My Blog

Author: Jim Stanford

  • Short Changed: Unpaid Overtime (GHOTD 2023)

    Following the disruptions of the COVID pandemic and historic falls in real wages over recent years, 2023’s stronger labour market conditions should benefit many workers. Wages have risen, labour force participation is relatively high and unemployment is low. With the introduction of the Government’s 2022 industrial relations reforms, workers are in a better position to bargain, as shown in recent bargaining outcomes and improving wages growth. However, wages are not keeping up with prices, inflation is high and, for many workers, conditions of work are far from satisfactory.

    As this year’s GHOTD report shows, significant problems of overwork and underemployment co-exist, affecting many workers across all industries, occupations and age groups. Underemployment particularly affects workers in casual, temporary and other forms of insecure work, and it particularly affects workers in lower-paid roles. Women, younger workers, older workers and services workers are over-represented among those affected. At the same time long hours and overwork remain a problem, especially for full-time workers.

    The post Short Changed appeared first on The Australia Institute's Centre for Future Work.

  • Submission: Fair Work Amendment (Closing Loopholes) Bill 2023

    Submission supporting the Closing Loopholes Bill 2023.

    Authors: Macdonald, Peetz, Stanford

    Download the full report.

  • Opening statement to the ACTU Price Gouging Inquiry

    The Director of the Centre for Future Work, Jim Stanford and policy director and chief economist of the Australia Institute, Greg Jericho, presented evidence at the inquiry based on their research into profit-led inflation. Below is an edited excerpt of their opening statement.

    The recent period of rising inflation has been highly unusual coming as it has after a period where in Australia, core inflation by June 2021 had not been above the Reserve Bank’s target range of 2% to 3% for more than a decade and had been below 2% for five and half years.

    Perhaps unsurprisingly, because of such a long period without rising inflation, we saw very much a default to the thinking of the 1970s and a belief that all inflation is primarily driven by demand factors that need to be limited by higher interest rates.

    This was a fundamental misunderstanding of this inflationary period. It clearly could not be driven by wages because wages at all stages over the past two years have grown on average by less than inflation, such that real wages are now 5.5% below what they were two years ago.

    Wage growth in the 12 months to June this year was just 3.6%, still well below the CPI of 6%, and far from accelerating, actually had fallen from 3.7% growth in the 12 months to March.

    Thus, the question becomes, if not wages, what?

    Our research in February this year revealed that the initial surge of inflation in Australia beginning in mid-2021 was closely associated with a surge in price pressures.

    Business profits were the dominant manifestation of that inflation. The supply shocks that occurred because of the pandemic lockdowns and Russia’s invasion of Ukraine allowed companies in some key industries (such as energy, logistics, and manufacturing) to significantly boost their profit margins, coincident with rising prices.

    Our February 2023 paper, using the decomposition method of the national accounts (as explained by Jim), concluded that since the end of 2019, 69% of unit price increases over and above the RBA’s 2.5% inflation target mid-point were attributable to increased nominal unit profit payments. Only 18% was attributable to higher nominal unit labour costs, and the rest to increases in other nominal factor payments.

    Our paper noted that the profit growth was most dramatic in the energy and resources sector. These findings were broadly consistent with the findings of earlier research by the Australia Institute, as well as with the similar decompositions of inflation reported in other countries.

    Our follow-up report in April confirmed the leading role played by profits in the energy and resource industries. It noted that products from that sector (including petrol, gas, and other fossil fuel-intensive products) were leading sources of domestic inflation in Australia. It also showed that profits in other sectors, such as wholesale trade (56%), manufacturing (38%), professional and technological services (37%) and construction (37%), had also increased as a share of non-mining GDP since the pandemic. This profit growth is not dissimilar from the 48% growth in mining profits during the same period and well in excess of the 27% increase in nominal GDP.

    This confirmed that firms across these sectors have more than simply passed on higher input costs to consumers. As American economist Isabelle Weber has argued, they amplified them.

    The release of two more quarters of national accounts since February allows us to update our figures, which find that despite recent falls in corporate profits in some sectors, higher unit profit payouts still account for over half (56%) of the cumulative increase in nominal unit prices in the Australian economy since December 2019, above and beyond what would be expected due to normal target inflation. The role of higher unit labour costs in overall unit prices has increased in recent quarters and now accounts for just over one-third (35%) of the cumulative above-target rise in prices since the pandemic.

    The influence of profits is clear when you consider that unit profit costs by June 2023 were 27% above their December 2019 levels (down from 37% above in March 2023), while unit labour costs are just 14% above December 2019 levels – pointedly just below the 15% growth in CPI.

    There have been some suggestions by the Reserve Bank and others that our research should exclude mining profits as these do not significantly influence Australian inflation. Profits in mining during this time accounted for over half of all corporate profits in Australia; obviously, if over half of corporate profits are excluded from consideration, then profits will obviously seem less important.

    We reject the argument that mining profits somehow “don’t count” – especially in regard to domestic inflation, given the critical role played by higher petrol, gas, and electricity prices in driving the initial post-pandemic surge in Australian consumer price inflation.

    Clearly, there is a strong connection between energy prices, energy industry profits, and inflation experienced by domestic consumers (not to mention inflation experienced in other sectors of the economy).

    The good news is that corporate profits have begun to moderate in the first half of this year. It is important to note the modest decline in gross operating surplus in some sectors has still left corporate profits as a share of national GDP well above pre-pandemic levels and far above longer-term post-war averages.

    Nevertheless, even the partial moderation of record corporate profits has been associated with a significant and welcome deceleration of inflation. Consumer price inflation in Australia has slowed by over half in the last nine months: from an annualised peak of 8.9% in the first quarter of 2022 (led by surging energy costs) to just 3.4% in the June quarter of 2023 (not much higher than the top of the RBA’s target range).

    Moreover, even in the later stages of this current inflation cycle, with profits stable or even falling and labour costs accelerating, it’s wrong to conclude that labour is now the ‘source’ of inflation: clearly, the rise in unit labour costs reflects efforts by workers to recoup real income losses experienced earlier in the inflationary cycle, which must still be ascribed to the initial profit-led shocks that started the whole process.

    Blaming workers now for inflation because they are pursuing higher wages to recover lost living standards is like blaming a homeowner whose house has been set on fire for using too much water to put out the flames.

    Even as it appears to be moderating, this period of inflation requires a rethink of our policy approaches.

    We have made a number of policy recommendations, including:

    • Price regulations in strategic sectors
    • Fiscal transfers (such as windfall profits taxes combined with cost-of-living transfers to vulnerable households)
    • Competition policy reforms
    • Supports for wage increases in excess of current inflation for a sustained period of time to allow the repair of recent real wage reductions.

    The biggest lesson from this period is that we need more policy tools in our inflation toolkit. Relying on monetary policy and higher interest rates only works if you think inflation is only ever produced by higher wages and strong aggregate demand.

    We know that the future is more likely than not to feature further global shocks – not the least from climate change. Policymakers and central banks need to learn from the past two years and ready themselves to treat the broader causes of inflation and protect workers and households when companies seek to use crises as an opportunity to lift prices.

    The post Opening statement to the ACTU Price Gouging Inquiry appeared first on The Australia Institute's Centre for Future Work.

  • Going Backwards: NDIS Workforce and Gender Equality

    Hundreds of thousands of NDIS participants rely on this workforce to provide personal support and care on a daily basis.

    The NDIS workforce is large and growing, currently employing about a quarter of a million workers, mostly women. Pay, working conditions and career opportunities in the disability support workforce are critical to the future of women’s economic equality in Australia.

    It is a decade since the NDIS was first piloted, yet the promise for workers, that the scheme would translate into ‘greater pay, … better working conditions … (and) enough resources to do the job properly’ has not been fulfilled.

    Rather, conditions of work in the NDIS are poor and deteriorating.

    The design of the NDIS, with its market basis and poor and uneven regulatory oversight, has undermined fair pay and working conditions for disability support workers and is threatening workforce stability.

    This briefing paper reviews this evidence and argues for significant reforms to address urgent problems arising from these design flaws and regulatory failures.

    The post Going Backwards appeared first on The Australia Institute's Centre for Future Work.

  • Profit-Price Inflation: Theory, International Evidence, Policy

    The report, compiled by Dr Jim Stanford (Economist and Director of the Centre for Future Work), with contributions from several other economists at the Centre and the Australia Institute, confirms that higher corporate profits still account for most of the rise in economy-wide unit prices in Australia since the pandemic struck.

    The good news is that corporate profits have begun to moderate, as global supply chains are repaired, shortages of strategic commodities dissipate, and consumer purchasing patterns adjust after the pandemic. This has occurred alongside a reduction in inflation of over half since early 2022 (falling from a peak of 8.9% annualised in early 2022 to 3.4% by June 2023). This further confirms the close correlation between corporate profits and inflation — but both profits and inflation need to fall further.

    The report also reviews the methodology and findings of over 35 international studies confirming the existence of profit-led inflation across many industrial countries (including Australia). The methodology and findings of these studies are very similar to that utilised by the Australian Institute and the Centre for Future Work in previous research on profit-led inflation.

    The international research includes reports from numerous established institutions (including the OECD, the IMF, the Bank for International Settlements, many central banks, and the European Commission). Using similar methodology, these institutions came to similar conclusions: namely, that historically high corporate profits were the dominant factor in the initial surge of global inflation after COVID.

    The report was submitted on 21 September as evidence to the ACTU’s Price-Gouging Inquiry, headed by Prof Allan Fels. This Inquiry is gathering documentary evidence on how Australian workers and consumers have faced exploitive and unfair pricing practices by Australian corporations, which have added to recent inflation and undermined real wages. The new report provides macroeconomic evidence confirming the relevance of the Inquiry’s terms of reference.

    Policy-makers in other countries (including Europe and the U.S.) agree that corporate profit margins need to fall further in order to continue reducing inflation, while allowing real wages to recover to pre-pandemic levels. The new report shows this is also true in Australia. Average real wages are presently 6% lower than in mid-2021 (when post-pandemic inflation broke out, led by higher prices and corresponding super-profits in strategic industries like energy, manufacturing, and transportation).

    Wages will thus have to grow significantly faster than inflation for a sustained period of time to recoup those losses. That can occur while still reducing inflation if historically high profit margins are reduced to traditional levels.

    The post Profit-Price Inflation: Theory, International Evidence, and Policy Implications appeared first on The Australia Institute's Centre for Future Work.

  • Millionaire Tim Gurner’s Refreshing Honesty Reveals the Soul of Business

    A striking example occurred this week at a business outlook conference sponsored by the Australian Financial Review.

    In a panel discussion, Tim Gurner – founder and CEO of property developer Gurner Group, and personally worth almost $1 billion – discussed the state of the labour market.

    In his view, historically low unemployment in recent years has undermined the work ethic and discipline of the people who construct the buildings that made him rich.

    “Tradies … have been paid a lot to do not too much in the last few years, and we need to see that change. We need to see unemployment rise. Unemployment has to jump 40 to 50 per cent in my view. We need to see pain in the economy,” Gurner said.

    ‘Hurting the economy’

    “There has been a systematic change where employees feel the employer is extremely lucky to have them, as opposed to the other way around … We’ve got to kill that attitude, and that has to come through hurting the economy … Governments around the world are trying to increase unemployment … We’re starting to see less arrogance in the employment market, and that has to continue.”

    Gurner didn’t mention ‘inflation’ in his statement. We are regularly told by central bankers that lifting unemployment is necessary to control inflation.

    But in Gurner’s telling, the goal is to control workers, not (at least directly) prices: To re-instil a suitable fear of joblessness and dislocation, so workers work harder and demand less.

    Gurner’s remarks were eerily reminiscent of a prediction made by the great Polish economist, Michal Kalecki.

    Kalecki was a contemporary of John Maynard Keynes. He simultaneously developed theories of aggregate demand management that could prevent depressions and achieve full employment.

    A desirable cushion of jobless

    In a famous 1943 article, Kalecki explained that even though full employment could now be readily achieved through active fiscal and monetary policy, powerful business interests would reject that goal.

    They prefer to maintain a desirable cushion of unemployment, to keep workers in line and private corporations humming along:

    “Lasting full employment is not at all to [business leaders’] liking. The workers would get ‘out of hand’ and the ‘captains of industry’ would be anxious to ‘teach them a lesson’ … A powerful bloc is likely to be formed between big business and the rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all of these forces, and in particular of big business, would most probably induce the government to return to the orthodox policy.”

    Kalecki predicted the historic shift in economic policy that would occur decades later, led by thinkers like Milton Friedman and Edmund Phelps.

    They postulated the idea of a ‘natural rate’ of unemployment. In their view, unemployment is essentially voluntary: Some people choose not to work at the market-clearing wage, supported unwittingly by minimum wages and social welfare policies that subsidise unemployment and discourage job searches.

    Friedman and Phelps urged government to focus on controlling inflation, rather than fruitlessly trying to reduce unemployment below this ‘natural’ rate.

    In modern guise, the theory has a less pejorative moniker: The Non-Accelerating Inflation Rate of Unemployment (NAIRU). But it postulates the same idea, namely that unemployment must be kept high enough to discipline labour and restrain labour costs.

    Central bankers rarely explicitly discuss the NAIRU anymore. This is partly to avoid offending the public with the idea that they are actively working to raise unemployment.

    It’s also because NAIRU models have been notoriously unable to pin down any precise number for this mythical benchmark, making it useless for policy purposes. In most industrial countries after the 1990s, unemployment crashed through estimated NAIRU benchmarks with no impact on inflation – casting great doubt on the very concept, let alone specific numerical estimates of it.

    Nevertheless, it is clear that NAIRU thinking still underpins the current obsession of central banks with alleged overheated labour markets as the purported source of post-COVID inflation. It also informs their single-minded focus on suppressing aggregate demand (and thus employment) to reduce that inflation.

    Even bankers say quiet bits out loud
    Occasionally, even central bankers say the quiet bits out loud.

    The Reserve Bank of Australia’s new governor Michele Bullock recently stated the unemployment rate had to rise to 4.5 per cent (from 3.5 per cent when she said it) to allow inflation to return to the bank’s 2.5 per cent target.

    If inflation is still above 2.5 per cent when the unemployment rate gets that high, this will be interpreted as evidence that the true NAIRU must be higher than thought.

    Let’s hope they don’t resuscitate previous estimates of the NAIRU, which formerly suggested unemployment had to be 7 per cent or even higher to keep workers suitably disciplined.

    We should be grateful to Gurner for his refreshing honesty, which helps illuminate the choices being made in current monetary policy.

    Workers who expect too much are a barrier to his efforts to accumulate more wealth. He wants adequate discipline restored, and engineering higher unemployment is exactly the way to do that. And apparently, central bankers agree.

    The post Millionaire Tim Gurner’s Refreshing Honesty Reveals the Soul of Business appeared first on The Australia Institute's Centre for Future Work.

  • The Case for Investing in Public Schools

    Public schools play a critical role in ensuring access to educational opportunity for Australians from all economic and geographical communities.

    Public schools are accessible to everyone. They provide a vital ‘public good’ service in ensuring universal access to the education that is essential for a healthy economy and society.

    However, inadequate funding for public schools – measured by persistent failure to meet minimum resource standards established through the Schooling Resource Standard (SRS) – is preventing students in public schools from fulfilling their potential. Growing evidence (including the latest NAPLAN testing results) attests to declining student completion and achievement in Australia, with major and lasting consequences for students, their families and communities, and the economy.

    In this new report, Centre for Future Work researchers Eliza Littleton, Fiona Macdonald, and Jim Stanford document the large economic and social benefits of stronger funding for public schools. The report measures three broad channels of benefits:

    1. The immediate economic footprint of public schools, including direct and indirect jobs in schools, the education supply chain, and downstream consumer industries.
    2. The labour market and productivity gains resulting from a more educated workforce.
    3. Social and fiscal benefits arising from the fact that school graduates tend to be healthier, require less support from public income programs, and are less likely to be engaged with the criminal justice system.

    Citing international and Australian evidence regarding the scale of these three channels of benefit, the report estimates that funding public schools consistent with the SRS would ultimately generate ongoing economic and fiscal benefits two to four times larger than the incremental cost of additional funding. For governments, the fiscal payback from those benefits (via both enhanced revenues and fiscal savings on health, welfare, and criminal justice expenses) would exceed the upfront investments required in meeting the SRS.

    Please see the full report, The Case for Investing in Public Schools: The Economic and Social Benefits of Public Schooling in Australia, by Eliza Littleton, Fiona Macdonald, and Jim Stanford.

    The post The Case for Investing in Public Schools appeared first on The Australia Institute's Centre for Future Work.

  • Manufacturing the Energy Revolution

    That is the finding of a major new report from the Centre for Future Work. The report catalogues new incentives for production of batteries, electric vehicles, renewable energy generation and transmission equipment, and other renewable energy products provided under the Biden Administration’s Inflation Reduction Act and parallel public programs.

    Many other industrial countries, including the EU, China, Japan, Korea, and Canada have already implemented major new incentives to support the expansion of the manufactured products and technologies that will be required for those systems.

    Australia is considering its response, but with no clear announced strategy yet.

    The report provides evidence that the U.S. incentives and content requirements are sparking an unprecedented expansion in manufacturing investment in the U.S. and other industrial countries.

    This response confirms that active climate industrial policies are having an outsized effect on the volume and location of sustainable manufacturing investment. It also confirms that Australia must move quickly to respond to this new industrial landscape, or risk losing its chance to leverage our renewable energy resources into lasting, diversified industrial growth.

    The report notes that Australia has many advantages in the global race for sustainable manufacturing – including an unmatched endowment of renewable energy sources and ample deposits of critical minerals. However, the painful legacy of decades of policy neglect for domestic manufacturing has left Australia’s industrial base in poor shape to seize the opportunities being opened up by the global energy transition.

    The report estimates the proportional fiscal effort that would be required to match the American IRA in the Australian context. The government would need to commit $83 to $138 billion over 10 years in fiscal supports and incentives to match U.S. benchmarks.

    The report also catalogues several qualitative best practices that should be incorporated in the Australian response to the IRA, to generate maximum economic, social and environmental impact: including strong labour and environmental standards attached to subsidized projects, public equity participation, and parallel investments in training for workers to fill the new jobs.

    The paper was released at the 4th National Manufacturing Summit, being held at Old Parliament House in Canberra from 830am to 430 pm on Thursday, August 3, co-sponsored by Weld Australia, the Centre for Future Work, and several industry bodies.

    The post Manufacturing the Energy Revolution appeared first on The Australia Institute's Centre for Future Work.

  • Public Attitudes on Issues in Higher Education

    This report, by Senior Economist Eliza Littleton, combines data from the Department of Education, the OECD, and original survey data from a national poll conducted by the Centre for Future Work to draw attention to key challenges facing public universities today. The Federal Government’s new ‘Universities Accord’ creates an important opportunity to address these challenges and put higher education back on a better path.

    The post Public Attitudes on Issues in Higher Education appeared first on The Australia Institute's Centre for Future Work.

  • Blame Game on Inflation has Only Just Begun

    That’s because inflation never affects all prices and incomes evenly. Some prices shoot up, while others grow slowly or decline. Some incomes keep pace with rising prices (or even outpace them), while others lag far behind. Thus the impacts of inflation are always uneven. And this sparks economic and political controversy.

    This distributional conflict is readily visible in current Australian inflation. As prices took off after the lockdowns, corporate profits surged dramatically, reaching their highest share of GDP ever by 2022.

    Meanwhile, wages – which were historically weak even before the pandemic – lagged far behind. In the last two years, consumer prices rose 12.5% (and more for essentials, like food and energy). Average wages grew less than half as much – barely 6% – in the same time.

    That means the purchasing power of workers’ wages is falling. It’s the biggest and fastest real wage cut in postwar history – and record profits from those higher prices are the corollary of workers’ falling real incomes.

    Despite the fact that wages have lagged, not led, recent inflation, the powers-that-be are still targeting workers to bear the brunt of the anti-inflation effort. The Reserve Bank is now using high interest rates to cool off employment and slow wage growth.

    This inflation has produced clear winners, and clear losers. So it’s a myth to proclaim that inflation “hurts all Australians,” pretending we can all join together in a shared national effort to wrestle prices to the ground.

    Our Centre for Future Work published research showing just how lopsided the impacts of inflation have been in Australia. We analysed official national accounts data from the ABS, including income flows, output data, and changes in average economy-wide prices.

    From end-2019 (just before the pandemic) to September 2022 (latest data at the time), higher corporate unit profits accounted for 69% of excess inflation (over and above the RBA’s 2.5% target). Unit labour costs accounted for just 18%, and other stakeholders (including small business) the remainder.

    This confirmed that workers are the victims of inflation, not its cause, and raised big questions about the RBA’s determination to target wages (not profits) for tough anti-inflation medicine. Our findings sparked widespread interest and anger. So business peak bodies, and business-friendly commentators, have launched a steady stream of attacks against our report since its release in February.

    RBA and Treasury officials also disagree with our conclusions. They have not challenged our actual numbers: indeed, internal RBA memos replicated and confirmed our finding that wider corporate profit margins account for the lion’s share of higher prices since 2019.

    But despite this evidence, these officials deny soaring corporate profits are a concern in the anti-inflation battle. Profits grew most dramatically in the energy and mining industries, they say. This is certainly true – due in part to sky-high prices paid by Australians for petrol, gas, and other resource-intensive products. So we can’t magically exclude this super-profitable sector from our analysis of inflation, nor our plan for tackling it.

    They also claim profits outside of mining have not increased. This is false: non-mining profits have been less spectacular than resources, but profit margins have widened significantly, reinforcing inflation. Consumers are reminded of this every time they visit a supermarket, book an airline ticket, or try to rent an apartment.

    In sum, these arguments cannot deny that business has profited mightily from the current inflation – especially, but not solely, in energy and mining – while workers have suffered.

    A flip side of this class conflict over inflation was starkly visible last week, when the Fair Work Commission announced a 5.75% increase in Award wages. That doesn’t quite keep up with inflation, but it sure helps.

    Within minutes, the same corporate lobbyists so offended by our research, lined up to denounce the wage increase as inflationary. They want Australia’s lowest-paid workers, whose living standards have already declined, to sacrifice further. Little wonder business peak bodies hate ay public attention on their own record profits.

    The blame game over inflation will get more heated in the months ahead. Inflation is likely to ease, as many of the unique post-pandemic factors (supply chains, energy price shock, pent-up demand) that underpinned firms’ price increases gradually abate. But real wages have fallen – and workers, understandably, want to repair that damage.

    So workers will demand wage gains in excess of inflation. And by all rights, they deserve that. That need not cause further inflation, especially if record high profit margins come back to earth.

    Corporations, however, want to sustain their record profits as long as possible. They want to keep wages down, and the RBA seems determined to help. So buckle up: the great Aussie debate over inflation is just getting started.

    Jim Stanford is Economist and Director of the Centre for Future Work at the Australia Institute, and the author of Profit-Price Spiral: The Truth About Australia’s Inflation.

    The post Blame Game on Inflation has Only Just Begun appeared first on The Australia Institute's Centre for Future Work.