My Blog

Category: Research Reports

  • 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.

  • 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.

  • Unacceptable Risks: Gig Models of Care and Support Work

    New research reveals the unacceptable risks of digital labour platforms and the expansion of gig work in low-paid feminised care and support workforces. Risks are to frontline care and support workers, people receiving care and support and to workforce sustainability.

    The report calls for comprehensive industrial reforms to address gig work as part of broader workforce strategies for the NDIS and aged care sectors.

    The research finds that care and support ‘gig’ workers, treated as independent contractors, are in highly insecure work without minimum standards and effective rights to collective bargaining.

    • Many essential frontline care and support workers earn below award-level pay.
    • Work and incomes are insecure: work is on-demand, working time is fragmented, pay can be unpredictable.
    • Workers must cover their own superannuation, leave and workers’ compensation.
    • Gig work in the feminised workforces poses a serious threat to better recognition and equal pay.
    • Better jobs and careers for frontline workers are vital to closing the gender pay gap.

    Four in every 5 of the 240,000 aged care and disability support workers are women.

    • Care and support workers on platforms are younger, less experienced and more likely to be migrant workers.
    • Platform workers lack access to support, training and progression opportunities.
    • Gig workers lack employment benefits and entitlements, including leave and superannuation.

    Flexibility of work is only possible with short hours work and comes at the expense of decent pay and working conditions. Workers cannot earn a living wage.

    • Risks to workers are also risks to vulnerable people with disability and the elderly.
    • Care and support platform workers are isolated and largely invisible, working in private homes without organisational supervision, support, guidance or training.
    • Workers bear risks and responsibilities for care and support quality and client safety, including for highly vulnerable people.
    • Care labour platforms compete unfairly with other NDIS and aged care providers.
    • Unfair competition poses a significant threat to the sustainability of Australia’s long-term care systems.

    Platforms compete by avoiding the costs and risks of business fluctuations, of employing workers and of accountability for care and support quality and safety. Costs and risks are devolved to low-paid and insecure frontline workers. Platforms profit from retaining public funding that is intended to employ and pay essential workers fairly and to provide them with supervision and support.

    The post Unacceptable Risks appeared first on The Australia Institute's Centre for Future Work.

  • Commonwealth Budget 2023-24: Significant Progress

    This briefing reviews the main features of the budget from the perspective of workers and labour markets. Some of its measures are very positive, such as fiscal support for higher wages for aged care workers, increased JobKeeper benefits, and enhanced Commonwealth Rent Assistance.

    Contrary to concerns that a big-spending budget would exacerbate inflation, this budget will have little impact on overall aggregate demand. In fact, it will pro-actively reduce inflation through its new $500 energy relief plan. Contrary to conservative economists who claim this budget will fuel inflation, in reality the forecasts confirm historically slow growth in public demand in both 2022-23 and 2023-24.

    Despite these positive measures, the budget also contains disappointing aspects. Most importantly, the Stage 3 tax cuts remain on schedule. And while they are only set to begin in 2024-25, they hang over these budget figures like a dark spectre.

    The budget papers also confirm the economy is far from buoyant. The next 18 months are expected to see economic growth well-below average. Households are reacting to three years of falling real wages, and eleven painful increases in interest rates, by severely constraining consumer spending. Slowing job creation and declining real wages are taking their toll on overall economic growth, highlighting again that the key to a strong economy is strong employment and wage growth.

    Please read our research team’s full review of this historic budget.

    The post Commonwealth Budget 2023-24 appeared first on The Australia Institute's Centre for Future Work.

  • RBA Review a Missed Opportunity

    The report represents the most important reconsideration of monetary policy in Australia since the advent of inflation targeting three decades ago. But the “new look” RBA after this review may even do more harm to the economy than in the past. This is because the independent review panel missed the opportunity to question the deeper myths and assumptions regarding the central bank’s infallibility and their ideological bias.

    In this report, Centre for Future Work Associate Dr Anis Chowdhury catalogues the assumptions and failures of conventional inflation targeting policy, and the misleading nature of so-called ‘independent’ central banks. He argues the review panel missed an historic opportunity to reconsider those assumptions, and help craft a more balanced and democratic macroeconomic policy framework.

    The post RBA Review a Missed Opportunity appeared first on The Australia Institute's Centre for Future Work.

  • Inclusive and Sustainable Employment for Disadvantaged Jobseekers (VIC)

    Employment policy and employment assistance for jobseekers focus on individuals’ skills and job readiness, and on job placement. Less attention is given to ensuring placements are into sustainable employment in inclusive workplaces. That is, placement into jobs that people can keep, that support wellbeing and provide opportunity for long-term employment pathways, and in workplaces where people feel safe and are able to participate. Recruiting and placing people experiencing labour market disadvantage into jobs may not lead to positive outcomes if people are not able to retain jobs and benefit from their employment.

    Employment can provide people with benefits that improve wellbeing in various ways, including through increasing income, providing routine and increasing social contact. However, where job quality, pay or working conditions are poor, employment can also have cumulative negative effects. Placing people experiencing disadvantage in jobs in which they are insecure, underemployed, or cannot establish daily routines; or placing them in workplaces in which they experience poor or discriminatory treatment and disempowerment, are not likely to produce sustainable employment outcomes or create social value.

    This report calls for a greater focus on workplace and job-related factors, including employer knowledge, employment practices, work organisation, job quality and employment arrangements, to addressing barriers to employment for disadvantaged jobseekers. Emphasis on employment placement alone is not likely to produce sustainable employment outcomes. Action is required to tackle barriers present in workplaces and in employment arrangements.

    This report was commissioned by Jobsbank, a Victorian-based not-for-profit organisation that works with business and other partners to support sustainable, inclusive employment and make social procurement work. In Victoria, the Government’s Social Procurement Framework aims to improve employment outcomes for people from groups experiencing labour market disadvantage through requiring suppliers and contractors tendering for high value government contracts to employ people from these groups. The Victorian Government’s Fair Jobs Code promotes fair labour standards, secure employment and job security, equity and diversity, and cooperative workplace relationships and workers’ representation. This report recommends that employers be encouraged to develop strategies to meet these standards through collaboration with unions and community groups as one obvious way to address workplace and employment factors that create barriers to sustainable and inclusive employment for disadvantaged jobseekers.

    The post Inclusive and Sustainable Employment for Jobseekers Experiencing Disadvantage appeared first on The Australia Institute's Centre for Future Work.

  • Minimum wages and inflation (2023)

    New research from the Centre for Future Work at the Australia Institute has revealed how rises in the minimum wage have almost no impact on inflation and given the collapse in the value of the minimum wage in real terms over the past 2 years, a 7% increase is a necessary recompense for Australia’s lowest paid workers.

    Each year the Fair Work Commission conducts the Annual Wage Review (AWR) which determines the national minimum and award wages. And each year it is met with a chorus of cries from business groups, conservative politicians and commentators that Australia’s economy will surely break should the minimum wage be raised too much.

    Over the past two years however, the minimum wage has risen by less than inflation, causing a significant decline in the real purchasing power of millions of workers covered by the Modern Award system. This marks the first time in a quarter-century that the minimum wage has had a deflationary impact on the economy (that is, increased by less than the inflation rate) over successive years.

    Despite this fall, once again, submissions from business groups to this year’s AWR have called for rises below inflation, and have cited concerns about a wage-price spiral as justification for advocating a further erosion of low-paid worker’s living standards.

    But research by Greg Jericho and Jim Stanford shows that minimum wage increases over the past 25 years have had little to no impact on inflation at all. It also demonstrates that a 1% increase in the minimum wage and all Modern Award wages – even if completely passed through into higher prices – would result in a virtually undetectable 0.06% increase in economy-wide prices. So small is this that a mere 0.2% fall in profits would be enough to cancel any impact on prices at all.

    The research reveals that the call from the Australian Council of Trade Unions for a 7% increase in the national minimum wage would make up a portion (but not all) of the real wage losses, workers have experienced in the past two years. Even if fully passed on in higher prices, with no reduction in current record-high business profits, a 7% minimum wage hike would at most translate into an increase of just 0.4% in economy-wide prices.

    Alternatively, that 0.4% rise could be offset by just a 1.4% reduction in total corporate profits.

    With inflation passing its peak, there is no cause for concern that a minimum wage rise of 7% (equal to the annual rate to the March quarter) would add fuel to the inflation fire.

    This reinforces recent research by the Centre for Future Work that profit margins are presently at record highs in Australia, because companies have increased prices since the pandemic far more than their own input costs. This gives companies ample cushion to absorb the cost of higher minimum wages, with no impact on prices at all.

    In sum, the impact of minimum wage increases on average prices is thus little more than a rounding error. But for the 20% of employees who earn either the national minimum wage or wages set under Modern Awards, a strong minimum wage increase will be vital. It will ensure that the lowest paid, who have already been most hurt by inflation, are not forced to suffer more due to an inflationary upsurge that was ultimately spurred by higher profits, not wages.

    The post Minimum wages and inflation appeared first on The Australia Institute's Centre for Future Work.

  • Profits and Inflation in Mining and Non-Mining Sectors

    A previous report from the Centre showed that 69% of excess inflation (above the Reserve Bank’s 2.5% target) since end-2019 arose from higher unit corporate profit margins, while only 18% was due to labour costs. The new research provides detail on the distribution of those excess profits across different sectors in the Australian economy.

    By far the biggest profits were recorded in the mining sector, where corporate operating profits surged 89% since the onset of the pandemic. Those profits resulted from sky-high prices for fossil fuel energy (including petroleum products, gas, and coal). Thanks to those price hikes, the mining sector now captures over half of all corporate profits in the entire Australian economy.

    Less spectacular but significant increases in corporate profits are visible in several other sectors of the economy, too – not just mining. Profits swelled rapidly in wholesale trade, manufacturing, transportation, and other strategic sectors.

    In these strategic industries, businesses could exploit supply chain disruptions, consumer desperation, and oligopolistic market power to increase prices well beyond production costs.

    In other sectors (including arts & recreation, hospitality, and telecommunications) profits have been flat or falling since the pandemic.

    Early signs in 2023 that inflation (and corporate profits) had peaked, and were returning to normal, have been thrown into question by a renewed threat of profit-price inflation: the OPEC+ cartel decided earlier this month to curtail oil production to boost world prices.

    Policy-makers need to acknowledge the role of record profits in driving recent inflation – and develop alternative policy responses (such as price caps in strategic markets, excess profit taxes, and targeted fiscal support for working and low-income households) to manage current inflation in a fairer and more effective way.

    The post Profits and Inflation in Mining and Non-Mining Sectors appeared first on The Australia Institute's Centre for Future Work.