Service Sector in the Australian Economy - Essay Example

Name : Tutor : Title : Service Sector in Australian Economy Institution : Date : Service Sector in Australian Economy Introduction The service sector consists of activities through which people give their time and knowledge to increase potential, sustainability and performance levels. The sector produces services and not end products. These services include discussion, attention, experience, information production and advice. Australia has a very robust service sector which accounts for a very huge part of its economy (Evans & Kelly 2002, pp. 100).This essay will discuss the statement, “Australia is becoming a service based economy with increased reliance on the service sector to sustain economic growth across the next 5 –10 years”. The paper will discuss the statement in consideration of the past and future contributions of the service sector to the economy. Past Service Sector Contribution The service sector in Australia deals with the foundation and framework of businesses and service provision. Formerly the service sector provided for the needs of the secondary and primary industries (Meredith & Dyster 1999, pp. 87). In the past the service sector has made a major contribution to the economy and it is expected to make other major contributions in the future. In 2007, three quarters of the businesses were based in the service sector. In 2009, over 9 million people were working in the service sector. This was approximately 86 percent of all the jobs in Australia. This is a strong indication that the service sector is dominant in the economy of Australia. The service sector contributes 68 percent of the Gross Domestic Product of Australia (Docherty 2010, pp. 47). Services have become so crucial to the economy of Australia especially in the last 10 years. It is a new sector with its trade based on the internet. It operates across many national boundaries. Data from the service sector in the last 10 years has been very comprehensive. In 1997 and 1998 the Australian service sector provided almost 80 percent in gross value added and about 81 percent of employment. Property and business services were the biggest categories that provided about $60 billion or 11.6% of the $408 billion total of gross value added. The retail trade was the biggest employment category. It provided about 1.12 million jobs or 14.7% of all the employment within the service sector whose total was 6.8 million jobs (Evans & Kelly 2002, pp. 101). In 2006, the service sector employed about 84.8 percent of all the employed people in Australia. Services employment is still higher than other employment in other parts of the economy. Before 2006, employment in services had grown at 2.2 percent on average every year. This is in comparison to the 1.7 percent growth per year in the other sectors for the same time period. One year to 2006, employment in the service sector had finally grown by 3 percent on average a year as opposed to the 2.4 percent average per year for all the employment in Australia (Docherty 2010, pp. 32). Future Service sector contribution As stated above, the service sector in Australia accounts for about 80 percent of gross value added and 81 percent of employment. Therefore, the service sector dominates the economy of Australia and this trend is expected to continue from the last 10 years through the current times into the next five years. Contribution of more than 80 and 81% from the service sector is expected in the future. In the next 5 to 10 years the service sector will provide the biggest opportunities for growth in employment (Docherty 2010, pp. 37). The export of services will become very important to the economy of Australia in the future so that it can remain one of the developed nations. The service sector will be very prominent in the post industrial economy and the economy of the information age. Community services such as social justice and welfare, health and education are expected to form a major component of the service sector in future. A forecast by BIS Shrapnel shows that employment in services is set to go on with fast growth compared with employment in other sectors (Docherty 2010, pp. 47). Looking at the trends and rates of growth of the contribution the service sector makes to the economy, it is clear that it will continue to take a prominent share of the economy in the future. The next five to ten years will see the service sector make an even bigger contribution to the economy than has been seen before. The 80 percent of gross value added and 81 percent of employment are likely to grow to 90 percent and 91 percent respectively in the next 5 to 10 years. This is so because globally, the trend is the same. Many developed nations have an increasingly growing service sector that seems to be getting more prominence in the global economy than all the other sectors. Since Australia is not an exception, its service sector will definitely not remain behind (Docherty 2010, pp. 47). Impact of off-shoring of service sector jobs on the economy Off-shoring of jobs in Australia’s service sector has its impacts on the economy. One of the most significant impacts of off-shoring is the loss of jobs. Job losses resulting from off-shoring have increased to a rate of over 20,000 jobs per year (Healey 2012, pp. 65). This rate is close to the rate needed to attain the Base Case scenario of the Australia’s 2008 report that showed job losses caused by off-shoring will have reached 849, 646 in the coming 20 years. A report by the National Institute of Economic and Industry Research produced in 2012 (Healey 2012, pp. 87) shows that the amount of service sector jobs that will be lost due to off-shoring in the coming 20 years will be 880, 842. This estimation shows that the service sector jobs that are at risk are at 10.2%. This is in comparison to 9.7% in 2007. The least number of jobs in the service sector that would be lost is 704, 848 while the highest number would be 1,051, 118 (Healey 2012, pp. 39). The Australian economy is therefore threatened because a number of sectors are at risk from off-shoring. The most affected occupations are in administration and ICT. Data processing and clerical workers such as law clerks, bank workers, data entry, accounting and payroll fall under these occupations. Other sectors with jobs at risk are the finance sector, insurance sector, professional, technical services and scientific sectors. In all the service industries those occupations that my suffer a lot from off-shoring in the next 10 years include accounting staff, clerical workers, bank workers, programming and software applications (Aph.gov.au 2012). Off-shoring is bound to reduce available jobs and employment rates in Australia in the future. A decrease of jobs results from the exportation of those jobs. The amount of taxes paid to the various governments may go down with unemployment going up. This could result in customers purchasing fewer goods and services. Enterprises in Australia will therefore make fewer profits and included in this group are those that do the off-shoring. Off-shoring has an impact on the economy and on jobs availability. The accounting and finance sectors have been impacted greatly by off-shoring. The rate for these sectors is at 36 per cent while procurement positions are at 31 per cent. These two sectors have the largest numbers of jobs relocated through off-shoring. However, some reports show that off-shoring does also increase the amount of jobs in Australia. Reports show that out of the off-shoring companies, only 22 per cent of them record a reduction in jobs while 42 per cent record a rise in jobs due to off-shoring activities. However, this could be as a result of the growth strategies in these companies (Austrade.gov.au. 2011). Impact of the mining boom on the service sector The mining boom in Australia had several impacts on Australia’s service sector. The mining boom has had the effect of attracting investments from the service sector to the mining sector. The double mining prices have acted as an enticement to investment in other parts of the economy (Healey 2012, pp. 54). The effect of this development to the service sector was a reduction in employment and in service sectors such as media and IT where there has been a great shift in prices. However, services in real estate, education and finance were not affected as much. The mining boom was expected to create more jobs in Australia to counter the effect of off-shoring. Estimates show that 20,000 jobs in accounting, technical support, banking and clerk areas are transferred overseas each year. However, the mining boom seems to have been a contributor to the transfer of jobs. Improvement in technology, job portability, and the skills available overseas and the strength of the dollar also add to the effect of the mining boom of transfering service sector jobs abroad. The slow down in the mining boom has the effect of exerting pressure on the economy which is also losing through the shift of jobs to overseas countries (Healey 2012, pp. 54). Conclusion In conclusion, this paper has examined the past and future contribution of the service sector to the economy of Australia. The discussion also features the impact of off-shoring service sector jobs to the economy and how the mining boom has impacted on the service sector. The service sector is growing at a very high rate. Its past contribution to the economy has been great and this trend is expected into the future. Off-shoring has resulted in the loss of so many jobs to overseas countries. These losses are expected to continue in future is off-shoring does not stop. Finally, the mining boom affected the service sector when investments shifted from the service sector to the mining sector. The mining boom also contributes to off-shoring. However, the service sector is expected to continue as a pillar to the economy of Australia. Bibliography Aph.gov.au 2012. Overview of Australia’s services sector. Accessed on web 15th March 2013. Retrieved from http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_ Committees?url=efpa/services/report/chapter2.pdf Austrade.gov.au. (2011). Australia’s service sector booming. Accessed on web 15th March 2013. Retrieved from http://www.austrade.gov.au/ArticleDocuments/3592/Australia-Europe- Brief-201112.pdf.aspx Docherty, J. C. 2010. The A to Z of Australia.  Rowman & Littlefield. Evans, M.D, & Kelly, J. 2002. Australian Economy and Society, 2001: Education, Work and Welfare. The Federation Press. Healey, J. 2012. Australia’s Mining Boom. Spinney Press. Meredith, D. & Dyster, B. 1999.Australia in the Global Economy: continuity and change. Cambridge University Press. Read More