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  • Scourge Pricing: Understanding and Challenging Uber’s Business Model

    Her presentation discussed the historical, economic, and moral context for the rise of “gig-economy” businesses, such as Uber. She reviewed Uber’s business model, and the company’s recent IPO, in detail, arguing that it depends on underpayment of its drivers – who for all practical purposes are “employees,” even if current labour laws do not always explicitly recognise them as such.

    Growing competition, regulatory and legal problems, and growing resistance to the ultra-precarious and low-wage incomes offered in this type of work suggest that the future success of digital platform businesses like Uber is very much in doubt.

    Pennington also referenced findings of our previous paper estimating the net incomes of Uber-X drivers in 6 Australian cities.

    Please view Alison Pennington’s full presentation below.

    The post Scourge Pricing’: Understanding and Challenging Uber’s Business Model appeared first on The Australia Institute's Centre for Future Work.

  • Denying Wages Crisis Won’t Make It Go Away

    Even as Australian voters express great concern over stagnant wages, and strong support for policy measures to boost wages (like restoring penalty rates and lifting minimum wages), business leaders continue to claim that wages are doing just fine, thank you.

    In this commentary, Centre for Future Work director Jim Stanford challenges this attitude of denial. The empirical evidence is overwhelming, he argues, that traditional wage mechanisms have broken down in Australia – and as a result workers are not getting a healthy share of the productivity they produce.

    Denying Wages Crisis Won’t Make it Go Away

    by Jim Stanford

    As the great novelist Isaac Asimov wrote, “The easiest way to solve a problem is to deny it exists.” Business-oriented commentators have adopted that advice with gusto, during current public debates over the unprecedented weakness of Australian wages.

    Since 2013 average wages have been growing at about 2% per year. That’s the slowest sustained growth since the end of the Second World War. Wages have barely kept up with consumer prices in this time, which means that workers haven’t had a real wage increase (measured by the purchasing power of their incomes) in six years.

    Meanwhile, in contrast to the freeze in real wages, labour productivity has continued to move ahead: by around 1% per year. The traditional assumption that real wages will automatically reflect higher labour productivity was never justified. Productivity growth creates economic space for higher wages (without impinging on profit margins), but there’s never a guarantee that productivity growth will automatically trickle down to the workers who produce it. Workers need the power to demand and win those increases. Nowadays, however, there’s no visible link between wages and productivity at all.

    The grim trend in wages has sparked grassroots anger in working class families and communities across Australia. Workers have seen prices for many essentials growing, and their wages barely — if at all — keeping up. The promise of a “fair go,” and the dream of middle-class prosperity, seems further and further away. Labor leader Bill Shorten declared that the current election would be “a referendum on wages.” Given the bubbling frustration among Aussie battlers, that prediction is credible: and if it comes true, would pose a direct challenge to both the credibility of the business community, and the electoral fortunes of the current government.

    So defenders of the status quo are now invoking a healthy dose of denial. (And, no, we don’t mean the river in Africa!). They deny there is anything untoward about recent wage trends. They deny that inequality is getting worse. And they deny the role of institutional changes (like weaker labour laws and declining unions) in explaining those trends.

    In other words, there’s nothing to worry about. Nothing to see here, folks. And certainly nothing to justify changing the direction of labour policy in Australia — which for over 30 years has focused on suppressing wages, not stimulating them.

    A good example of this denial in action was provided this week by a long commentary from Michael Stutchbury, editor-in-chief of the Australian Financial Review. The article argues that the focus of union campaigners and social advocates on wage stagnation and growing inequality is unjustified, and that Australian workers have in fact been treated fairly. His specific claims include:

    • Real wages are higher than they were 15 years ago.
    • Real wages have kept pace with productivity growth, and workers have received their “fair share” of productivity gains.
    • Labour is receiving the same share of GDP as it did 60 years ago — and to the extent that the capital share of national income has grown, that has also benefited workers (who he terms “quasi-capitalists”).
    • There has been no significant increase in inequality.
    • Taking steps to restore union bargaining power and reform other labour institutions are not necessary, and wouldn’t work anyway.

    Similar claims have been advanced by other business-friendly commentators and conservative politicians — all pushing back against the ambitious demands of the #ChangeTheRules movement to strengthen wage-supporting policies and institutions (like minimum wages, penalty rates, and collective bargaining). But Stutchbury’s commentary is notable both for the scope of his claims, and for his aggressive dismissal that there’s anything wrong with Australia’s labour market at all. Let’s review the facts relating to each of his major claims in turn:

    #1 Real wages are higher than they were 15 years ago

    Yes, real wages are higher than they were 15 years ago. But they are not higher than they were 6 years ago. As explored thoroughly in the recent collection of research published by the University of Adelaide Press (The Wages Crisis in Australia), Australia’s wage trajectory changed dramatically beginning around 2013. That’s when nominal wage growth decelerated suddenly: from traditional annual increases of 3.5 to 5% per year, to an average of 2% since then. Consequently, real wages have been stagnant. Ignoring this sudden and notable change by stretching the frame of comparison further back in history does not erase the painful memory of the last several years. As the song goes, “What have you done for me lately?”

    Selective time frames cannot defuse the stark statistical reality: since the Liberal-National Coalition took office in 2013, real living standards for Australians have stagnated or (for many) declined. That’s not solely due to the government’s own wage-suppressing policies: which have included measures like capping public sector wage growth, attacking unions, and underfunding public services. But they certainly made matters worse.

    Figure 1: Real Weekly Wages, 1995–2018

    Figure 1

    Source: Author’s calculations from ABS Catalogues 6302.0 and 6401.0.

    #2 Real wages have kept pace with productivity growth

    This claim is clearly false over any meaningful time horizon. Labour productivity has been chugging along since the turn of the century, at an average rate of about 1.25%. Some years it grows faster, some years slower. Productivity growth measures tend to be especially volatile, since they are computed as the implicit ratio of other, separately collected statistics (namely, total output and total hours worked). Some years reported productivity doesn’t seem to grow at all; some years it seems to grow very quickly.

    Even before the cessation of real wage growth around 2013, real wages were consistently lagging well behind productivity growth. Since then, of course, real wages have stopped growing at all, so the gap between wages and productivity has widened. From 2000 to the present, real wages have grown half as much as real labour productivity.

    Figure 2: Labour Productivity and Real Wages, 2000–2018

    Figure 2

    <>Source: Author’s calculations from ABS Catalogues 5206.0, 6345.0, and 6401.0.

    Stutchbury, like some other analysts, makes much of the difference between two different methods of measuring real wages: nominal wages can be deflated by consumer prices (which matter most to workers, as depicted in Figure 2) or by the average prices of the output they produce (which matter most to their bosses). Those two price series can move in different directions for a while: usually because of the price volatility of the natural resource exports that make up a significant share of Australia’s GDP. Hence the real “consumer” wage can differ from the real “producer” wage.

    But over the long-run the two price measures have moved in step, and hence the choice of deflator does not affect the conclusion that wages and productivity are no longer tied at the hip (in fact, they never were). Stutchbury actually concedes that if we use producer prices (rather than consumer prices), real wages have in fact lagged behind productivity (or, as he optimistically puts it, they “haven’t quite kept pace”). But then he makes a silk purse out of this sow’s ear by arguing that the relative cheapening of labour will stimulate more job-creation (another hollow business promise). In this mindset, it doesn’t really matter whether wages are keeping up with productivity, or not: everything is awesome in any event.

    #3 Labour’s share of GDP is the same as it was 60 years ago

    Unlike Stutchbury’s other claims, this one is actually true — but his interpretation of the statistic is hilariously one-sided. The labour share of GDP is defined as the total value of labour compensation (including wages, salaries, and other compensation including superannuation contributions) relative to the total output of the economy. It’s a rough-and-ready, but convenient, summary measure of workers’ overall share of the economic pie they help bake. Its evolution depends directly on the relationship between real wages and labour productivity discussed above. If productivity grows faster than real wages (as has been the case), then the labour share of GDP must decline — it’s arithmetically inevitable.

    Workers’ share of Australian GDP grew steadily through the vibrant economic expansion of the initial postwar decades, for several reasons. Waged employment became the dominant way for Australians to support themselves (replacing farming and small business activity). Real wages grew rapidly, driven by industrialisation, strong unions, and Australia’s then-ambitious set of egalitarian distributional policies. The labour share peaked in the mid-1970s, and then entered a long, irregular decline. (For more details and analysis of that decline, please see our special research symposium.)

    Figure 3: Labour Compensation as Share of Australian GDP, 1960–2018

    Figure 3

    Source: Author’s calculations from ABS Catalogue 5206.0.

    <>By 2018, labour compensation averaged just under 47% of total GDP. That’s the lowest in six decades — in fact, the lowest of any calendar year since the ABS began collecting quarterly GDP data in 1959. Strictly speaking, Stutchbury is correct to say that the labour share of GDP is roughly the same as it was 60 years ago. But not many people could look at Figure 3 above, and conclude that “nothing happened”!

    To the contrary, the figure actually tells a dramatic story about the enormous swings of Australia’s postwar economic and social history. Several decades of expansive, inclusive growth, propelled by an ambitious commitment to redistribution and a growing social wage, pushed the labour share up. That was followed by several decades of active efforts to suppress wages, retrench public services, and reallocate income to business and investors. That drove the labour share back down. In essence, the relative gains Australian workers made during the postwar “Golden Age” have now been fully reversed. And there’s no reason to assume that the downhill trend in Figure 3 will suddenly and autonomously stop — without a multidimensional effort to rebuild the institutions that underpin workers’ capacity to demand and win a bigger share of the pie.

    Stutchbury suggests that the decline in labour’s share of GDP partly reflects accounting treatment of property ownership — reflected in a category of income the ABS calls “gross operating surplus for dwellings.” This claim is thoroughly unconvincing. The share of labour compensation in total GDP declined by over 10 percentage points since peaking in the mid-1970s. That was almost perfectly offset by a mirror-image increase (of over 9 percentage points of GDP) in the share of gross corporate profits in GDP. Clearly, the dominant story has been one of redistribution of income from workers to their employers.

    Accounting estimates of “operating surplus” on dwellings (some owner-occupied, some not) has also grown, but more modestly (less than 3 percentage points over the same period), and not at all since 1990 (when Australian home-ownership rates plateaued). And that flow of imputed income has begun shrinking since 2016, pulled down by the accelerating deflation of the property bubble. To suggest that workers have been compensated for declining relative wages by the side-effects of a property bubble (that made some look like “millionaires” on paper) is ridiculous. In reality, the increase in imputed property income has been more than offset by the decline in mixed income on small business (which has fallen by almost 4 percentage points of GDP since 1975); this may imply a shift in the focus of small-scale entrepreneurship from running real businesses, to investing in property.

    Stutchbury’s claim that workers themselves are now “quasi-capitalists” is familiar, far-fetched, and self-serving. He argues that because of the importance of superannuation funds in overall capital ownership, workers have a direct stake in the growing dominance ands profitability of business in Australian society, But suppressing wages over your entire working life, in hopes of gaining some incremental income from your super investments late in life, is obviously a chump’s game. It ignores the myriad of other factors that will undermine the income of those workers when they retire: not least being the direct correlation between stagnant wages and corresponding suppression of the superannuation contributions paid by employers (which are fixed as a proportion of those wages).

    #4 There has been no significant increase in inequality

    Coalition politicians and other defenders of the status quo have been making this claim for years. Many point to indicators showing that inequality was actually slightly worse in 2008 (just before the GFC hit, when business profits and stock market valuations peaked) than at present. That’s because the loss of (inflated) asset after the crisis had disproportionate impact on the rich people who own most of those assets. (Try not to cry.) But that’s hardly a sign that Australia is somehow becoming a fairer, more sharing society. And measured over a longer-term horizon, there is no doubt that income distribution in Australia has become more polarised.

    An especially dramatic indicator of rising inequality is the about-face in the share of total income received by the richest 1% of Australian households. That share declined steadily through the egalitarian postwar decades, falling by half between 1950 and 1980 (to 4.4% of total personal income). Lest we feel too sorry for the unfortunate souls in the 1%, their slice of the pie was still 4.4 times larger than proportional — and, of course, they also benefited (like other Australians) from the rapid growth in total incomes (the total pie) during that period. Since then, the deliberate redirection of national income from wages to profits, and the disproportionate salary increases received by top executives and other well-off individuals, have propelled the top income share right back to where it started. By 2015, the richest Australians had fully recouped the relative losses they experienced during the postwar Golden Age. The plutocracy had been restored.

    Figure 4: Income Share of Top 1% of Households

    Figure 4

    Source: World Inequality Database.

    Many other statistics confirm the long-run growth of inequality in Australia over the past generation of business-oriented neoliberal economic and social policy. Other measures of income polarisation (like the Gini coefficient, or the ratio of incomes of the top tenth of households to the bottom tenth) confirm wider inequality today, compared to the 1980s. Australia was once renowned as one of the most egalitarian countries in the world, with income distribution comparable to Scandinavia. Today we rank in the lower-third of industrial countries according to equality — and getting worse.

    #5 Stronger unions and labour rules won’t make a difference

    Commentators like Stutchbury don’t support unions in the first place. And they deny that workers have any problems that unions could help solve. Nevertheless, they want to nip in the bud any stirring of sentiment that restoring collective bargaining (and other wage-supporting measures, like minimium wages, penalty rates, or a stronger awards system) would make any difference. To this end he cites a recent RBA discussion paper as evidence that stronger unions would not solve the problem — a problem which, recall, Stutchbury believes doesn’t exist.

    Stutchbury’s reference to RBA research is misleading on several grounds. First, he assigns the finding to the Reserve Bank itself, when in fact he refers to a discussion paper written by two of its researchers (James Bishop and Iris Chan). The paper explicitly warns that its views and conclusions should not be attributed to the RBA (but Stutchbury did anyway).

    Second, the discussion paper does not argue that stronger unions would not affect wages, contrary to Stutchbury’s implication. Rather, it makes a much narrower, highly nuanced empirical claim: it suggests that the decline of union membership in recent decades has not been associated with a reduction in the impact of unions on wage gains in enterprise agreements (EAs). The paper explicitly does not consider other potential channels through which unions influence wages — such as via the level or growth of wages for workers who are not covered by EAs, or via the impact of unions on the terms of modern awards or individual contracts. (We will explore the specific methodology and findings of that discussion paper elsewhere; see also recent work by Alison Pennington which describes in detail the dramatic decline of enterprise bargaining in Australia’s private sector.)

    The core claim of the Bishop-Chan paper is that the proportion of Australian workers covered by the terms of an enterprise agreement which had some kind of union involvement has not changed much in recent years. Therefore, the slowdown in wages cannot be attributed to the erosion of union bargaining power; unions are as involved in wage bargaining as in the past. We believe this claim is both empirically wrong and analytically misleading.

    Data from the federal government itself confirms a dramatic fall in the share of employees covered by current federally registered EAs since 2013 — not coincidentally, exactly as the unprecedented stagnation of Australian wages took hold. Current EA coverage has plunged by over one-third in just 6 years. The decline in coverage has been especially severe in private sector workplaces, where less than 12% of workers now benefit from the protection of a collective agreement.

    Figure 5: Coverage by Current Federally-Registered Enterprise Agreements (% Employees)

    Figure 5

    <>Source: Author’s calculations from Dept. of Small Business and Jobs data and ABS Catalogue 6291.055.003.

    Figure 5 does not include all collective agreements: around 5% of Australian workers are covered by agreements registered with state industrial relations commissions — almost all in public sector situations — which are not counted in the federal database. But that share has also shrunk in recent years, so the total erosion in EA coverage has been even worse than portrayed in Figure 5. Alternative data on EA coverage (from the ABS) includes the large number of workplaces in Australia with expired EAs: contracts that still exist on paper, but which (except for rare exceptions) no longer mandate wage increases. It is clearly illegitimate to assume that expired EAs have the same force as current ones, especially regarding wage growth.

    The Bishop-Chan paper focuses on EAs with “union involvement”. About 90% of the workers portrayed in Figure 5 are covered by enterprise agreements which feature some form of union involvement (as recorded by the Fair Work Commission); this statistic is crucial for the authors’ conclusion that union power has not waned. But the FWC’s definition of “union involvement” is very broad, and cannot be interpreted as proof of unions’ continuing bargaining power. A union can play no role at all in negotiating an enterprise agreement, yet still “sign on” to that agreement in order to formalise its legal right to play a role in enforcing its provisions (for whatever members it represents in that workplace). That union will then be identified by the FWC as being involved in that EA, even if its participation in the “bargaining” process was non-existent. This minimal level of “union involvement” in EA-making has become more common due to declining union membership and resulting resource constraints — which have made it effectively impossible for many unions to perform their traditional role in collective bargaining in all the workplaces where their members work. This grim reality helps to explain the dramatic increase in the number of expired, non-renegotiated enterprise agreements that has been a key factor in the rapid decline of EA coverage.

    Despite the challenges they face (including Australia’s uniquely intrusive restrictions on union access and activity, dues collection, and industrial action), unions still exert a powerful influence on wages. Average wages for union members in Australia are 27% higher than for non-members. And annual wage increases specified in EAs have averaged more than 1 full percentage point higher than the overall (slowing) growth in wages since 2013.

    Joining a union, and getting covered by a genuinely negotiated collective agreement, are still sure-fire ways to lift your wages. But the empirical evidence is crystal clear that the proportion of Australian workers benefiting from these supports has shrunk dramatically, and this is undeniably linked to the simultaneous and unprecedented deceleration in wage growth. “Changing the rules” to revitalise collective bargaining, and provide workers with some bargaining power to offset the current dominance of employers over wage determination, would make a huge difference to Australia’s stagnant incomes. And that’s exactly what has made commentators like Stutchbury so nervous.

    * * * * *

    Competing claims to being the “best economic managers” traditionally play an important role in Australian election campaigns, and the current contest is no exception. But for the large majority of Australians whose economic well-being depends, first and foremost, on the earnings they generate from paid employment, the jargon is ringing painfully hollow. From the standpoint of wages, the last six years have been the most disappointing since the end of the Second World War.

    Many factors help to explain the miserable performance of wages since 2013. But the phenomenon is not universal: in several countries, including Germany and Japan, wage growth has accelerated during this period, not slowed down, and Australia’s wage slowdown since 2013 has been the worst of any major industrial country. Active government policy has certainly played an important role in this poor performance. Within months of his 2013 appointment as the Abbott government’s Employment Minister, Eric Abetz was warning darkly of the dangers of a 1970s-style “wages breakout” — and implementing policies (starting with strict caps for public sector workers) to prevent it. Well, Mr. Abetz and his colleagues got what they asked for: wage growth plunged to unprecedented lows, and shows no robust indication of an imminent rebound. As federal Treasurer Mathias Cormann later let slip, this downward “flexibility” of wages is in fact a “design feature” of Australia’s current labour policy framework. His accidental assertion was as true as it was surprising.

    Since wages are the major source of income for most Australians, this turn of events has been deeply unpopular. Campaigners from unions and anti-poverty groups have emphasised the dangers of stagnant wages and inequality, and are receiving strong public support. Opposition politicians have proposed far-reaching measures to reinvigorate wage growth. But the current government would rather talk about something else — and by denying there is a problem, business leaders and sympathetic commentators are trying to help turn the page.

    Their efforts are unbelievable on statistical grounds. And they’re unlikely to be much more effective on a political level.

    Dr. Jim Stanford is Economist and Director of the Centre for Future Work, based at the Australia Institute @JimboStanford

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  • Economics 101 for the ABCC

    But why is the ABCC, established to police construction workers and their unions, now going after steelworkers? It claims that since the factory they work at sells steel to construction sites, it is in effect part of the construction industry. But that claim, if taken seriously, means that the whole economy – and all workers – are subject to the ABCC’s crusade.

    In this commentary, Jim Stanford explains the basic economics of supply chains to the autocrats at the ABCC.

    Economics 101 for the ABCC

    by Jim Stanford

    Democratic-minded people of any political stripe were shocked by the announcement last week that the Australian Building and Construction Commission (ABCC) will take legal action against individual steelworkers who participated in a union protest march last October.  The ABCC was reestablished by the Coalition government in 2016 to supposedly uphold the rule of law in construction. But almost all of its actions are taken against unions, it mostly ignores employers. It was obviously created as part of a broader government effort to vilify, harass, and hamstring trade unions.

    Now the ABCC is pressing charges against 53 workers at Liberty OneSteel (and 1 union organiser) who missed work to attend a union-organised protest march in Melbourne – where they joined 150,000 other demonstrators. The Commission argues the workers’ participation constituted an unauthorised “strike,” and hence they should be punished far more severely than if they had simply missed a day’s work (say, to go fishing). They now face personal fines of up to $42,000 each: if all 54 are convicted and receive the maximum penalty, the fines would total over $2.25 million.

    This intimidation and repression against peaceful political protest is both abhorrent and frightening. In a normal democratic country, this sort of repression would be dismissed in the courts as a blatant violation of democratic rights – and morally rejected by civil society as a step toward totalitarianism. It is only because of Australia’s unusual, even bizarre history of top-down state policing of industrial relations that this police-state activity is somehow “normalised.”

    One of the most shocking aspects of the ABCC’s crusade, however, is that it isn’t even directed at the construction industry: the targeted individuals all work at a steel factory. The Commission argues that since some of the steel produced by OneSteel is used in building construction, the factory is considered part of the construction sector (as per the terms of the Building and Construction Industry Improvement (BCII) Act).

    That argument, if taken seriously, would grant the ABCC power to police workers and their political activity throughout the entire Australian economy. It is a matter of simple economics that any industry in the economy purchases inputs (both goods and services) from dozens of other industries. For the minions at the ABCC who may have never studied economics, this is called a “supply chain.” And thanks to technology, outsourcing, and globalisation, supply chains are longer and more complex than ever.

    In fact, if the entire construction supply chain is considered part of “construction,” then essentially the whole economy is construction. Because virtually every industry in the country sells something to construction companies.

    To see this, check out the Australian Bureau of Statistics’ magnificent annual “input-output table.”  It’s a number-cruncher’s dream: a gigantic matrix that describes the cross-cutting supply chains that feed into every industry. The ABCC might wish to review the latest edition before getting too carried away with its hunt for subversives in every closet.

    The ABS table includes 113 different industries. Of those, fully 109 sell something to the construction industry. This includes everything from raw materials to sophisticated manufactures, from scientific laboratories to catering. The table below lists a few of the biggest construction suppliers – both goods and services. But virtually no part of the national economy is not connected somehow to construction.

    Construction Suppliers

    In total, construction firms purchase over one-quarter of a trillion dollars’ worth of supplies and services from those 109 industries (including purchases from other divisions of construction). In fact, the input purchases of the construction industry are four times bigger than the wages and salaries paid to construction workers – revealing again that the ABCC’s obsession with policing construction labour is mightily misplaced.

    Here are some of the more interesting sectors which report sales to the construction industry in the ABS tables:

    • Fishing and hunting ($70 million): Perhaps for trophies of big game to hang over the fireplace mantles of luxury homes?
    • Bakery products ($50 million): Donuts and pies, ‘nuff said.
    • Beer manufacturing ($4 million): This seems at first to be a gross underestimation. However, keep in mind that input-output tables do not include goods and services consumed by construction workers on their own time (in which case, this figure would surely measure in the billions!). Rather, it only includes purchases (tax deductible, of course) made by the companies. You can guess who drank the beer.
    • Veterinary medicines ($7 million): Must be for the nasty pit bulls at construction sites.
    • Gambling ($59 million): Given Australia’s speculative property bubble, it’s not a stretch to consider the whole housing industry to be a form of “gambling”!
    • Public order and safety ($769 million): That’s a biggie: security guards, CCTV cameras, and safety supplies. Conceivably the inflated salaries of the ABCC executives might even show up here: since they act in essence like a state police force.

    Of the 113 industries tracked by the input-output tables, only 4 do not report any sales to the construction sector. But even those sectors probably have some connection to the builders – perhaps once or twice removed:

    • Aquaculture: Construction purchasers buy from the fishing and hunting sector, but not from aquaculture. They must think wild salmon tastes better.
    • Library and other information services: Contrary to classist stereotypes, construction workers do indeed read books.
    • Primary and secondary education: The industry spends a lot on vocational and tertiary education; but school-level training isn’t counted (perhaps because it was completed before construction workers started their jobs).
    • Residential care and social assistance: This is certainly a necessary input for many construction workers – but only after they retire, are injured, or made redundant, and hence have left the industry.

    In short, basic economics confirms that the construction industry’s supply chains stretch into virtually every nook and cranny of the whole economy. If the overzealous autocrats at the ABCC are serious that their dominion extends to anyone who supplies construction, then their dominion extends to all of us.

    And that is an important, if unintended, lesson. If we allow this outrageous attack on the fundamental rights of assembly and expression of construction workers to proceed, then we are all ultimately vulnerable to the same repression. An injury to one really is an injury to all.

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  • Budget 2019-20: Ooops, They Did It Again!

    So the 2019-20 Commonwealth budget, tabled Tuesday evening by Treasurer Josh Frydenberg, featured another valiant prediction that fast wage growth is indeed still “just around the corner.” Despite a slowdown in wage growth in the last months of 2018, this budget simply replicates last year’s wage forecast – but delayed by one more year. Crucially, there is no discussion justifying why Australian workers might have confidence in this year’s forecast, when the last five so widely missed the mark (and always in the same direction).

    Our analysis of the 2019-20 Commonwealth budget focuses on the wages crisis facing Australian workers, and challenges the claim that cutting personal tax cuts can somehow compensate workers for the fact that their wages are not growing.

    Annual wage increases generate compounding benefits for workers and their families: since each year’s raise is applied against a larger and larger base. That cannot happen with tax cuts: to the contrary, their incremental effect can only shrink over time (as tax rates get lower and lower). Moreover, tax cuts always come with a significant cost: the loss of foregone public services, income supports and infrastructure that is the inevitable consequence of government’s shrinking revenue base.

    The tax cuts in this budget increase disposable incomes for workers by less than 1% (and by zero for the lowest-wage workers). In contrast, just one year of a normal wage increases delivers several times more benefits. And annual increases over three years (the term of the next government) delivers benefits dozens of times larger.

    Please read and share our full analysis of the 2019-20 budget below, which explains in detail how tax cuts cannot compensate for stagnant wages. You are also invited to view and share this short video summarising the argument (prepared with the help of our colleagues at the Australia Institute).

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  • Jobs and a Living Wage

    The Australian policy journal Arena has published a wide-ranging article by Centre for Future Work Director Jim Stanford on the labour market issues at play in the current federal election.

    Stanford argues that the sense of “superiority” which typically accompanies economic debates during Australian election campaigns is muted in the current contest, because of the poor performance of the labour market in recent years. Unemployment and especially underemployment remain high; the quality of work has deteriorated; and wages have experienced their weakest performance since the end of the Second World War.

    Visit Arena’s website to read the full article.

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  • 124 Labour Policy Experts Call for Measures to Promote Stronger Wage Growth

    The letter has generated substantial media coverage, including articles in the ABC, The Guardian, and The New Daily.

    A comprehensive story also appeared in Workplace Express, which we attached below with the journal’s permission. (To subscribe to Workplace Express for comprehensive coverage of labour policy issues, please visit their site.)

    Richard Denniss, Chief Economist at the Australia Institute, also tied the open letter into his powerful column on the causes of wage stagnation.

    The open letter was initiated and circulated by the 3 co-editors of a recent collection of research essays on the wages slowdown (The Wages Crisis in Australia: What it is and what to do about it, published by the University of Adelaide Press):

    • Prof. Andrew Stewart, John Bray Professor of Law, Adelaide Law School
    • Dr. Jim Stanford, Economist and Director, Centre for Future Work
    • Dr. Tess Hardy, Senior Lecturer and Co-Director, Centre for Employment and Labour Relations Law, University of Melbourne

    “There is a growing and legitimate concern in Australia over the erosion of real living standards. Boosting wage growth is the best way to reinvigorate the promise of shared prosperity that is essential to a healthy and productive society,” said Dr. Stanford.

    “This is not a problem that is going to fix itself”, added Professor Stewart. “We need to see a policy response from governments at all levels – and an acceptance that lifting wage growth can help the economy, not harm it.

    Dr. Hardy said, “The problem of stagnant wages is a complex one. While there is no singular or straightforward solution, it is increasingly clear that combatting the current wages crisis will require concrete and decisive action.”

    Included among 124 co-signers of the letter are numerous distinguished policy experts, including:

    Prof. Roy Green, Emeritus Professor, Innovation Adviser, and former Dean of Business School, University of Technology Sydney: “In current conditions, wage increases can be a significant driver of growth and productivity through the incentive effect on capital investment, and the demand effect on capacity expansion. Keeping wages depressed is not only disadvantageous for workers but it is bad for business and the wider economy.”

    Prof. Sara Charlesworth, Distinguished Professor of Gender, Work and Regulation in the School of Management at RMIT University: “Wages fully reflecting the value of the work women undertake are vital to their well-being and fundamental to gender equality.”

    Prof. John Quiggin, ARC Australian Laureate Fellow, School of Economics, University of Queensland: “For decades, government policy has been designed to weaken unions and push wages down. It’s time to put that process into reverse.”

    The post 124 Labour Policy Experts Call for Measures to Promote Stronger Wage Growth appeared first on The Australia Institute's Centre for Future Work.

  • A Historic Opportunity to Change Direction

    In a broad overview of the current problems in Australia’s labour market, and the weaknesses of existing labour market policies, Stanford argues that the prospects are ripe for a fundamental shift in the emphasis of Australian industrial laws and labour standards.

    “A combination of political and macroeconomic factors has created a historic opportunity to turn away from the individualised, market-driven labour market policy that has prevailed since the 1980s, in favour of a more interventionist and egalitarian approach,” Stanford writes.

    He provides evidence on the dual failure of Australia’s job market: there is not enough work for those who want and need it, and the quality of work has deteriorated badly. Both of those problems have undermined wage growth in recent years. But longer-term structural changes in labour market and industrial policies are also to blame: “The deterioration in job quality and distributional outcomes is the long-term legacy of the post-1980s shift away from Australia’s earlier tradition of equality-seeking institutional structures and regulatory practice.”

    Stanford argues that deep political and economic changes are opening a once-in-a-generation possibility for a redirection of labour and workplace policies. The political shift reflects more than just the traditional “horse race” between leading parties, as an election approaches. Rather, they reveal growing public frustration over the evaporation of the “fair go” and the dimming prospects for inclusive prosperity. These political shifts have broken the traditional bipartisan endorsement of business-friendly labour policies which shaped Australia’s labour market over the last generation.

    At the same time, major macroeconomic challenges are reinforcing the need for a future Australian government to consider a different approach to supporting incomes and growth. The effects of restrictive labour policies on wages and inequality were moderated and disguised for some years by Australia’s vibrant investment and growth conditions. But now growth is slowing dramatically (due to the property price downturn, weak consumer finances, and weak business investment), and so the harsh effects of employer-oriented workplace policies are being felt undiluted by millions of working Australians.

    “There is growing sentiment among many researchers, industrial relations practitioners and worker advocates that Australia’s current industrial relations and labour policy regime (with its reliance on an eroding enterprise bargaining system, its severe constraints on union membership and activity and its network of fraying statutory protections) is in need of fundamental and multidimensional change,” Stanford concludes.

    Dr. Stanford’s review article, “A Turning Point for Labour Market Policy in Australia,” appears in Economic and Labour Relations Review, a peer-reviewed journal based at UNSW. Free public access to the article has been provided by the journal for a limited time: please visit this site to see the full article.

    Stanford’s review was also reported in a feature article by The Saturday Paper‘s Mike Seccombe on the important role that wages and workplace issues will play in the coming federal election campaign.

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  • 8 Things to Know About the Living Wage

    As the debate heats up, here’s a quick guide to 8 things you need to know about the living wage:

    #1. The debate is new. But the idea is old. And it was invented in Australia!

    In 1907 a conciliation and arbitration judge named H.B. Higgins decreed (in the famous “Sunshine Harvester” case) that wages should be sufficient to meet the “normal needs of an average employee, regarded as a human being in a civilized community.”  He actually calculated the wage that would be required for a full-time worker (then assumed male) to adequately support himself, his wife, and three children. At the time, the living wage was 7 shillings (or around 70 cents) per day.

    Of course, our idea of a standard “family” has changed a lot since then. We have fewer kids, and most women now work for pay outside of the home. But the idea of linking the minimum wage, to the actual costs associated with a minimum decent standard of living, is still valid.

    #2. Working for minimum wage is a recipe for poverty.

    From that humble beginning in 1907, Australia’s minimum wage evolved over time. It’s now adjusted annually by the Fair Work Commission. But the link to the concrete costs of running a household has been abandoned. These days the Commission looks at various factors (including profits, inflation, employment trends, and inequality) in setting the minimum. But it does not explicitly consider whether a minimum wage is sufficient to pay for basic living costs. And in reality, it is not.

    A full-time worker on the national minimum wage today ($18.93 per hour) makes $719 per week – and that assumes they work a full 38-hour schedule.  (In reality, most low-wage workers can’t get enough hours of work, on top of their low hourly rate.)  That’s only about 45% of average weekly earnings for all Australian workers.  And it’s certainly not enough to run a household, and pay for a decent standard of living. So Australia’s minimum wage is certainly well below a true “living wage.” Minimum wage workers, especially those with any dependents, are likely to live in poverty.

    #3: How do you measure the living wage?

    A common international threshold for defining low income is at 60% of the median earnings of full-time workers. (The median is the point exactly half-way between the top and the bottom of the income distribution; it differs from the average, which is unduly pulled up by a few very high-earners at the top.) Median earnings for full-time employees in Australia are presently close to $1500 per week. The minimum wage would thus have to increase to $23 per hour or more, to ensure that a full-time worker reached 60% of the median.

    Another method of calculating a living wage is to gather data on the actual costs of operating a basic household for a specific family type (often assumed to be two adults and two children, but other configurations are possible). In addition to the necessities of life (food, clothing, and shelter), a living wage must also allow for other expenses associated with full and healthy participation in society: such as internet, transportation, school supplies, a minimal level of entertainment expenses, insurance, and more. There are no luxuries in this budget – just a basic, decent standard of living consistent with modern social expectations.

    After adjusting for income taxes and transfers (like the family tax benefit and the child care subsidy), we then calculate the pre-tax income required to meet that basic standard of living. That in turn can be converted into an hourly living wage, by assuming a certain amount of paid work by the adults in the household (perhaps one working full-time and one working part-time).

    This “bottom-up” methodology has been utilised by living wage campaigns in several countries – but not yet Australia. The research confirms that current minimum wages are not compatible with healthy families and communities. The estimated living wage benchmark can then be used to lobby for increases in the legal minimum – or even to push individual employers to voluntarily pay a living wage.

    #4. For a generation, Australia’s minimum wage has lagged behind a living wage.

    In 1985 Australia’s minimum wage equaled 65% of median earnings (above that 60% threshold discussed above). It declined steadily relative to overall wages over the next two decades. Successive governments were focused on reducing wages, and fostering more dog-eat-dog competition in labour markets. (Last week Finance Minister Mathias Cormann actually admitted his government was trying to keep wages low as a matter of policy.)

    Over time, the minimum wage declined to a low of 52% of median wages in 2008. It bounced back slightly since then, helped along by a decent minimum wage hike (of 3.5%) last year. But the minimum wage still falls well short of any conception of a true living wage.

    #5. Isn’t Australia’s minimum wage higher than in other countries?

    It’s certainly higher than in America: where the minimum wage has been frozen at $7.25 for the last decade. It’s now equal to just 33% of median wages there – by far the lowest of any industrial country. No wonder many millions of full-time workers there still live in poverty. Not exactly a role model for Australia.

    In dollar terms, Australia’s minimum wage is higher than many countries. Some business lobbyists even complain Australia already has one of the “highest minimum wage in the world.”  But that claim is not true in any meaningful sense. Living costs are also very high in Australia compared to elsewhere. And international wage comparisons must consider deviations in exchange rates and other factors. It’s better to compare minimum wages across countries using the ratio of minimum to median wages discussed above.  By that standard, Australia’s minimum wage ratio is below several other countries, including France (the highest), Israel, Portugal, New Zealand, and even Turkey.

    #6: New Zealand is increasing its minimum wage – and fast.

    In fact, our neighbours across the ditch are quickly putting Australia’s minimum wage to shame. The minimum wage there (presently $16.50 per hour) is already higher as a share of median wages (above 60%) than in Australia. But the new Labour-Greens-NZ First government has been increasing it substantially, as one of its first policies. The minimum wage will grow 25% over the government’s four-year term – by which time it will equal approximately 68% of median wages.

    #7: Economists have changed their mind on minimum wages.

    Business leaders and market-friendly economists used to argue that increasing the minimum wage will inevitably cause unemployment. After all, they believed, if something is more expensive, people will buy less of it (the “buyers,” in this case, being employers). But this simplistic logic has been thoroughly discredited by a whole new generation of economic research on the effects of minimum wages on employment. Starting with a path-breaking study of minimum wages and fast food employment in New Jersey in the 1990s (by economists David Card and Alan Krueger), economists now realise the traditional supply-and-demand story is wrong.

    In fact, they have discovered several reasons why higher minimum wages do not have any significant negative impact on employment – and in some cases can actually lead to higher employment. These reasons include:

    • Improving labour force participation and retention among low-wage workers.
    • Reducing job turnover and the costs of searching for new jobs and new workers.
    • Offsetting the uncompetitive “monopsony” power of very large employers, which otherwise restrict their own hiring in order to help suppress wages.
    • Boosting consumer spending by putting more money in workers’ pockets – an effect which is especially beneficial for small business.

    Hundreds of studies of minimum wages in various countries have found little impact on employment in either direction. Even Australia’s Reserve Bank confirmed that recent increases in the minimum wage had no visible negative effect on employment.

    Further counter-evidence that higher minimum wages do not destroy jobs – and lower minimum wages do not create them – is provided by the experience of Australia’s recent cut in penalty rates for retail and hospitality workers on Sundays and holidays. Employers said this reduction in wages would lead to more jobs and longer hours. However, research by the Centre for Future Work showed those two sectors have been among the worst job-creators in Australia’s economy since penalty rates were cut. In fact, the retail sector eliminated 50,000 full-time jobs in the year under lower penalty rates.

    #8: A living wage would reduce poverty and boost incomes.

    In sum, higher minimum wages have little impact on employment one way or the other. Job-creation depends mostly on macroeconomic conditions and aggregate purchasing power. Higher minimum wages are proven to lift incomes for low-wage workers and reduce inequality. Committing to a true living wage in Australia, would ensure that people who work full-time, year-round are lifted out of poverty, and provide a badly-needed boost to Australia’s stagnant wages. It would be a powerful step in creating a fairer labour market.

    Median wage data from ABS catalogue 6306.0, “Employee Earnings and Hours.” Average wage data from ABS catalogue 6302.0, “Average Weekly Earnings.” Both refer to 2018.

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  • Turning Gigs Into Decent Jobs (Victorian On-Demand Workforce)

    The government of Victoria is holding an important inquiry into the conditions and challenges of working in the ‘on-demand’ economy: a polite euphemism for gigs. The Centre for Future Work has made a submission.

    Our submission notes that digitally-mediated on-demand production typically incorporates five broad characteristics:

    • Work is performed on an on-demand or as-needed basis. Producers only work when their services are immediately required, and there is no guarantee of ongoing engagement.
    • Work is compensated on a piece-work basis. Producers are paid for each discrete task or unit of output, not for their time.
    • Producers are required to supply their own capital equipment. This typically includes providing the place where work occurs (their home, their car, etc.), as well as any tools, equipment and materials utilised directly in production. Because individual workers’ financial capacity to provide these up-front investments is limited, the capital requirements of platform work (at least that used directly by workers) are small.
    • The entity organising the work is distinct from the end-user or final consumer of the output, implying a triangular relationship between the producer, the end-user, and the intermediary.
    • Finally, some form of digital intermediation is utilised to commission the work, engage the producer, supervise it, deliver it to the final customer, and facilitate payment. In the modern economy, this last criteria is hardly exrtaordinary: virtually any job imaginable today relies on some form of digital task allocation or management.

    Despite the media hype which on-demand platforms have generated, the scale of employment engaged in on-demand work so far is rather modest. The number of people engaged in actual productive work organised through a digital platform is small (less than 1% of the labour force), and a large (likely majority) proportion of those rely on on-demand work for only a minority of their total income. Many people have signed up to perform work through one or more of these platforms, but do not stay with the platform long, and/or do not work many hours in the role.

    Another stereotype that needs to be challenged in considering on-demand work is the common claim that these employment practices are novel and innovative. Here it is crucial to distinguish between the technical innovations which these businesses utilise, and the changes in work organisation which those models also introduce. In fact, the major organisational features of digital platform work are not new at all. These practices have been used regularly in labour markets for hundreds of years; what is novel is the use of digital technologies for organising, supervising, and compensating work in that manner. And the growth of insecure or precarious work practices is not an essentially technology-driven phenomenon. Rather, the growing precarity of work, including in digitally-mediated on-demand jobs, reflects the evolution of social relationships and power balances, more than technological innovation in its own right. Appreciating the social and regulatory dimensions of technology and work organisation contributes to a more holistic and balanced understanding of the rise of on-demand work, its consequences, and its potential remedies.

    All the core features associated with on-demand work are long-standing. The practice of on-call or contingent labour – whereby workers are employed only when directly needed – has been common for hundreds of years. In an Australian context, a famous example is the former practice of dockworkers lining up each morning (for example, along Sydney’s ‘Hungry Mile’) in hopes of attaining employment that day; other examples are common in other sectors (including minerals, forestry, manufacturing, and agriculture).

    Home-based work, and other systems in which workers supply their own capital equipment, have also been common in many applications and contexts – from the ‘putting out’ system for manufacturing textile products and housewares in the early years of the industrial revolution, to the important role played by owner-operators in many modern industries (including transportation, resources, fisheries, and personal services).

    Piece-work compensation systems also have a long if uneven history. Employers have long aimed to tie compensation directly to output (as a way of shifting responsibility for managing work effort and productivity onto workers). Yet at the same time, the use of piece-work is constrained by numerous well-known problems, including difficulties in applying them in situations which require an emphasis on quality, not just quantity of output (like most service sector activities), and where work is performed jointly by teams or larger groups of workers.

    Finally, the triangular relationship that is evident in the on-demand economy between the worker/producer, the ultimate end-user of their labour (whether a business or a consumer), and an intermediary/‘middleman’ business is also very familiar from economic history. Past examples include labour hire services, “gang-masters,” and other forms of labour supply intermediation. Under this triangulated model of employment, it can be unclear who is the actual ‘employer’; this ambiguity opens the possibility for various negative practices and outcomes, which have been recognised for years in legislation, regulation, and jurisprudence. An example is Australia’s long-standing rules regarding ‘sham contracting’, and more recent initiatives to regulate labour hire businesses in Queensland and Victoria.

    In short, the core features of on-demand work are not novel; and claims that this way of organising work is ‘new’ are not valid. Rather, on-demand businesses reflect a resurgence of very old business practices, that date back hundreds of years. So ‘gig’ employers cannot be allowed to invoke claims of technological advancement, to justify work practices that are hundreds of years old – and in many cases violate community standards and traditional labour laws.

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  • Million jobs not what it used to be: new report

    New analysis of labour market performance released today by The Australia Institute’s Centre for Future Work, shows Australia’s job creation performance over the past five years has been weak relative to population growth and compared to past periods of history.

    “A million jobs in five years sounds like an impressive figure, but there are now over 20 million Australians of working age, and our population is growing very rapidly. A million new jobs every five years, isn’t even enough to keep up,” says Dr. Jim Stanford, Director of the Australia Institute’s Centre for Future Work.

    “A closer look at the evidence shows that both the quantity and the quality of work being created in Australia’s labour market is inadequate to the needs of our growing population, and highlights the role part-time work has played in inflating the apparent total number of jobs created.

    “Part-time employment has accounted for almost half of all new work created since 2013. Without the this rapid expansion of part-time work, which converts a given amount of hours of work into more jobs, the growth in employment would have fallen well below one million.

    “Due to soaring part-time employment, the number of hours worked by each worker has fallen to the lowest on record. Part-time workers also experience lower hourly wages, higher casualisation, and are more dependent on the minimum conditions of modern awards.

    “Along with the declining quality of jobs, our research shows an unprecedented stagnation of wages since 2013. With nominal pay lagging behind inflation, the real purchasing power of Australian works has declined for the first time since the recession-wracked 1990s.

    “This deterioration occurred in a time when the economy was growing steadily. Instead of constituting some kind of economic triumph, the last five years really represents a lost economic opportunity.”

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