My Blog

Blog

  • Open Letter From Economists and Policy Experts: Wage Subsidy to Protect Jobs During Pandemic

    The letter and the full list of signatories is reprinted below. It has been forwarded to Prime Minister Morrison.

    Public Statement from Economists and Public Policy Experts:

    A Wage Subsidy to Protect Jobs During the Coronavirus Shutdown

    The unprecedented public health measures required to deal with the COVID-19 pandemic are causing a dramatic shutdown of work and production in several key sectors of Australia’s economy. Immediate full or partial closures of activity are occurring in several consumer-facing industries (such as hospitality, retail, airlines, recreation and personal services). But before long, spillover losses will be experienced in other sectors, too: including wholesale trade and logistics, manufacturing, business services, education, and others. Consumer and business confidence has been deeply shocked, and that will magnify the negative economic effects of the pandemic.

    The coming recession will be unprecedented in Australian history – in both its speed and its depth. Without immediate action, we expect that 1-2 million workers, or even more, could lose their jobs in coming weeks. That would drive unemployment to 15% or higher, overwhelm income support programs, and leave hundreds of thousands of businesses unable to function – even after the immediate health danger passes.

    This is a dangerous and dramatic moment in Australia’s economic history. It is imperative that the federal and state governments act immediately and powerfully to protect Australian workers and businesses from the worst of the coming downturn. Important steps have been taken to expand access and benefit levels for income support payments to Australian workers (including casuals, contractors, and gig workers) losing work because of the pandemic. This is a helpful, but on its own inadequate, response. Government must also act forcefully to prevent mass job losses in coming weeks – not just provide support to those who do lose work.

    In this regard, we recommend that the Commonwealth government immediately implement a large-scale wage subsidy scheme, similar to those already enacted in several other industrial countries (including, variously, the UK, Denmark, New Zealand, the Netherlands, South Korea, and Ireland). Under these programs, government directly pays to employers (for a limited period of time) a majority portion of wages (between 70 and 90%) to cover the wages of workers who would otherwise be stood down from their positions. The measure can apply to non-standard workers (including contractors and self-employed). It can also be integrated with measures to support short time working as an alternative to complete redundancy. The wage subsidy is paid to firms experiencing severe losses of revenue and business (beyond a specified threshold). It would cover most of the wage bills for workers who can no longer work for economic reasons, up to a specified ceiling (perhaps the level of full-time median earnings). This program will be expensive – but governments everywhere have recognised that this unprecedented crisis requires them to do everything in their power to protect people, jobs, communities and the economy.

    To date, Australia’s response to the pandemic has been uncertain, inconsistent and inadequate. Immediate, powerful action to keep millions of Australians in their jobs, instead of pushing them into an overloaded and complex Centrelink system, would significantly ease the pandemic’s painful economic effects. It would underpin financial stability for millions of households through the coming terrible weeks or months. And it would preserve the viability of hundreds of thousands of Australian businesses, allowing them to resume work and production as soon as the health restrictions are eased.

    We the undersigned support the proposal for a strong wage subsidy program to keep workers in employment through the coming downturn, and we urge the Commonwealth government to implement such a policy quickly.

    Download full list of signatories below.

    The post Open Letter From Economists and Policy Experts: Wage Subsidy to Protect Jobs During Pandemic appeared first on The Australia Institute's Centre for Future Work.

  • Responding to the Economic Emergency

    That’s the core message of new analysis by Centre for Future Work Director Dr. Jim Stanford, published today by the Australian journal New Matilda.

    Stanford’s article outlines the immediate economic measures needed to both confront the health emergency and prevent households and firms from collapsing:

    • Immediate mobilization of resources to protect health: including more staff at health facilities, quick deployment of off-site and mobile testing capacities, home support for people quarantined or recovering, and quick expansion of equipment and facilities where possible.
    • Income protection for workers: including for casuals, self-employed, gig-workers, and many part-timers who don’t have effective access to sick pay. Incomes must be protected for all workers (regardless of employment status), through mandated special payments (as proposed by the ACTU).
    • Other direct income supplements: similar to the one-time payments distributed in 2009, as well as more targeted aid (like higher Newstart).
    • Debt relief and business assistance: emergency financing will be needed to keep firms viable in many industries (including airlines, other transportation, tourism, and hospitality). Other parts of society also need protection from creditors; foreclosures and evictions should be prohibited, and other personal and credit card debts deferred.

    But Stanford also discusses the longer-run challenge that will face the Australian economy: the pandemic is imposing a shock that is far too powerful and all-encompassing for private market players to autonomously recover from. The economy will need unprecedented and lasting investments by government to repair and expand public infrastructure and services, and directly put Australians back to work:

    “There is enormous need for urgent rebuilding required in our economy and our communities. Repairing and strengthening health care infrastructure comes first, but other priorities, too, are urgent: like sustainable transit, green energy, non-market housing, aged care and early child education. The case for mobilising resources under the leadership of governments and public institutions, and employing millions of Australians to do that work, is compelling. We can repair the damage of this crisis (and better prepare for the next one), deliver valuable services, and create millions of jobs. All we need is the willingness to imagine a different model of organizing and leading economic activity.”

    Please read the full article, We Need Wage Guarantees And Radical Restructure, Not More ‘Stimulus’, published by New Matilda.

    The post Responding to the Economic Emergency appeared first on The Australia Institute's Centre for Future Work.

  • Gender Inequality in Australia’s Labour Market: A Factbook

    The factbook compiles evidence on over 60 different statistical indicators of gender inequality in Australia, organised into 18 different subject groupings. It paints a composite picture of how women are blocked from full participation in work and economic activity, experience greater precarity in employment, are paid less for their efforts, and experience other forms of exploitation (including violence and sexual assault in workplaces).

    Some of its more startling findings include:

    • The true wage gap between women and men is much larger than often reported. The commonly-cited gender wage gap of 14% only applies to women working in full-time positions, and excludes bonuses and overtime payments. However, women have less access to full-time jobs, and receive far less bonus and supplementary income than men. The gender gap in total wage income is 32% – more than twice as wide.
    • Women are much more subject to precarious and insecure work arrangements than men. They are far more likely to be employed in part-time, casual, and temporary positions than men. Only 43% of employed Australian women work in a traditional full-time permanent job with normal entitlements (such as paid sick leave, holidays, and superannuation). The rest all experience one or more dimensions of precarity in their jobs. That compares to 57% of men in permanent full-time jobs with entitlements.
    • Women who undertake self-employment are especially vulnerable. The report shows that 47% of self-employed women are in vulnerable business positions: working part-time, and working either without incorporation or without any other employees (or both). That compares to 19.% of self-employed men.
    • Women are now more likely to be members of a union than men, and make up more than half of union members. Women who are in a union earn 29% more per week than women who are not in a union. For part-time workers, the union advantage is even bigger: women union members earn 44% more than non-members

    “The statistical evidence is overwhelming that women are a long way from achieving equality in Australia’s workplaces,” said Alison Pennington, Senior Economist at the Centre for Future Work and co-author of the factbook.

    “These systemic and structural barriers to full participation and fair compensation are holding Australian women back and our economy is weaker for it.

    “Australian women need to be able to work and earn to their full potential. This requires powerful measures to support women workers in all aspects of their lives; from quality affordable childcare to much stronger protections against violence and sexual harassment.”

    The post Gender Inequality in Australia’s Labour Market: A Factbook appeared first on The Australia Institute's Centre for Future Work.

  • Financialisation and the Productivity Slowdown

    Financialisation and the Productivity Conundrum

    by Anis Chowdhury

    There has been much angst at the slower or stagnant productivity growth experienced recently in Australia. Ross Gittins, the Sydney Morning Herald’s much respected Economics Editor, summarised some of the discussions reflecting on the causes and remedies of the productivity problem in his recent piece, ‘Productivity problem? Start at the bottom, not the top’ (SMH, 2 March 2020).

    The phenomenon of slow productivity growth is neither unique to Australia nor recent. It has been observed globally over the past few decades, especially in the developed world, as highlighted in recent reports on global economic health (e.g. United Nations, World Economic Situation and Prospects 2020, and the World Bank’s Global Economic Prospects 2020). The trend accelerated since the global financial crisis (GFC) of 2008-2009, as emphasised by Maurice Obstfeld, IMF’s former Chief Economist, at the joint BIS-IMF-OECD conference on weak productivity (10 January 2018).

    The UN report notes that “as firms around the globe have become more reluctant to invest, productivity growth has continued to decelerate.” It attributes much of the slowdown to significantly lower contributions from capital deepening (investment in machinery, technology, etc.). Subdued productivity growth is also proposed as one of the reasons for slow growth of real wages and falling share of labour income in GDP, contributing to rising inequality – although even more rapid productivity growth is no guarantee, of course, of rising wages or greater equality.

    The World Bank report observes that to rekindle productivity growth, a comprehensive approach is necessary for “facilitating investment in physical, intangible, and human capital; encouraging reallocation of resources towards more productive sectors; fostering firm capabilities to reinvigorate technology adoption and innovation; and promoting a growth-friendly macroeconomic and institutional environment.”

    While similar observations can also be found in the OECD and IMF reports, none offer explanations as to why this is happening, that reach beyond orthodox excuses – like uncertainty due to Brexit and US-China trade tensions. The Bank of International Settlements (BIS), OECD and IMF also included such factors as unconventional monetary policy (very low or negative real interest rates) and financial frictions (e.g. firm-level financial fragilities and tightening credit conditions) as possible causes of weak investment and the productivity slowdown since the GFC.

    Financialisation

    However, one can trace the deeper cause of the long-term declining trend in productivity growth since the 1970s to financialisation: that is, the dominance of finance over the real economy. This is visible globally in the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies.

    Beginning with the collapse of the Bretton Woods system in August 1971, when President Nixon unilaterally withdrew US commitment to gold convertibility of currencies, the process of financialisation gathered pace in the 1980s. This coincided with the neoliberal counter revolution against Keynesian economics, and the coming to power of Margaret Thatcher in the UK and Ronald Reagan in the US. All this ushered in an era of multinational corporation-led globalisation. In turn, this led to rapid growth of international trade, foreign direct investment and capital flows – all mutually reinforcing – and the consolidation of finance’s domination over the real economy.

    Several features of this era of financialisation have direct implications for productivity. They include:

    • Rapid expansion of financial markets, and the proliferation of financial institutions, instruments and services with the de-regulation and liberalisation of the financial system, blurring the distinction between speculative and patient investors;
    • The banking sector becoming more concentrated, less regionalised and more internationalised with the decline of mutual, co-operative and State ownership of banks and financial institutions;
    • Financial intermediation shifting from banks and other institutions to financial markets, thus the axiomatic ‘invisible hand’ of supposedly anonymous, self-regulating financial markets replacing the ‘visible hand’ of relationship banking;
    • Nonfinancial corporations increasingly deriving profitability from their financial as opposed to their productive activities;
    • Financial institutions increasingly becoming owners of equity, and real decision-making power shifting from corporate boardrooms to global financial markets pursuing shareholder value;
    • Managerial remuneration packages increasingly becoming linked to short-term profitability and share price performance rather than to longer-term growth prospects.

    These features, by and large, have adversely affected levels of real capital investment and innovation, due to the inexorable pressure of financial interests for the pursuit of short-term profits and dividends. Shareholders (most of whom are financial institutions) demand from corporations a bigger, faster distribution of profits. The lower retention of profits ratio, and share buybacks to boost share price together imply reduced internal finance for real investment, R&D, and technology upgrading.

    Corporate managers act in the interests of the financial sector as they too profit personally from increasing stock market valuations – often linked to reduction of employment. This has meant chronic job insecurity and underinvestment in on-the-job training. Increased insecurity also discourages workers to invest in their own skill upgrading.

    Thus, the overall effect of financialisation on investment, technology adoption, skill upgrading has been negative, with adverse consequences for productivity and decent jobs.

    Misallocation

    An overgrown financial system also costs the economy on a daily basis by attracting too many talented workers to ultimately unproductive careers in the financial sector. Talented students are disproportionately attracted to finance courses in preference to liberal arts or social sciences; moreover, bright engineering and science graduates are increasingly engaged in the financial sector, where they can earn many times more. Research at BIS shows that when skilled labour works in finance, the financial sector grows more quickly at the expense of the real economy – disproportionately harming R&D intensive industries.

    In his Fred Hirsch Memorial Lecture (15 May 1984), Nobel Laureate James Tobin doubted the value of “throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to the social productivity.”

    Rent seeking

    Luigi Zingales titled his 2015 presidential address to the American Finance Association, ‘Does finance benefit society?’. While acknowledging the need for a sophisticated financial sector, he doubted whether the growth of the financial sector in the last forty years has

    been beneficial to society. He argued on the basis of both theory and empirical evidence that a large component of that growth has been pure rent seeking.

    According to Gerry Epstein and Juan Antonio Montecino, the US financial sector captured rents “through a variety of mechanisms including anticompetitive practices, the marketing of excessively complex and risky products, government subsidies such as financial bailouts, and even fraudulent activities… By overcharging for products and services, financial firms grab a bigger slice of the economic pie at the expense of their customers and taxpayers.”

    Robert Jenkins listed more ‘misdeeds’ of UK banks. These range from mis-selling (e.g. of payment protection insurance, interest rate swaps), manipulation of markets (e.g. precious metals markets, US Treasury Market auction/client sales, energy markets), aiding and abetting tax evasion and money laundering for violent drug cartels, collusion with Greek authorities to mislead EU policy makers on meeting Euro criteria, and more.

    All this sounds too familiar to us in Australia after the Hayne Royal Commission into misconduct in the financial services industry.

    A drag on the real sector

    The power of finance has become a drag on the development of the real sector in a number of ways.

    First, the manner in which the financial sector has grown has not been conducive for

    real investment and savings. Finance has failed to act as an intermediary between savers and investors, and to allocate and monitor funds for real investment.

    Second, the growth of financial markets and speculation have diverted resources into

    what are essentially zero-sum games.

    Third, the rush to financial liberalisation and the failures of the regulatory systems produced more frequent financial crises, with increasing depth and width. An over-abundance of (cash) finance is used primarily to fund a proliferation of short-term, high-risk investments in newly developed financial instruments, such as derivatives — Warren Buffett’s ‘financial weapons of mass destruction’ that blew up the global financial system in 2007–08.

    Thus, real capital formation which increases overall economic output has slowed down, as profit owners, looking for the highest returns in the shortest possible time, reallocate their investments to more profitable financial markets.

    With financial speculators now panicking in the face of the spread of the COVID-19 virus, in the context of inflated and debt-heavy financial valuations, we could be poised for another chapter in this repeating saga.

    Way out

    No amount of corporate tax cuts or suppression of labour rights in the name of structural reform will solve the productivity conundrum. What is really required is the taming of finance.

    Finance can positively contribute to economic progress, but only when the ‘ephor’ is ‘governed’ and ‘directed’ by State regulation to structure accumulation and distribution into socially useful directions.

    The earlier era of financialisation during the late 19th century and early 20th century ended with the Great Depression. John Maynard Keynes wrote in ‘The Grand Slump of 1930’, “there cannot be a real recovery . . . until the ideas of lenders and the ideas of productive borrowers are brought together again . . . .”. He thought, “seldom in modern history has the gap between the two been so wide and so difficult to bridge.”

    Fortunately, the policymakers listened to Keynes and regulated finance to serve the real economy. This produced nearly three decades of the ‘golden age’ of capitalism, ending in the 1970s.

    But the gap between finance and the real economy is now even wider and more difficult to bridge. It will require a lot of political will and courage to confront the very powerful finance capital which has changed the rules of the game to facilitate rent-seeking practices of a self-serving global elite.

    Dr. Anis Chowdhury is an Adjunct Professor at Western Sydney University (School of Social Sciences) and the University of New South Wales (School of Business, ADFA), and an Associate of the Centre for Future Work.

    The post Financialisation and the Productivity Slowdown appeared first on The Australia Institute's Centre for Future Work.

  • Meet the New Boss, Same as the Old Boss

    Stanford highlights seven ways in which the nature of work and employment is demonstrating a fundamental continuity, despite changes in technology and work organisation: ranging from the predominance of wage labour in the economy, to employers’ continuing interest in extracting maximum labour effort for the least possible labour cost.

    “I have started to conclude there is more constancy than change in the world of work. In particular, the central power relationships that shape employment in a capitalist economy are not fundamentally changing: to the contrary, they are being reinforced… As a result, I suspect the future of work will look a lot like its past, at least as it has existed over the past two centuries. Where work is concerned, it is truly a case of ‘back to the future.’”

    Stanford rejects the common assumption that changes in employment relationships (such as the rise of “gig” jobs, and other forms of precarious work) are driven primarily by technology–stressing instead the importance of discrete choices within enterprises and society as a whole about what kinds of technology are developed, and how they are implemented. Improvements in work are certainly possible, but only when workers are able to exert active, organised pressure on employers and governments.

    Please read Stanford’s full commentary, Meet the New Boss, Same as the Old Boss (‘Who’ soundtrack optional!).

    The post Meet the New Boss, Same as the Old Boss appeared first on The Australia Institute's Centre for Future Work.

  • Seminar Presentation: Superannuation & Wages in Australia

    Watch a summary version of his talk below.

    The full paper is posted at: The Relationship Between Superannuation Contributions and Wages in Australia.

    The post Seminar Presentation: Superannuation & Wages in Australia appeared first on The Australia Institute's Centre for Future Work.

  • Excessive Hours and Unpaid Overtime: 2019 Update (GHOTD)

    New research from The Australia Institute’s Centre for Future Work estimates that Australian workers are currently working an average of 4.6 hours of unpaid overtime each week, which translates to 6 weeks of full time work without pay, per employee, per year – with an annual worth of $81.5 billion for Australian employers.

    The post Excessive Hours and Unpaid Overtime: 2019 Update appeared first on The Australia Institute's Centre for Future Work.

  • Go Home on Time Day 2019: Australian Employers Pocketing $81 Billion Worth of Unpaid Overtime

    The Centre’s 11th annual ‘Go Home on Time Day’ report also reveals the growing polarisation of working hours, between Australians who have too much work and others who can’t get enough. While 21 percent of Australians in full-time employment are working more than they want to, 48 percent of part-time workers and 64 percent of casual workers want to work more hours.

    “There is an epidemic of time theft in Australia right now and it is costing workers tens of billions of dollars, each and every year,” said Bill Browne, researcher at The Australia Institute and author of the report.

    Each November, the Centre urges Australians to appreciate the value of their legitimate time off by leaving their jobs at the end of their paid workday.

    “Today is the day we ask all Australian workers to go home on time. We need to put limits on our work – and push back against the increasingly common expectation among employers that we should stay late for free.

    “Our research has shown that employees are regularly staying late, coming in early, working through their lunch or other breaks, taking work home on evenings and weekends or being contacted to perform work out of hours.

    “Most Australians wouldn’t dream of working for 6 weeks without pay, but that is happening every single year in the average Australian job.

    The Centre’s 2019 ‘Go Home on Time Day’ survey indicated that even part-time and casual workers, most of whom want more paid hours of work each week, are still being asked to work unpaid overtime.

    “At the same time as many Australian workers report they would prefer more hours of paid work, unpaid overtime is an all too frequent occurrence,” Browne said.

    “In an era of wage stagnation, underemployment, insecure work and significant cost of living pressures, Australian workers cannot afford to give their time away to employers for free.

    “To end the epidemic of time theft, regulators must enforce existing rules regarding maximum hours of work on a more consistent basis, and provide workers with more choice to refuse overtime and work shorter hours. Workers, either individually or through their unions, must also demand that employers respect their right to leisure time – for their own benefit, and for the good of Australian society.”

    The post ‘Go Home on Time Day’ 2019: Australian Employers Pocketing $81 Billion Worth of Unpaid Overtime, Report Reveals appeared first on The Australia Institute's Centre for Future Work.

  • The Relationship Between Superannuation Contributions and Wages

    The research refutes claims made by some commentators and lobbyists that higher superannuation contributions would automatically lead to lower wages, and hence would be self-defeating. The new research finds no statistical evidence for that claim in Australian empirical data.

    The paper reviews economic statistics from the introduction of superannuation to the present. On average, wages were more likely to accelerate and grow at a faster rate when the superannuation guarantee (SG) rate was increased, than to decelerate or grow more slowly. This indicates a slight positive correlation between wages growth and changes in employers’ minimum SG rate.

    The paper also reviews theoretical predictions and empirical findings from previously published economic research. Even under very restrictive and unrealistic assumptions about competitive market-clearing behaviour in labour markets, the expectation of a fully offsetting one-for-one trade off between wages and SG contributions only occurs in the special cases of perfectly inelastic labour supply, or perfect substitutability between voluntary and policy-induced personal savings. Neither of those conditions prevail in practice. More realistic economic models (that allow for responsiveness in labour supply, minimum wages, and other real-world features) do not anticipate a full trade-off – and many expect no trade-off at all.

    The paper concludes that current record-low wage growth in Australia cannot be “fixed” by abandoning scheduled increases in the SG rate (which is currently legislated to grow from 9.5% of wages to 12% over a five-year period, beginning 1 July 2021). Abandoning those increases would only further suppress the total compensation received by workers, which has been falling steadily as a share of GDP for decades. Instead, weak wage growth should be tackled with direct wage-boosting policies; the determination of wages and superannuation contributions are largely independent policy decisions.

    The post The Relationship Between Superannuation Contributions and Wages in Australia appeared first on The Australia Institute's Centre for Future Work.

  • Chronic Unemployment a Consequence of Deliberate Economic Policies

    New research from the Centre for Future Work shows that there is no statistical evidence for the long-held assumption that if unemployment falls below its so-called “natural” or non-accelerating inflation rate (the NAIRU)—currently thought to be around 5% unemployment—that inflation and wages will grow uncontrollably. The report concludes that Australia’s controversial NAIRU concept and it’s use in economic policy should be abandoned.

    Key Findings:

    • Australian macroeconomic policy maintains elevated unemployment in order to restrain wage growth and inflation, this is known as the non-accelerating inflation rate of unemployment (NAIRU).
    • There are around 3 million Australians who would like to work, or more work, but can’t: that’s more than four times higher than the official unemployment estimate.
    • The economic benefits of reducing unemployment are enormous. Every one-percentage point reduction in unemployment results in 134,000 new jobs, $10 billion in additional output, and billions of dollars in revenue for governments.
    • Monetary and fiscal policy should aim to steadily reduce unemployment to as low as possible, rather than targeting a certain minimum unemployment rate.

    “In Australia, we blame the unemployed for their supposed lack of skills and motivation but at the same time, use macroeconomic policy to stop unemployment getting ‘too low’ – it’s an enormous contradiction,” says David Richardson, senior research fellow at The Australia Institute.

    “Record-low wages growth, and Australia’s generally sluggish economic performance, make the need for a change in policy direction all the more urgent.

    “It is time for a fundamental rethink of Australian macroeconomic policy, which should instead be focused on restoring genuine full employment as the top priority.

    “Since chronic unemployment is the outcome of deliberate policy, the least society can do is fairly compensate those who have been hurt by this policy – raising Newstart would be a start.”

    The post Chronic Unemployment a Consequence of Deliberate Economic Policies appeared first on The Australia Institute's Centre for Future Work.