This is what will happen to Whyalla if Arrium closes

My thesis, still very much a work in progress, covers how cities and towns react and adapt following large employment decline. Due to the impending deadline of that thesis I cannot write a full and thoughtful piece on unfolding events in Whyalla. Here, instead, is my 15 minute version.

Arrium, the owner of Whyalla’s steelworks, has entered voluntary administration, placing more than 1000 jobs in the already struggling town at risk.

1. First, let’s decide if Arrium is viable

Private sector and government need to decide if Arrium is viable long-term. If it is not, investment by government is justified on equity and social grounds. But there are likely better policy tools than subsidising a failing company.

2. If Arrium closes, Whyalla is in for long-term pain

The below figure shows what happened to Australian cities who experienced a significant employment decline in 1976, 1981 and 1991 based on the five-yearly Australian census.

Manufacturing and mining cities never fully recovered. 30 years later they remained smaller than they were in the 1980s.

3. Cities who successfully adapted to employment decline from 1971 to 2011 had size, a coast, higher degrees, industrial diversity, high individual mobility, and coordinated and responsive leadership

Whyalla is vulnerable. It does not possess a strong combination of factors that made cities resilient to employment decline from 1971 to 2011.

It is the most specialised city in Australia. It has below average proportion of higher degrees and above average proportion of technical certificates. Its size is not quite large enough to promote agglomeration - the positive impact of big cities. In previous shocks, its participation rate has dropped sharply. Despite recent performance, it has not regained its participation level from the 1990s. This suggests people exited the workforce after the last shock and never worked again.

In the 2000s, Whyalla performed well on the back of the mining boom. However, the long-term story is grim. It sits alongside Broken Hill, Moe, Morwell, and Lithgow as one of the only cities to experience a double period of employment decline from 1971 to 2011.

4. We know what works: retraining, individualised job placement, confidence boosters, and out-migration

Participation decline, people exiting the workforce, is persistent. It can stay with a city for more than a decade. The impact of this is increased welfare dependency, social issues, and an ever deeper hole. Governments must act quickly to prevent a persistent drop in participation. We largely already know what works.

The employer and government must put in place an open retraining and job placement scheme. If workers are just handed a redundancy payment as they are pushed out the door, the chances of them exiting the workforce and going on welfare increases drastically.

Bringing forward infrastructure projects as part of a structural adjustment package for the city also helps. It serves to plug the short-term gap of the employment decline.

The community of Whyalla will shrink, the city must plan for this. People leaving after a shock is a vital way for the city to recover. If people stay and there is no work, welfare dependency and social issues are only likely to increase. The city should recognise this as an essential part of the recovery process. A sustainable Whyalla will be a smaller city. The local council should work with the community to facilitate an ordered and coordinated reduction in size.

If Arrium closes, Whyalla will struggle. If the government and employer fail to act responsibly and in a coordinated fashion, the consequences will be much, much worse.