‘I’m also very confident in terms of the methodologies that have been developed and refined over the course of many of these projects and I’m very confident in the fidelity of the data that we have.’
— Minister for Defence Linda Reynolds, Supplementary budget estimates hearings, 29 November 2019
The October and November 2019 Senate estimates hearings for the Department of Defence followed a familiar pattern: extended discussion about the number of Australian jobs associated with projects for building and sustaining naval vessels and an outcome that did little to clarify many, or even most, of the numbers involved.
To begin with, there was considerable confusion at the hearings about the meaning of key indicators of employment. ‘Direct jobs’ cover the people employed by prime contractors and their subcontractors, working in dockyards or associated facilities. ‘Indirect jobs’, sometimes described as ‘flow-on jobs’, consist of jobs supporting the provision of all other Australian inputs along project supply chains.
But projects also generate jobs in other areas of the economy. One category that wasn’t mentioned at the hearings is ‘consumption-induced jobs’, which are jobs created in businesses that sell consumer goods and services to people working on projects. The skills associated with those jobs can differ markedly from the skills required for naval shipbuilding and sustainment.
Another category is jobs that come from spillovers. A ‘spillover’ is a new technology or skill created by a project that other areas of the economy use to generate employment of their own. Because that employment is extraordinarily difficult to quantify, it’s not covered in Defence’s job figures. At the hearings, that point wasn’t made as clearly as it might have been.
Not surprisingly, direct jobs are often estimated by prime contractors. But neither a prime nor Defence normally has insight into the far reaches of supply chains and beyond, especially during the early phases of projects. Consequently, indirect jobs tend to be estimated initially using economic models and refined later as more project-specific data becomes available. Consumption-induced jobs are estimated solely through economic modelling.
Senators at the hearings were interested primarily in two sets of job numbers covering direct and indirect employment for shipbuilding and sustainment—one for 2025 and the other for all years of Defence’s naval shipbuilding plan expressed as an annual average (see table 1). For both sets, the data provided by Defence falls short of what’s required for adequate coverage and categorisation.
Table 1: Shipbuilding and sustainment jobs by key category
n.a. = not available.
1. Estimates vary of the Australian content associated with this project, from a 50% minimum, to 58% contracted, to 65–70% predicted by the contractor (see Senate estimates, 5 April 2019, answer to question on notice 43).
2. The spend period of 2018–2048 was used by BIS Oxford Economics, The economic contribution of BAE Systems in Australia, 2018, 22, to estimate employment for the future frigates.