Labor's billion-dollar local jobs plan is a game changer for manufacturing, the Australian Workers' Union (AWU) says.

The three-pronged proposal unveiled by Prime Minister Julia Gillard on Sunday involves legislating to make sure major projects give local suppliers a fair crack at contracts, setting up innovation precincts, and helping small and medium sized businesses to grow.

AWU national secretary Paul Howes said the plan endorsed several measures his union had campaigned for over the past couple of years.

"Quite frankly, this sector is too big to fail, and we have to put strategies in place to keep this sector alive," he said in a statement on Sunday.

Australian Manufacturing Workers Union national secretary Paul Bastian said there was no short-term fix to the sector's problems but this plan was better than what was in place now.

He said the best part of the announcement was the establishment of the Australian Industry Participation Authority and the move to make developers of projects worth more than $500 million let local contractors know what jobs they had going.

"For us every billion dollars you can extract out of the resource sector in terms of local content sustains and creates 10,000 jobs," he told ABC TV.

The government says these legislative requirements will be worth an extra $1.6 billion a year to local suppliers.

The Australian Council of Trade Unions said the new laws would be a step towards creating a level playing field for Australian companies.

"It has long been a concern of the union movement that major resource and infrastructure projects do not even look at what they could source locally," secretary Dave Oliver said.

"We need to make sure that the benefits of major projects being built in Australia flow through to Australian manufacturers and businesses."