My Blog

Author: Jim Stanford

  • Manufacturing: A Moment of Opportunity

    In conjunction with the National Manufacturing Summit, titled “From Opportunity to Action,” at Parliament House in Canberra on June 21, 2017, the Centre for Future Work has released a new research paper on the opportunities to sustain and expand manufacturing jobs in Australia.

    Our new report, Manufacturing: A Moment of Opportunity, by Jim Stanford and Tom Swann, challenges the general tone of pessimism which accompanies many discussions about manufacturing in Australia. Manufacturing has survived a brutal decade of global and domestic challenges. It’s still here, it’s still one of Australia’s largest employers, and it still makes a disproportionate and strategic contribution to overall national prosperity. Even more interesting, there are some intriguing signs that manufacturing might be turning a corner.

    The paper also presents new public opinion research showing that Australians continue to express strong support for manufacturing and its role in the economy. Australians consistently underestimate the size and performance of manufacturing — perhaps influenced by the negative tone of much reporting of the sector. But they deeply value its importance as a source of good jobs, exports, and national prosperity. And they will support — by margins of five-to-one — targeted policies to help manufacturing succeed here.

    The post Manufacturing: A Moment of Opportunity appeared first on The Australia Institute's Centre for Future Work.

  • Employers’ pyrrhic penalty rates win reflects self-defeating economics

    The equity implications of the commission’s decision are odious. Store clerks and baristas are already among the least-paid, least-secure members of Australia’s workforce. The retail and hospitality workforce is disproportionately female, young and immigrant. Most work part time, and casual and labour-hire positions are common. In short, the burden of this decision will be borne by those who can least afford it.

    Penalty rate cut: how did it happen?

    Workplace reporter Nick Toscano contextualises the Fair Work Commission’s announcement on Thursday that Sunday penalty rates paid in retail, fast food, hospitality and pharmacy industries will be reduced from the existing levels.

    Remember, too, that it’s in retail and hospitality that recent scandals regarding underpayment of wages and other violations of labour law have been rife. Weakening labour standards that are already poorly enforced thus constitutes a double jeopardy for service workers.

    It’s notable that the commission only targeted low-paid service workers with this review of penalty rates. There are many other people who need to work Sundays and holidays, including emergency personnel, essential service workers, healthcare workers and others. The commission stressed it wasn’t calling for those workers to lose their penalties, too (although employers everywhere are no doubt preparing to push to extend this precedent to other industries). If it’s all about changing “cultural norms” regarding weekend work, then why have these low-paid service jobs been singled out?

    All of this says much about the political and economic context for the Fair Work Commission’s deliberations. There was no emergency in Australia’s retail and hospitality sector; no crisis that needed immediate attention. It’s not that stores and restaurants couldn’t do business on Sundays under the existing rules; any casual observer can attest to the brisk trade that now takes place right through the weekend. It’s just that those businesses would be considerably more profitable if wages were lower.

    So penalty rates became the target of a sustained pressure campaign by business, backed by conservative political leaders. The commission heard those complaints and acceded to them. Whatever the precise wording of the commission’s legislative mandate, it was never envisioned as a mechanism for rolling back employment standards; it was supposed to protect them. This decision will therefore spark a political debate not only over the merits of this specific decision, but over the commission’s overall mandate and function.

    The politics of that debate will be complicated. Coalition leaders are hiding behind the commission’s supposed neutrality – although they are clearly pleased with the decision (and many explicitly lobbied for it). Labor’s response, meanwhile, is coloured by the fact that it created this commission; Bill Shorten now promises to adjust its mandate. None of this will stop the anger among working-class families who’ll lose income because of this decision. The threat to penalty rates was a potent doorstep issue for union campaigners across Australia before the last election, which the Coalition almost lost. It will be an even hotter button in the next one.

    The economics of the rollback are even more muddled than the politics. Retail lobbyists claim the decision will unleash a surge of new job creation, but those promises are hollow. After all, the market for retail and hospitality services depends primarily on the strength of domestic consumer spending power – more so than any other part of the economy. Australians have a certain amount of disposable income. Will they shop more, and eat out more, just because stores and restaurants stay open longer? Of course not.

    To the contrary, slashing retail and hospitality wages can only undermine demand for the very services that these businesses are selling. It’s incredibly ironic that, even as the commission’s Judge Iain Ross read his judgment on live television, the Australian Bureau of Statistics was releasing yet another dismal report on national wage trends. Average weekly earnings in the period to last November grew at an annualised rate of just 0.4 per cent: slower than any other point in the history of the data, and well behind the rate of inflation. This reflects both the stagnation of hourly wages, and the continuing shift to part-time and casual work (for which retail and hospitality employers are among the worst culprits).

    So this won’t increase the amount of money Australians have to spend in shops and restaurants. Instead, there will be an incremental decline. If stores actually do stay open longer hours, the same spending must now be spread across longer operating hours, driving down productivity. Retail lobbyists should be careful what they ask for.

    Meanwhile, employment in these industries will continue to reflect bigger, structural forces. For example, the whole Australian retail sector has created precisely zero net jobs over the last three years, largely because of the structural shift to big-box retailing (which employs fewer workers per unit of sales). That’s not going to change just because big-box stores can now pay their staff $10 an hour less.

    In short, Australia’s economy isn’t held back because wages are too high. It’s held back because wages are too low. And the stagnation of wages is no accident: it’s the cumulative result of years of deliberate efforts to weaken the power of wage-setting institutions (including unions, minimum wages and awards). The Fair Work Commission chopped away a little more of that edifice this week.

    The greatest irony is that it’s retail and hospitality businesses – which led the push to cut weekend wages – that confront the weakness of household spending power most directly. Each employer may individually celebrate the prospect of paying lower wages. Yet for their industry as a whole, this decision is collectively irrational and ultimately self-defeating.

    Jim Stanford is economist and director of the Centre for Future Work at The Australia Institute.

    The post Employers’ pyrrhic penalty rates win reflects self-defeating economics appeared first on The Australia Institute's Centre for Future Work.

  • Economic Aspects of Paid Domestic Violence Leave Provisions

    Economic insecurity is one of the greatest factors inhibiting victims of domestic violence from escaping violent situations at home. To address that problem unions and employers have developed paid domestic violence leave provisions which allow victims to attend legal proceedings, medical appointments, or other events or activities related to the violence they have experienced, without risk of lost income or employment. Proposals have now been made to extend that provision to more Australian workers, by including a paid domestic violence leave provision in the Modern Awards (presently being reviewed by the Fair Work Commission), and/or by including it as a universal entitlement under the National Employment Standards.

    This report considers the likely impact of such an extension on the payroll costs of employers, and finds it to be so small it would be difficult to measure: we estimate that incremental payments to workers taking the leave would amount to one-fiftieth of one percent (0.02%) of current payrolls.

    These findings refute recent statements by Commonwealth Finance Minister Mathias Cormann, who recently described domestic violence leave as “another cost on our economy that will have an impact on our international competitiveness.” His government has opposed extending the provision — at least not until the Fair Work Commission has completed its review.

    The idea that a 0.02 percent increment to payrolls (less than one hundredeth of a percent of last year’s increase in average weekly wages) would even be noticed internationally, let alone undermine our “competitiveness,” is not credible. Worse yet, this argument misunderstands the nature of competitiveness in a modern, innovation-driven economy. Cementing a reputation as a safe, high-quality, inclusive place to live is beneficial to national competitiveness, and paid leave for victims of domestic violence would be an important symbol of Australia’s commitment in that regard.

    The post Economic Aspects of Paid Domestic Violence Leave Provisions appeared first on The Australia Institute's Centre for Future Work.

  • Hard to Get Away: Is the paid holiday under threat? (GHOTD 2016)

    The focus of this year’s Go Home on Time Day is the threat to the “Great Aussie Holiday.” Thanks to the rise of precarious work in all its forms, a growing share of Australian workers (about one-third, according to our research) have no access to something we once took for granted: a paid annual holiday. Moreover, about half of those who ARE entitled to paid annual leave, don’t use all of their weeks – in many cases because of work-related pressures. And recent decisions by the Fair Work Commission allowing for the “cash out” of annual leave, mean that this great cultural institution – the Aussie holiday – is very much in jeopardy.

    Check out our special in-depth report, prepared by Troy Henderson of the University of Sydney, documenting these multiple threats to the Aussie holiday, and cataloguing the many economic, social, and health consequences that occur when we don’t get a break from work.

    The post Hard to Get Away: Is the paid holiday under threat in Australia? appeared first on The Australia Institute's Centre for Future Work.

  • What’s Wrong With Privatization?

    Our Director Jim Stanford recently spoke with Unions NSW about this surprising development, and the general flaws in the argument for privatization.

    The post What’s Wrong With Privatization? appeared first on The Australia Institute's Centre for Future Work.

  • Denying The Downside Of Globalization Won’t Stop Populism

    Treasurer Scott Morrison recently started pushing back, delivering a staunch defense of globalization to an audience in Sydney. Like other world leaders responding to the wave of populism, Mr. Morrison doubled down with strong claims about the universal, lasting benefits of free trade. Australians may be anxious about their economic future, he conceded. But don’t blame globalization.

    Globalization “increases our living standards and always has,” Mr. Morrison bluntly proclaimed. Free trade, immigration and inward foreign investment are “the very sources of … prosperity.” Resisting globalization, he suggested, is like thinking “we can pull the doona over our head and insulate ourselves.”

    Denying any potential downside to globalization, and deriding critics as hiding from reality, will not defuse the wave of anger that put four One Nation senators into Parliament. Contrary to Mr. Morrison’s claims, there is ample evidence that Australia’s trade performance has deteriorated badly in recent years, despite –- or perhaps because of -– the acceleration of free trade.

    Globalization, as currently practiced, is imposing real, lasting damage in many parts of Australia, and producing a fertile political environment for nationalism and xenophobia. The political and policy responses to that danger must go beyond denial.

    Mr. Morrison stressed the effectiveness of his government’s trade agenda, especially what he called new “export trade deals” with China, Korea, and Japan. (This curious terminology deliberately neglects that free trade agreements are also intended to facilitate imports!) “The results are there to see,” he said.

    Or are they? As a share of GDP, Australia’s exports have declined significantly since the turn of the century, even as government inked several free trade pacts. Services exports also contracted relative to GDP. And ironically, Australia did worse with its free trade partners, than with the world as a whole.

    For example, we now have one year of experience under free trade with Japan and Korea. Perversely, Australian exports to both countries declined in the first year: by 9 percent for Korea, and 16 percent to Japan. Yet Australia’s imports from Japan and Korea surged by 14 percent and 24 percent, respectively.

    Therefore, Australia enjoyed more exports, and a better trade balance, without free trade than with it. In the first months of free trade with China, Australia’s exports are also declining. Similarly, under Australia’s trade pacts with the U.S., Thailand, Singapore and Chile, imports grew much faster than exports — and in some cases exports didn’t grow at all.

    There’s little reason to believe that new deals being pursued by Canberra (with India, Indonesia and the Trans Pacific Partnership) would have any better results.

    The cumulation of many bilateral trade deficits is an overall global payments imbalance that is driving Australia deeply into international debt. Australia’s current account deficit reached $77.5 billion last year: the biggest ever (in nominal terms). Relative to GDP, that’s the second-largest of any OECD country — behind only the U.K. (another hotbed of populism). It’s even worse than precarious emerging economies (like Brazil, South Africa or Turkey).

    Mr. Morrison actually celebrated this large international deficit last week, suggesting it allows Australia to invest more and grow faster. But he has it perfectly backwards. Business investment is contracting rapidly in Australia, not growing. And with Australia buying so much more from the rest of the world than it sells, we end up with less production, fewer jobs and less income. The gap can be offset with growing international debt, but only for a while.

    This miserable trade performance is clearly contributing to Australia’s weak labour market: declining total hours of employment, disappearing full-time jobs and unprecedented wage stagnation. So disaffected Australians aren’t making it up when they conclude their prospects have diminished, and no amount of boosterism can change that reality.

    Moreover, they have sound reasons to blame globalization as one important factor (certainly not the only one) for their predicament.

    If Mr. Morrison and other free-traders want to truly counter the divisive and dangerous ideas of nationalism and xenophobia, they should start by acknowledging that globalization does indeed have a downside, not just an upside. Then they must move to implement policies -– like balanced trade, job creation, stronger income security, and better vocational education — to assist those Australians who have been harmed by it.

    The post Denying The Downside Of Globalization Won’t Stop Populism appeared first on The Australia Institute's Centre for Future Work.

  • The Flawed Economics of Cutting Penalty Rates

    It was a “sleeper” issue in the recent election, and led to the defeat of some high-profile Liberal candidates. But now the debate over penalty rates for work on weekends and public holidays shifts to the Fair Work Commission. The economic arguments in favour of cutting penalties (as advocated by lobbyists for the retail and hospitality sectors) are deeply flawed.

    Penalty rates for working on weekends were an important “sleeper” issue in the recent federal election. On the surface, both Labor and the Coalition agreed the future of penalty rates would be determined by the Fair Work Commission. But that superficial consensus couldn’t hide deep differences in what the respective parties were actually hoping for. Labor explicitly urged the FWC to maintain existing penalties: double-time on Sundays, and time-and-a-half for Saturdays. Many Coalition candidates, on the other hand, endorsed a reduction in penalties – consistent with the views of business lobbyists who want lower operating costs on weekends.

    At the grass-roots level, meanwhile, the issue resonated strongly with significant numbers of voters. Union activists launched an 18-month “Save Our Weekend” campaign, knocking on tens of thousands of doors in marginal seats before the election was even called. Opinion polls showed strong support for retaining (or even increasing) weekend penalty rates; respondents opposed cutting penalties by two-to-one margins, or more. The swing against the Coalition in ridings targeted by the penalty rates campaign was nearly twice as large (6 percentage points) as the national swing.

    Penalty rates will remain a charged issue in the political arena. But for now, the main attention shifts to the FWC, whose decision is expected in coming weeks. The Commission should reject the entreaties of retail and restaurant employers for lower penalties, because the economic case for cutting penalties looks shakier all the time.

    Employers in all sectors routinely claim that cutting wages will strengthen job-creation. But this purported trade-off between compensation and employment is refuted by macroeconomic evidence. Indeed, historical data suggest higher wages are more often associated with stronger employment outcomes, not weaker: in part because household consumption spending (which depends directly on wages) is crucial for overall spending power and hence economic vitality. The retail and hospitality industries have been the most aggressive advocates of weaker penalty rates. Yet ironically, it is in these sectors that the argument for wage-cutting is weakest of all.

    After all, employment in stores and restaurants depends directly on the level of consumer spending. And this demand constraint is more binding in domestic service sectors than any other part of the economy. In export-oriented industries, employers can at least pretend that lower labour costs will boost sales (by undercutting foreign competition and hence winning new business). Even here the argument is not convincing, since in practice global competitiveness depends more on productivity, quality, and innovation than on low wages. But in non-traded domestic sectors, where Australians produce services for other Australians, the logic falls apart completely.

    Remember, Australian consumers already spend far more than they earn. That’s why average consumer debt is growing rapidly: now equal to 125 percent of national GDP. How could making it less costly for shops and cafes to open on weekends, somehow unleash new reservoirs of spending power, and stimulate tens of thousands of new jobs? In macroeconomic terms it’s simply not possible.

    Keeping businesses open for longer hours on weekends, doesn’t mean consumers have more money in their wallets. Instead, the same amount of retail and hospitality spending must now be spread across longer opening hours. If anything, that hurts productivity and profitability, and will eventually lead to the closure of some retail and hospitality firms that were already operating on the financial edge.

    It’s the same reason why opening a new shopping mall cannot, on its own, increase total employment levels. Unless there are other factors driving an expansion in broader incomes and spending, opening one store must inevitably lead to a closure somewhere else.

    It’s especially laughable to hope that cheaper weekend labour could somehow attract new business to Australia’s stores and cafes. Are penalty rate opponents expecting a surge in tourists from China, perhaps – who were just waiting for cheaper Sunday shopping before booking their trips?

    In short, the very industries pushing hardest for reduced penalties – retail and hospitality – are the ones most dependent on the spending power of domestic consumers. Hence they would directly experience the most economic blowback from their own wage cuts.

    Indeed, there is abundant evidence that unprecedented stagnation in wages is already undermining growth and job creation. Nominal wages are inching along at their slowest pace in recorded history (barely 1 percent per year). Real wages, adjusted for inflation, have been falling since 2013. Economists of all persuasions have highlighted the resulting weakness in household incomes as a key factor behind sluggish growth, rising personal debt, and unemployment and underemployment.

    Ultimately, rolling back penalties would simply constitute a major effective wage cut for workers who are already among the worst-paid in society. It will exacerbate the broader wage stagnation that is holding back Australian growth. And it will whet the appetites of other employers for more wage suppression – now on grounds of “keeping up” with the advantages granted to retail and hospitality.

    Australia needs higher wages, not lower. Let’s hope the Fair Work Commission sees this big picture.

    The post The Flawed Economics of Cutting Penalty Rates appeared first on The Australia Institute's Centre for Future Work.

  • Manufacturing (Still) Matters

    The problems in Australia’s manufacturing sector are well-known, and many Australians have concluded that the decline in manufacturing is inevitable and universal: that high-wage countries like Australia must accept the loss of manufacturing as an economic reality. But international statistics disprove this pessimism. Worldwide, manufacturing is growing, not shrinking, including in many advanced high-wage countries.

    Australians are purchasing more manufactured products, not less. Manufacturing is not an “old” industry: it is in fact the most innovation-intensive sector of the entire economy, generating better-than-average productivity growth, good jobs, and exports. Most importantly, manufacturing possesses several key structural features that make it vital to the economic success of any economy – including Australia’s. This study documents the damaging decline of Australian manufacturing, a decline that has accelerated in recent years. It explains the unique features of manufacturing (including innovation-intensity, productivity, income-generating capacity, export-orientation, and complex supply chains) that endow it with a national economic importance. It shows that Australia has done much worse than other high-wage countries (even smaller more remote ones) at maintaining manufacturing: in fact, manufacturing employment is now smaller as a share of total employment in Australia than in any other advanced country (even Luxembourg!).

    The paper lists ten key policy levers that have been invoked in other countries to support manufacturing – and which could play a positive role here, too, so long as government gives the sector the attention and priority it needs to succeed. The paper concludes with public opinion research showing that Australians agree, by very large majorities, that manufacturing is crucial to the national economy, supports good jobs and high living standards, and should be a national priority for policy-makers.

    The post Manufacturing (Still) Matters appeared first on The Australia Institute's Centre for Future Work.

  • Jobs and Growth… and a Few Hard Numbers

    However, the economy consists of more than just private businesses – and certainly more than the large businesses which attract the main attention from politicians and reporters.  Other stakeholders are at least as crucial for powering real economic progress: including workers, households, governments at all levels, small businesses, public and non-profit institutions, NGOs and the voluntary sector, and more.  So being “business-friendly” is no guarantee that the real economy (measured by employment, output, and incomes) will automatically improve.  Having a more complete understanding of all of the different ingredients required for economic progress is necessary, in order to properly analyze the likely impact of specific measures.

    To demonstrate the lack of correlation between a government’s stated economic orientation, and the actual performance of the real economy, this briefing paper compiles historical data on twelve standard indicators of economic performance: including employment, unemployment, real output, investment (of various forms), foreign trade, incomes, and debt burdens.  Consistent annual data is gathered going back to the 1950s, allowing for a statistical comparison of Australia’s economic record under the various post-war Prime Ministers.  We compare Australia’s economic performance under each Prime Minister, on the basis of these twelve selected indicators.

    There is no obvious correlation between these respective swings in Australia’s economic history, and the policy orientation of the government that oversaw them. And the statistical review indicates that the present government, regardless of its business-friendly credentials, has in fact presided over one of the weakest economic periods in Australia’s entire postwar history.

    The post Jobs and Growth… and a Few Hard Numbers appeared first on The Australia Institute's Centre for Future Work.

  • Bracket Creep Is A Phoney Menace

    Other thresholds don’t change. Taxpayers making over $80,000 will thus get a small saving ($6 per week at most). Those who make less, get nothing.

    It’s not the most expensive tax cut in the budget. It will cost an estimated $800 million in the first year – barely half the $1.5 billion lost annually by cancelling the deficit repair levy on incomes over $180,000, and far less than the ultimate cost of Morrison’s company tax cuts. But it is the most transparent and easy to understand of all the budget’s tax measures. And it will spark the most gossip around the water-cooler. Who makes over $80,000 per year, anyway? And who makes less? It’s hard to imagine a more “us versus them” tax policy.

    The Treasurer’s own rhetoric reinforces this schism: he says it will “reward hard working Australians,” encourage them to work overtime, take more shifts, and accept a promotion. The clear implication is that people making less than $80,000 are not interested in working more hours or taking promotions. Indeed, they aren’t even “hard working” in the Treasurer’s terms, and hence don’t merit protection from “creeping” taxes.

    The Treasurer tried, but failed, to define the measure as one that benefits “average” wage-earners. Mean annual earnings for a full-time worker employed year-round are indeed near $80,000. But this does not remotely describe the typical Australian. First off, the mathematical “average” is skewed upward by super-high incomes at the top of the income ladder; the median full-time wage (received by the full-time worker in the exact middle of the distribution) is $10,000 lower than the average, and well below the threshold. Likewise, women (even those employed full-time year-round) earn $10,000 less than the mathematical mean.

    Federal Treasurer Scott Morrison delivering his first budget, in 2016.
    Federal Treasurer Scott Morrison delivering his first budget, in 2016.

    But the bigger problem is that a shrinking share of Australians have full-time permanent jobs to start with. Part-time work now accounts for almost one in three jobs – the highest on record. And labour hire, temporary contract, and other forms of precarious work are increasingly the norm. Very few of those workers earn anywhere near $80,000. At most about one in four Australian workers (and perhaps 15 per cent of all tax-filers) will get the full $6 per week saving.

    The whole concept of “bracket creep” is itself as misleading as Morrison’s maths. He says taxpayers are “pushed” into higher tax brackets by rising incomes, constituting a punitive and underhanded tax grab. But this description merits some careful second thought.

    There are two different reasons why a worker’s income might rise. One is pure inflation, experienced across all wages and prices. In that case, nothing “real” changes, and a higher tax rate might seem unfair (although we should remember that the cost of many government programs also grows with inflation, and someone has to pay for that).

    Alternatively, it might be changes in a worker’s real income that qualify them for the next bracket. If they worked more hours or took a promotion (as the Treasurer urges), then their real income rises, and so does their tax. That’s not bracket creep, and there’s nothing “underhanded” about it. In fact, that is the whole point of a personal income tax system in which tax rates depend on income.

    Moral panic over bracket creep is all the more ironic given the unprecedented stagnation in Australian wages, reflecting sustained weakness in the job market. Average weekly earnings in the private sector are growing at their slowest pace in history: under 1 per cent per year (slower than inflation). The budget itself acknowledged this is badly hurting Commonwealth revenues. With wages going nowhere fast, this is hardly the time in history to make a mountain out of a bracket creep molehill.

    If the government truly wanted to prevent inflation from distorting taxes, it could simply index all parameters in the tax code to consumer prices (as other countries, like the U.S. and Canada, have done). Then all thresholds, not just the one cherry-picked by Morrison, would rise 1.3 per cent this year, the same as year-over-year inflation. But that would depoliticise the whole process, hardly acceptable in a year when every single clause of the budget is focused on getting the government re-elected. So Morrison picked one politically-potent threshold, lifted it seven times faster than inflation, and left everyone else to get “creeped.”

    Previous ad-hoc increases to thresholds have lifted them far faster than inflation. In fact, with this latest increase, the third tax threshold will have risen twice as much as inflation since 2003. Combined with rate reductions also targeted at top brackets during that time, government revenues have been undermined badly, and the upward redistribution of after-tax income has been exacerbated.

    In short, the politics of Morrison’s over/under game are hard to understand. He will deliver a tiny benefit to less than one in four employed workers, and barely one in seven tax-filers. Most Australians won’t get a cent. But the economics are even worse. His divisive and false anti-tax narrative undermines the long-run stability of the government’s revenue base, damages public services, and reinforces inequality.

    The post Bracket Creep Is A Phoney Menace appeared first on The Australia Institute's Centre for Future Work.