Who:  “The study by the Allen Consulting group …. argues the economies of Adelaide and Melbourne would be “devastated” by the closure of auto manufacturing.”

The claim: That the economies of Adelaide and Melbourne would be devastated by ending taxpayer subsidies to the car industry.

The facts: The claim is based on analysis commissioned by the Federal Chamber of Automotive Industries.  The report uses computable general equilibrium modelling to estimate the impacts on the Melbourne, Adelaide and national economies of a complete shutdown of the car industry.  They estimate that 33,000 jobs would be lost in Melbourne and 6,600 jobs in Adelaide, around 1.6 percent and one percent of the labour force respectively.

Under the model used by Allen Consulting, employment levels quickly recover, with the difference to baseline employment reducing to less than 0.5 percent in around 2 years.  This reflects that most people that would lose their jobs are likely to be highly skilled and soon find employment in other industries.

The finding: While the transition period for people in the car manufacturing industry would no doubt be personally difficult, the modelling from the report shows that the impact of a shutdown of the car industry would affect a small fraction of the workforce, for a limited period. The claim that the economies of Melbourne and Adelaide would be devastated is an exaggeration.

Discussion of evidence: Furthermore, the model makes several assumptions that may exaggerate even these effects.  It assumes the complete shutdown of the industry, rather than including the possibility that various parts manufacturers may continue to be viable.  It also assumes the complete loss to Australia of foreign investment associated with the car industry and seems not to consider the possibility that other investors from other industries may move in to take advantage of the newly available skilled labour and capital.

Groups arguing for the maintenance of subsidies should emphasise external benefits such as providing technology transfer and skilled workers that go on to support high tech industries instead of exaggerating the industry’s role in the Melbourne and Adelaide economies.