Geelong Economy
Comparing the opposing trends of job losses and job gains over the three year period reveals the extent of the impact of structural change in the Geelong labour market. Table 13 compares the losses and gains in employment and gives an estimate of the expected net change in employment and output. Table 13 Expected Net Change in Employment, Output and GRP 2013/14 to 2015/16 Year
2013/14
Net Employment Impact -415
Net Change in Output $m -869.16
Net Change in GRP -149.864
2014/15
947
-907.03
-53.023
2015/16
2,274
272.256
273.899
Source: Tables 8, 9 and 12 In 2013/14 the decline in job opportunities, sparked by the decrease in employment in manufacturing, will result in a net loss of jobs and output. The initial shock of an estimated decrease in employment in that sector is not outweighed by gains in other sectors. However, a positive feature is the extent of new job opportunities that are expected to occur at this time. A direct increase of 984 jobs will lead to a further expansion in opportunities and the creation of an estimated total of 1,592 positions. Eighty-five per cent of new jobs will occur in the services sector, suggesting that the process of structural change is continuing and producing benefits to the local economy. The net effect on output and GRP will be negative, this is to be expected given the magnitude of the direct loss in manufacturing output. As the net impact on jobs improve however, it is expected that output and GRP will recover over time.
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Going forward, the trends in employment improve. Net job gains are expected in 2014/15 and 2015/16. The majority of job gains will continue to be in the services sector. Opportunities in this sector will broaden in 2014/15. Employment in distribution services such as retail will make up the majority of new positions (42.25%), Social Services positions (including health and education) will constitute 23.75% and Producer Services 23.5%. 11 The trend to net gain in employment will continue into 2015/16, driven largely by the expansion of Social Services and also Distribution Services. By 2015/16 it is also expected that output and GRP will be positive indicating the recovery of the local economy as it continues to adjust to the restructuring elements that have been associated with the shift from a predominantly manufacturing base to a more service-based economy.
In summary, whereas the short term impact of job losses will impact negatively on the regional economy, it is expected that in the medium to longer term the overall outlook will improve and the Geelong economy will adjust to the changing structure of the labour market in a positive manner. Whilst this does not imply that all those that lose their jobs in the manufacturing sector will be re-employed in the local services sector, it does suggest that the regional economy is capable of restructuring and continuing to grow into the future. The following section reviews other experiences of structural change and policy prescriptions for affected regions and workers.
11
Refer to Appendix 1 for a full description of specific service sector categories.
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6. Adjusting to Economic Challenges: A Review of the Outcomes of Structural Change
6.1 Reponses to Structural Change Industry adjustments or structural changes are not new occurrences to Australia. In recent times, mass layoffs in the manufacturing sector have occurred in South Australia and New South Wales with plant closures undertaken by companies including Mitsubishi, Bridgestone and BlueScope Steel. From 2004 to 2008, Mitsubishi’s decision to close its two South Australian production facilities resulted in the loss of approximately 2900 jobs, while Bridgestone’s exit from local production in 2009 saw 600 workers retrenched at its Salisbury plant in Northern Adelaide. The industrial heartland of New South Wales, the Illawarra region, suffered the loss of 800 steel workers when BlueScope Steel set out to restructure its Australian operations in August 2011 (Spoehr 2014). The experience of other industrialised countries is also worth noting briefly. The decimation of manufacturing and specifically the motor vehicle industry in the Midwest region of the U.S. has been well documented. Zullo and Mukherji (2011) investigated the impacts of manufacturing job losses in the U.S. state of Michigan. Manufacturing has historically been a major economic contributor to Michigan’s economy, with the state of Michigan ranked highest in the Midwest in terms of mean production worker salary in 2008 (Bureau of Labor Statistics 2008). While Detroit emerged as ‘Motor City’ during the twentieth century, this has altered dramatically. Over the period 2001 to 2008, Zullo and Mukherji (2011) describe the number of transport equipment manufacturing job losses in Michigan as “stunning”, with the average number of jobs per county declining by approximately 46%. A similar experience has been recorded in Hamilton, Ontario Canada (Fairbrother, et.al. 2013). In the United Kingdom, cities such as Manchester and Glasgow have had a long experience of de-industrialization.
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Hobor (2013) investigated the transformation of the so called “rust belt” cities in the U.S. who were once famous for their automobile, fabricated metals and machinery industries. Cities in upstate New York, Indiana, Illinois and others which were heavily dependent on the manufacturing firms that were often the largest employers, struggled economically when these firms closed. In the light of this experience, Hobor (2013) suggested that the smaller cities need tax friendly policies and state engagement with the “business elite” to regain some economic strength. Additionally, he suggested that colleges and trade schools may help develop workforce skills while collaboration between local manufacturers should also be encouraged.
The way in which the issue of structural change has been addressed in other countries and regions provides some useful insights. An effective approach to facilitating the transition of the regional economy necessarily involves two aspects: policies that focus on the affected region and policies that focus on the displaced workers. 6.2 Policies for the affected region Transforming old industrial areas into diversified and innovative regions or ‘clusters’ that foster and attract a highly skilled workforce is considered by most as the main long-term policy objective [see Shapira (1990), Asheim and Isaksen (2002), Morgan (2007) and Spoehr (2014)]. The consensus is that the key to a region’s economic growth and prosperity lies in the ability of its firms to innovate. Spoehr (2014) discusses the importance of well-developed Regional Innovation Systems (RIS) in supporting the renewal of ‘clusters’ in old industrial regions. Regional innovation systems are comprised of a set of stakeholders (industry, government, academia and others), that co-ordinate to produce, diffuse and disseminate knowledge (technology for example) [Doloreux and Parto 2004]. Cook and Memedovic (2003) suggest that a RIS provides a framework to critically analyse a region’s industrial strengths and weaknesses and to measure the traditional indicators of innovativeness (such as research and development intensity and expenditure of firms).
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In addition, a well-functioning RIS fosters innovation through social-interaction (or learning) between economic actors [see the example of Google in Steiber and Alange, 2013]. How to develop, promote and support an environment conducive to the above mentioned is the debate.
Dohse (2000) analyses the effectiveness of the BioRegio contest, a German Federal Government policy implemented in 1995 aimed at driving technological innovation and change in biotechnology. The three ‘winning’ regions (Munich in Bavaria, Cologne-Dusseldorf in North Rhine-Westphalia and Heidelberg in Baden-Wurttemberg) received a combined DM 150 million in public funding and priority in future research funding. It is concluded (p.1128) that the major advantages of the program were the “enhancement of communication and cooperation among the regional key actors, the establishment of an innovation prone regional environment, the furthering of research cooperation… and the stimulation of interregional competition for technology”.
Attracting technology oriented firms (and hence creating a new technology driven cluster) has been the suggestion of many experts [see Shapira (1990), Asheim and Isaksen (2002), Cook (2001) Cook and Memedovic (2003) Moretti (2012)].
Shapira (1990) highlights the importance of smaller industrial firms in strengthening the regional economy of Kikatyushu, Japan. The diversification strategies of Japanese steelmaking firms into specialised high value-added manufacturing (electronics, advanced materials and biotechnology) during the 1990s provided a gradual transition away from the regions reliance on its traditional manufacturing base [Shapira 1990]. Asheim and Isaksen (2002), Schweke (2004), Hassink (2007), Trippl and Otto (2009) and Spoehr (2014) all reiterate the importance of transitioning the old industries of mass manufacturing into knowledge-intensive, high value-added clusters characterised by dynamic, sustainable and innovative firms.
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6.3 Policies for the affected worker In an effort to ‘soften the landing’ of industrial declines numerous measures to deal with both the short-term and long-term aftermath following mass layoffs have been proposed.
Hansen (2009) discusses establishing early warning networks, and the implementation of community or regional rapid response worker adjustment programs by trained, dedicated industrial adjustment specialists. Worker adjustment programs aim to provide early intervention planning assistance to workers facing dislocation. Hansen (2009, pp. 40) suggests that in the U.S., “workers facing layoffs are more inclined to take advantage of services before they lose their jobs than after they become unemployed”. The author highlights the success of these programs in Hungary by noting a dramatic reduction in the time it took retrenched workers to find new jobs. Schweke (2004) also stresses the importance of early intervention. He also suggests that effective training programs focus on skill development and practical experience based on thorough assessments of workers’ basic skills, vocational interests and aptitudes, and the transferability of existing occupational skills. Moreover, Schweke (2004) believes job search services and Labour Management Committees to be effective in assisting displaced workers. This is due to the nature in which these programs assess the needs of the target audience, which then enables the provision of customised assistance, the monitoring of service delivery and the evaluation of worker progress.
Spoehr (2014) summarises the use of labour management packages and their effectiveness. The approach used with the closure of Mitsubishi in Adelaide involved both Federal and State funding packages to promote employment. The results were mixed with a large number of workers reporting a fall in income and job security post retrenchment implying that they were unable to obtain full time employment. One flaw in the scheme was that funding was not made available for retraining. A much better result was obtained after the closure of MG Rover in Birmingham.
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Better planning, conducted well in advance and involving a range of organisations resulted in much better employment outcomes for retrenched workers (Spoehr, 2014). A similar conclusion was reached by Fairbrother et.al. (2013) who argues that well developed training and education schemes with multi stakeholder involvement are important ingredients for the revitalisation of regional economies in the aftermath of major structural upheaval. In particular the lessons from Hamilton Ontario pointed to the effectiveness of worker transition centres and the importance of encouraging collaborative programs to promote retraining (Fairbrother et.al., 2013).
The experience of structural change in other regions of Australia and in other countries indicate that some approaches to dealing with de-industrialization are more effective than others. There is no ‘one size fits all’ strategy. Measures have to be tailored to suit the individual case. There are however, several common ingredients, which tend to promote more successful outcomes. These include:
Effective planning well in advance of firm closures
Involvement of key stakeholders, including government, industry, unions and non-government organisations in the planning process
Programs which include broader economic diversification strategies as well as specific retraining and education opportunities
An approach which is proactive, flexible and provides for the continuation of support in various ways over the long term
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7. Summary
Geelong is the largest regional economy in Victoria. In 2012, Gross Regional Product was $9.2 billion for the City of Greater Geelong and $10.4 billion for the wider economic catchment. Annual growth in output for the decade 2002-2012 was 2.73% and was lower than the State average of 2.83%. The unemployment rate as of the fourth quarter 2013 was 6.36%, higher than the State rate of 5.82%. It is continuing to increase in 2014.
Geelong is an economy in transition. Its reliance on manufacturing as an engine of growth has declined as the manufacturing sector both regionally and nationally has contracted. In 2013, manufacturing accounted for 43% of output while the service sector accounted for 56%. In the same year manufacturing contributed 18.6% to value-added in the local economy. This can be compared to Producer Services, which added 26%, Distribution Services 20.6% and Social Services 19%. Further evidence of structural change can be seen in the shift in employment opportunities. The most recent Census data indicates that falls in employment in manufacturing and the retail sector have been offset by gains in the service sector between 2006 and 2011.
Analysis of future impacts indicates that job losses will continue to be a feature of the economic environment in the short term. However, significant job gains are also expected to occur. Losses will continue to be experienced in manufacturing and gains will continue in the services sector. Specific areas in which employment is expected to expand are health, education and other social services. Job creation is also evident in producer and distribution services, particularly retail.
Linkages between economic activity, output, wages and salaries create a multiplying impact through the regional economy. Once these impacts are taken into account the full extent of the effect of changes in labour market conditions is evident. 35
It is expected that while the short term impact of job losses will impact negatively on the regional economy, in the medium to longer term the outlook will be brighter. The Geelong economy will continue to adjust and it is estimated that by 2015/16 there will be a net positive growth in employment and output.
A point to note is that the decline in employment opportunities in some industries will not be entirely cancelled by gains in others. A degree of labour immobility is to be expected when the skills required in one industry are not matched by those required by another. Whilst there is no ‘one size fits all’ approach to dealing with those specifically affected by industrial restructuring, prior research indicates that there are some common ingredients that tend to promote more successful outcomes. These include planning well in advance, the inclusion of key stakeholders, together with a broad and flexible approach, which provides support over the longer term.
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Appendix 1: Services Classification Sub Sector Producer Services
Distribution Services
Personal Services
Social Services
Construction and Utilities
Services Included Banking and financial services Insurance Property management services Engineering/Construction/Architectural services Business/accounting Legal services Miscellaneous business services Transport Communication Wholesale trade Retailing Accommodation Hotels, bars/restaurants Domestic service Recreation and entertainment Other personal services Health and medical Education Welfare services Services provided by not for profit organisations Services provided by government Miscellaneous social services Electricity, gas and water supply Sewerage and drainage services Building and non-building construction Construction trade services
Source McLachlan et al. (2002)
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Appendix 2: REMPLAN Methodology
REMPLAN is a regional economic modelling and planning software package and provides detailed region specific data at up to 109 industry sectors in Australia.
The software also incorporates a region-specific economic impact modelling feature that was first developed at La Trobe University, with continued development from December 2006 by Compelling Economics Pty Ltd. This feature generates estimates of indirect or flow-on impacts from a direct change in economic activity.
The underlying structure of REMPLAN is based on an input-output model. An input-output approach recognises the interdependence between sectors of the economy. The model is designed to capture economic flows between sectors, regions and industries. The data is recorded in an input-output table usually by industry classification. Input-output tables can be used to calculate output, employment and income multipliers. These multipliers can then be used to make predictions about the outcome of changes to economic fundamentals such as employment and economic growth.
There are a number of benefits gained once an input-output model of the region has been constructed. The first of these is to offer a better understanding of the relative performance of economic sectors in the regional economy. Information gained from the model includes estimates of regional output, regional value-added and wages for each of the sectors, which can be viewed alongside sectoral employment figures.
The most important outcome of all this is to provide a picture of the interdependent nature of the regional economy and the way all these individual pieces of data fit together. Actions by one sector will have ramifications on many of the other sectors operating in the region.
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In addition, by following the social accounting conventions used in the National Accounts, it is also possible to calculate Gross Regional Product. This can be done either by measuring regional expenditure (the expenditure method) or incomes accruing to the factors of production (the incomes method) or finally by using total output by all sectors less intermediate goods used in the productive process (the value-added method). Whatever method used is incidental to the fact that such a measure provides an opportunity to determine the relative position of a regional economy, set benchmarks and measure this on a per capita basis.
There are also limitations to this type of approach and some care needs to be taken in the use of input-output data. It is important that the underlying assumptions are kept clearly in mind. Certain assumptions need to be made in the interests of the overall simplicity of input -output modelling.
The first assumption is one of fixed production coefficients, which imply constant returns to scale. That is to say that if we wanted to double output of sector K, we would have to double all of its inputs with no evidence of scale economies.
Also, assumed is that regional performance matches national average performance. Some of these assumptions have been tested by local surveys in key sectors and this reduces margins of error.
For the life of the existing model, input proportions will remain the same and there will be no change in technology. As long as the model is kept up to date this latter concern should not pose a threat to its effectiveness, except as a tool for long-term forecasting.
Another assumption is one of homogeneity where it is assumed that each industry sector produces a fixed set of products that are not produced by any other sector. While it is possible to have some overlap e.g. liquor sold in hotels (the Retail sector) and in cafes (the Accommodation, Cafes and Restaurants sector).
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Input-output models assume that there are no supply constraints and that the intermediate and household sectors will be able to service any increases in final demand. This assumption could weaken the predictive capacity of the model in those cases where increases in overall demand could bring about factor shortages and raise the prices of those factors in the short term.
Finally, multipliers are estimates of what is expected to happen under a certain set of conditions. If the parameters governing the regional economy change then the multipliers and projected outcomes will also change.
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