There has been an exodus from the cities to the regions. What does this mean for local economies? | Jessica Mizrahi


OWe’ve all done it. Queuing for a case, a drink or, worst of all, a bathroom stall. These are all causes of frustration. It’s worse if you’ve had the (ill)fortune of a statistical training – because you know how much of a difference a toilet cubicle can make. At least calculating the waiting time is a good way to distract you if you’re down.

The math also explains a little something about finding workers. Even inside a workplace, you don’t want every worker to be 100% busy all the time. It is useful to have a buffer in case something goes wrong or has a problem. Hospital and ambulance staff have (rightly) been sounding the alarm about this for years. The pandemic proved them right.

It’s the same throughout the economy. When we reach full employment (probably at an unemployment rate of around 4.5%), the system begins to struggle. This is partly the reason why very few economists will argue for a 0% unemployment rate. A little spare capacity goes a long way.

For sparsely populated regional areas, this is a sensitive subject. Despite what you might think, sparsely populated areas tend to have less slack. If you look at a list of Australian regions, you might be surprised. The highest unemployment rates (as of September 2021) are in capital cities. By contrast, of the six Australian labor market regions with fewer than 100,000 working-age people, four have unemployment rates below 4.5%.

If you had had the privilege of traveling to the region during the summer holidays, you would probably have, like me, seen how Covid has exacerbated the problem. At the start of the pandemic, international and domestic tourism plummeted. Businesses in tourist areas battened down the hatches and hoped to weather the storm.

The problem is that tourism accounts for more than 20% of employment in some of these regions. With limited outdoor options and no end in sight, some workers chose to leave the areas in search of more populated pastures.

Share of tourism in employed persons

Source: Australia Tourism Research

So when the tourists finally started coming back, there was no one to serve them. Wandering down the main street, two out of three restaurants were closed. The third often had such undemanding staff that long waits, reduced menus and shorter hours were the norm.

Omicron has pushed hotels, tour operators and kitchens out of the frying pan and into the fire. With fewer residents and so many sick people, keeping the doors open must seem like mission impossible. Combined with Covid cancellations, it is easy to understand why some are forced to close the shutters. This creates more incentives to leave – and a vicious circle.

Even direct attempts to address labor shortages in the regions have had limited success. It was reported that only 453 people took up the $6,000 offer to relocate to a regional area and work in the harvest in the last two months of 2021.

There is a silver lining. Office workers are now pretty convinced that remote work isn’t going anywhere anytime soon. Freed from the shackles of the cabin, the long-awaited white-collar tree/sea change is happening for good. Almost 66,000 people left the capitals for the regions in the three months to March 2021. In net terms, there was an exodus of almost 12,000 people – the largest movement into the country recorded since we started collecting this data.

Take the Gold Coast. There were 21,000 more people between the ages of 15 and 64 living in the region in September 2021 than in September 2020. Instead of working in theme parks and cafes, many work in professional services. In fact, with an influx of 10,400 professional services workers in 2021, the Gold Coast ranks behind only metropolis Sydney in terms of absolute growth. Although there is little evidence, it seems likely that many of these people work for employers who are not based on the Gold Coast.

In the short term, these workers could exacerbate local labor shortages rather than solving them. More costumes mean more demand for cafes, entertainment and, well, costumes.

Ideally, this is short-term pain for long-term gain. A balanced and diversified economy has a better chance of managing economic disruptions. The increased demand will ensure more reliable trade throughout the year for cafes and restaurants. It insulates from the ebb and flow of the whims of tourists. Better earnings and greater certainty mean companies can afford to offer higher wages and attract more workers to the region.

There are legitimate concerns about what a flood of internal migration means for regional economies. It puts pressure on infrastructure, wages and housing prices.

However, it can also get some areas out of the current tourist trap. It’s a much needed sweetener to encourage workers and businesses to come back. After two long and hard years, our regions deserve sweetness.

Jessica Mizrahi is a consultant and economics commentator. She has taught, researched and applied economics for over a decade


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