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  • The Future of Work is What We Make It

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    The Future of Work is What We Make It

    There has been an outbreak of public concern recently about the impacts of technological change on employment. Some research suggests that 40 percent or more of all jobs are highly vulnerable to automation and computerisation in coming decades (Frey and Osborne, 2013). Some observers even suggest that work can no longer be the primary means for people to support themselves – leading to all sorts of radical policy responses ranging from taxing robots (Delaney, 2017) to the provision of universal basic income to all people, working or not (Arthur, 2016).

    Of course, this general fear of technological unemployment isn’t new. Since the industrial revolution, workers have quite understandably worried about what will happen to their jobs when machines can do their work faster, cheaper, or better. Previous periods of accelerating technological change were also associated with other waves of concern; even relatively recently, futurists were predicting that technology would make work largely obsolete (for example, Rifkin, 1995).

    Conventional market-oriented economists downplay these concerns: the magical workings of supply and demand forces should ensure that any labour displaced by technology is automatically redeployed in other, more appropriate endeavours, and people will be better off in the long run. The focus of policy should be to facilitate that transition through retraining and mobility assistance, allowing displaced workers to move more easily into better, alternative occupations.

    There are many reasons to question this optimistic theoretical perspective. But actual historical experience gives more cause to doubt ultra-pessimistic forecasts of technological unemployment. In practice, previous waves of technological change have not been associated with mass unemployment, for a range of reasons. The labour-displacing effects of new technology can be offset, in whole or in part, by other factors: including new work associated with the development, production, and operation of the new technology itself; new tasks that become conceivable only as a result of the new technology; historic reductions in average working hours (a trend which has unfortunately stalled under neoliberalism); and the capacity of active macroeconomic policy to boost aggregate labour demand when needed.

    So even from a critical economic perspective, there is little reason to conclude that “work will disappear”. This does not mean we should be complacent about the problems and risks posed to workers by accelerating technological change. But it does mean our response to those challenges should be grounded in a more balanced and complete assessment of what technology actually does to work – and where technology comes from in the first place.

    Remember, technology is not some exogenous, uncontrollable force. What we call “technology” is actually the composite of human knowledge about how to produce a broader range of goods and services, using better tools and techniques. Humans put their minds to solving certain problems (so-called “mission-based innovation”, as termed by Mazzucato, 2011), based on their particular concerns and interests. And therefore, technology is never neutral: the problems we turn our creative attention to, reflect the interests and influence of the constituencies which get to decide and fund innovation activity.

    For example, one nefarious use of modern technology in workplaces is the ubiquitous and largely uncontrolled application of surveillance and performance-tracking technology by employers, to more immediately and completely monitor the work effort of their employees. Increasingly intrusive systems now give bosses minute-by-minute data on the whereabouts, productivity, and even attitudes of their workers. This has wide-ranging impacts not only on privacy and the quality of work. It even affects compensation: when it is so easy and cheap to monitor employees (and sack them if their performance is unsatisfactory), employers have less reason to offer workers positive incentives (or “carrots”) for performance and retention – and are more likely to use a disciplinary “stick” instead. It is no accident that surveillance and monitoring technology has advanced in leaps and bounds: employers have a strong vested interest in using these techniques to intensify work and enhance profit margins. Yet at the same time, easily-solvable monitoring problems – like ensuring that franchise businesses actually pay their employees minimum wages, for example, or are making their legally mandated superannuation contributions – are not addressed with technological solutions. Why not?

    This non-neutrality of technology reflects the increasingly lopsided power imbalances in the modern labour market: those with power can influence the direction of technology in ways that reinforce their power. Another example is the one-sided application of digital platforms for assigning work and collecting payment used by “gig”-economy businesses like Uber and Deliveroo. Their technology has not (so far) actually changed the core nature of the work involved in these businesses: passengers are still driven about in a car, and take-away food is still delivered on a bicycle. What technology has facilitated, rather, are big changes in how work is hired, supervised, and compensated. By using digital applications (which they developed and own), platform businesses try to distance themselves from traditional employer functions and responsibilities (like paying minimum wages, or offering any stability or continuity of work). Technology thus allows businesses to shift risk to those performing the work, and minimise their labour costs. These changes in the social relations of work are by no means inevitable – as is being proven as workers around the world fight back against the most exploitive practices of these businesses. (Singapore’s approach was fairly effective in this regard: simply banning Uber from operating altogether). Resisting the mis-use of technology to cheapen and degrade work, is very different from a Luddite-like effort to try to stop technology itself.

    Some jobs will certainly disappear as technology replaces some tasks (and employers use it to enhance their ability to control and parcel out work most profitably). Some new jobs will be created: including good ones (like the creative, knowledge-intensive ones developing and managing new technologies), and some less good ones (like the menial digital work associated with many technologies). Many jobs, perhaps counterintuitively, will hardly be affected at all: including a range of caring services, cleaning, hospitality, and other functions which seem to inherently require hands-on human labour.

    To be sure, the quantity of work available is always a concern, all the more so given the stagnation (globally and in Australia) which continues to dominate the global economy since the GFC. Governments should put top priority on stimulating job-creation, wielding the whole array of policy tools (fiscal, monetary, industry, trade, skills, and more) at their disposal. Spurring stronger demand for labour will automatically ease adjustment to new technologies and their labour-displacing effects.

    But the quality of jobs is an equal concern, and it is in this realm that the impacts of new technology may be most severe. The quality of new jobs created as technology advances, and the quality of existing jobs that are largely untouched by technology, must be targeted for forceful, ambitious policy attention, to arrest and reverse the widespread degradation of work which is being permitted by weak labour market conditions, technology, and the enhanced and largely unchallenged power of employers.

    After all, a sustained structural shift in bargaining power in the labour market, in favour of employers, has been a central goal of neoliberal economic and social policy. There has been an expansion of non-standard employment in all its forms: irregular hours, casual work, labour hire positions, precarious forms of contracting and self-employment, and more. This precarity has been facilitated by a combination of persistently weak labour market conditions (compelling desperate workers to take any job no matter how insecure); technologies which make it easier for firms to orient staffing around precarious and on-call work; and regulatory inattention and complacency. On this last point, regulatory levers for protecting workers have not kept up with employers’ efforts to sidestep traditional minimum standards. Even the simplest of standards (like the minimum wage) are widely unenforced.

    In short, to address the impacts of technology – and, more importantly, the one-sided application of technology within workplaces – we must modernise and revitalise the concept of a social contract. We need a social contract for the digital age, that re-establishes mutual responsibilities and expectations, that commits to improving both the quantity and quality of work as a central goal of policy, and that actively supports the countervailing forces (like unions, employment standards, and cultural expectations of fairness) that are essential to achieving more security and fairness in the world of work.

    The values of NSW Labor provide a solid foundation from which to embark on such a revitalisation. The party’s vision emphasises that ‘prosperity starts with good jobs’ and commits that the ‘benefits of rising prosperity are shared fairly’; working towards such collective prosperity is a stated goal (NSW Labor, 2017). Key to this prosperity from a Labor viewpoint is support for more equal opportunities in the labour market and an effective system for regulating work. These values are constant and are not altered by technology or innovation: they apply whether citizens are engaged to work in full-time, “old economy” jobs or precarious “gigging” in the digital economy. A challenge is posed, though, by the rhetoric of innovation that leads the launch of a shiny new app to distract from the business models that underpin it – often based on underpaid, insecure, or invisible labour. What is needed then is clarity and purpose to create a system for regulating work that is modern, but fair.

    Australian governments at all levels have been creative regulators of the labour market since Federation: think of the tax provisions implemented in the early years following federation. The Commonwealth government was constrained by the Labour power [Section 51 (xxxv)] of the Constitution, meaning that it could not intervene directly to set wages and conditions of work. However, it could impose taxes. The Excise Tariff Act 1906 passed by the Deakin government included a provision for manufacturers of agricultural machinery to be exempt from the excise if the workers in that company were paid a ‘fair and reasonable’ wage (Hamilton, 2011). The Harvester judgement that ensued is embedded in industrial relations folklore and has become synonymous with the establishment of minimum wages in Australia. However, what is often overlooked is that the mechanism used to establish this landmark was not a mechanism of traditional labour law – it was, after all, triggered by tax law.

    Labor Governments have not been alone in this regulatory innovation to address labour policy concerns. The Howard Government was just as inventive and driven in its determination to use the Corporations power [Section 51 (xx)] of the Constitution to create a national regulatory framework that downgraded collective bargaining and instituted statutory individual contracts. A further legacy of that re-orientation was the whittling away of State industrial relations jurisdictions. This might lead to the conclusion that a State Labor government has little capacity to influence the wages and conditions of workers beyond the public sector. However, this conclusion is too narrow, and underestimates the extent to which creative, ambitious interventions at the state level could contribute to the restoration of a progressive social contract.

    Consider, for example, the current Victorian government’s attempts to eradicate the exploitation of workers in industries like horticulture, through the introduction of a legislated licensing scheme for labour hire companies. This is illustrative of the potential for action by a State government to curb the exploitation of vulnerable workers. But legislation is not the only choice; there is a vast array of options on the regulatory spectrum.

    Another means of regulating for better outcomes outside the confines of labour law is to support industry-specific multi-stakeholder collaboration. A developing example of this is the Cleaning Accountability Framework. CAF is an independent, multi-stakeholder initiative comprising representatives from across the cleaning supply chain – including institutional property investors, building owners, facility managers, cleaning companies, cleaners (through United Voice) and industry associations. CAF seeks to improve labour standards by encouraging transparency throughout the cleaning supply chain. CAF will recognise stakeholders who adopt better practice in the cleaning industry through a building certification scheme. In doing so, CAF will work to improve the employment conditions of cleaners, support sustainable business models and responsible contracting practices, help building owners and investors manage risk, and assist tenants in ensuring that they are benefiting from quality cleaning services. Multi-stakeholder initiatives have been criticised for lacking enforceability, but CAF overcomes this by using the structure of the supply chain, specifically the power of building owners and managers to drive compliance.

    None of these examples are centred in the “gig economy,” nor do they address sectors immediately threatened by automation. But they nevertheless provide an insight into “‘outside the box” efforts to improve the quality and fairness of jobs. Similar ambition and creativity could provide a better regulatory environment for the conduct of all types of work – not least in the digitally enabled economy. This could begin with a comprehensive mapping of State-based regulation to identify potential opportunities to leverage existing laws, regulations, procurement policies and industry codes.

    This would be an ambitious project, but given the extent of State influence in major areas of the economy (health, education, transport), it would provide a plethora of policy options.

    Alternatively, if changes to work (whether wrought by technology or ‘innovation’ in business models) are left unquestioned, and if we assign the determination of working conditions to algorithms, then the aspirations encapsulated in “Labor values” will remain unrealised and, a chance to re-imagine a social contract based on decent work will be squandered.

    References

    Arthur, Don 2016, “Basic Income: A Radical Idea Enters the Mainstream,” Parliament of Australia, Research Paper Series 2016-17, November 18.

    Delaney, Kevin J 2017, “The robot that takes your job should pay taxes, says Bill Gates,” Quartz, February 17.

    Frey, Carl Benedikt, and Michael A. Osborne 2013, The Future of Employment: How Susceptible are Jobs to Computerisation? (Oxford: Oxford Martin School).

    Hamilton, R. S. 2011, Waltzing Matilda and the Sunshine Harvester Factory: The early history of the Arbitration Court, the Australian minimum wage, working hours and paid leave (Melbourne: Fair Work Australia).

    Mazzucato, Mariana 2011, The Entrepreneurial State: Debunking Public vs. Private Sector Myths (London: Anthem).

    NSW Labor 2017, “Our Values,”.

    Rifkin, Jeremy 1995, The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era (New York: Putnam & Sons).

    Sarah Kaine is an Associate Professor at the UTS Business School, and a member of the Advisory Committee of the Centre for Future Work. Jim Stanford is Economist and Director of the Centre for Future Work, part of the Australia Institute.

    The post The Future of Work is What We Make It appeared first on The Australia Institute's Centre for Future Work.

  • The Paradox of Rising Underemployment and Growing Hours

    Paradoxically, underemployment and number of hours actually worked are both on the rise in Australia.

    Since 1978 from when the ABS started publishing data on the number of hours worked per month, the hours increased continuously. For example, in July 1978 slightly less than a billion hours was worked; the figure was 1.7 billion in June 2017 – a rise of 781.9 million hours worked a month. Compared with June 2008, 151.3 million more hours were worked in June 2017. The recently released Labour Account Australia, Experimental Estimates, July 2017 (by ABS) shows that between 2010/11 and 2015/16, hours actually worked increased by 5.7% from 19.15 billion hours to 20.23 billion hours.

    The rising number of hours worked should be a good news, provided it meant more income. But for the most part during this period real wages either stagnated or fell. Recent ABS data show that quarterly real wage growth stuck below 0.6% for three years, translating into an annual wage growth of just 1.9%, the lowest figure since the late 1990s, and probably the slowest rate of pay rises since the last recession.

    Hence the majority of workers are forced to work more hours in their struggle to maintain a decent living. Labour Account Australia, Experimental Estimates (July 2017) records that a good number of people work more than one job. Interestingly, increasing by 64,100 (9.2%), the growth in secondary jobs outstripped the growth in main jobs which increased by 791,700 (6.8%) over the six years to June 2016.

    It is also not surprising that people are wanting to work more hours, raising the incidence of involuntary underemployment. The most recent ABS estimate, for May 2017, shows 1.129 million Australians working fewer hours than they would like. This translates into an underemployment rate of 9.3%. When added to the current headline unemployment rate of 5.6%, we have a whopping “underutilisation” rate of around 14.9%!

    Labour exploitation is also on the rise as the unpaid overtime work gets longer. The Australia Institute’s 2016 survey (Excessive Hours and Unpaid Overtime: An Update) found that full-time workers were on average performing more than 5.1 hours a week in unpaid overtime. Part-time and casual employees work an average of 3.74 hours unpaid overtime per week. For full-time workers, average unpaid overtime is worth over $10,000 per year – or 13% of actual earnings. For part-time workers, lost income from unpaid overtime exceeds $7500 per year, and represents an even larger share (nearly 25%) of actual earnings. The lost income due to unpaid overtime represents a significant loss to workers and their families.

    Australians are putting in some of the longest hours (more than 50 hours) in the developed world, coming in 9th in a survey of OECD countries. Full-time employees are on average putting in extra 4.28 hours and part-time staff are working an hour over their contracted hours every week. ABS data show that around 30% of employed men and 11% of employed women report usual working 45 hours or more each week.

    Thus, Australian workers are over-worked and underpaid. They are both time and income poor.

    These paradoxes are not statistical quirks. They are the results of heightened job insecurity; but it is deliberate! It is caused by changes in the labour market institutions governing wage and employment conditions, designed to increase the share of profit and strengthen corporate power.

    Alan Greenspan, the former Chairman of the US Federal Reserve, made this very clear in his testimony to the Congress two decades ago (26 February, 1997). He elevated job insecurity to major status in central bank policy when he said, “Certainly other factors have contributed to ‘the softness in compensation growth” despite a low unemployment rate, but ”I would be surprised if they were nearly as important as job insecurity”.

    Workers have been too worried about keeping their jobs to push for higher wages, and this has been sufficient to hold down inflation without the added restraint of higher interest rates. He also acknowledged, “Owing in part to this subdued behavior of unit [labour] costs, profits and rates of return on capital have risen to high levels”.

    Most interestingly, according to Greenspan, widely regarded as the “guru” of present day monetary policy-makers, workers’ fear of losing jobs is not in itself sufficient; the sense of job insecurity has to be rising or getting worse to prevent any push for significant wage increases. This is because, once it levels off, and workers become accustomed to their new level of uncertainty, their confidence may revive and the upward pressure on wages resume, especially when more people find jobs and the unemployment rate drops.

    Right now, millions of Australians are feeling some level of job insecurity because of increased casualisation of employment and insufficient availability of full-time regular jobs. The increase in casual and non-permanent work is putting pressure on people to work harder for longer, and to work more hours unpaid.

    There are many reasons, from automation to slower growth of the economy, for increased job insecurity. But one factor contributed the most – the deregulation of the labour market in the name of increased flexibility. This not only involved moves from centralised to enterprise bargaining and to individual contracts, but also restrictions on union activities – both intended to weaken worker’s bargaining power and strengthen business’s hiring and firing power.

    One can easily blame successive Liberal-National Coalition Governments, starting from John Howard for this. But the Hawke-Keating Labor Government started the process, arguing that it was necessary to respond to changing global economic conditions and to remain competitive. The Hawke-Keating Government argued that linking wage bargaining to the enterprise performance would provide flexibility and hence boost productivity.

    The succeeding Howard-Costello Government increased so-called flexibility by introducing “work choices” (individual contracts) arguing the same. In 2007, Peter Costello said that the greatest risk to Australia’s prosperity is a return to centralised wage fixing: “Nothing could be a bigger threat to the Australian economy at the moment than moving away from decentralised wage fixation and going back to the past.”

    But alas; there has been no sustained boost in productivity growth. Instead, successive labour market reforms have allowed inefficient enterprises to survive. Employers  felt no pressure to upgrade technology, improve management practices or train workers to boost productivity, as both Labor and Coalition Governments, held hostage by the business group threatening to leave Australia for cheaper destinations, vied with each other to make Australia more hospitable – more “competitive” – for businesses by making labour cheaper and regulations looser.

    During 2016, Australia’s labour productivity growth was nil whereas it grew by 1.9% in OECD. Only 4 other OECD countries experienced lower productivity growth than Australia. Using the internationally comparable US Conference Board data, the Productivity Commission reported that Australia’s multi-factor productivity (MFP) growth in 2014 was negative (-0.9%) – and lower than China, India and Korea. MFP reflects the overall efficiency with which labour and capital inputs are used together in the production process. MFP growth in Australia continued to decline since the mid-1990s reaching a negative figure, i.e., declining during 2005-2010.

    The problem is well exemplified by Australia’s auto industry which survived only due to the life-line of government subsidies and some industry protection – recall the Rudd Labor Government’s $6.2 billion over the next 13 years and Abbott Government’s $900 million budget backdown. Despite all the flexibilities afforded by diluting the employment and pay conditions, one of just 13 countries in the world capable of building a car from the ground up, Australia’s 90-year history of assembling and building automobiles is coming to an end with the pulling off of the plug of government assistance.

    Therefore, the only way Australia can now compete internationally is by racing to the bottom; by lowering labour cost – cutting the penalty rates, lowering the minimum wage and diluting working conditions; in short, by underpaying the workers and forcing them to work longer hours. And this only can succeed by ensuring continued rise in job insecurity though underemployment, more spells of unemployment, more volatility in the hours the workers are expected to work and continued weakening of labour’s bargaining power.

    The post The Paradox of Rising Underemployment and Growing Hours appeared first on The Australia Institute's Centre for Future Work.

  • Manufacturing: A Moment of Opportunity

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

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

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

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

  • Dogged manufacturing sector quietly adds 40,000 jobs

    The report, A Moment of Opportunity (download full report pdf below), identifies several indicators which suggest that the economic opportunities for domestic manufacturing have improved significantly.

    The Centre for Future Work in The Australia Institute will host the National Manufacturing Summit: From Opportunity to Action at Parliament House on Wednesday 21 June 2017. Speakers will include a wide range of experts from industry, university, trade union, and financial sectors, as well as four top political spokespersons: Minister for Industry Senator Arthur Sinodinos, Shadow Minister for Industry Senator Kim Carr, Greens Industry spokesperson Senator Lee Rhiannon, and NXT leader Senator Nick Xenophon.

    “Australia’s manufacturing industry faces some daunting domestic and global challenges. But it’s not just surviving, it’s finding a way to grow, adding 40,000 new jobs last year,” Director of the Centre for Future Work, Dr Jim Stanford said.

    “That ranks manufacturing as the second biggest source of new jobs in Australia last year.”

    “Additionally, manufacturing re-invests 5% of its value added in R&D, the highest of any industry, making it an engine room for innovation in the economy.”

    New polling released as part of the report shows that Australians are very supportive of pro-active, targeted policy measures to sustain and support manufacturing (see polling results below).

    “Perhaps influenced by the negative tone of much recent commentary, Australians consistently underestimate the size of manufacturing in Australia’s economy, relative to other industries, but nonetheless recognise the value of maintaining a strong manufacturing sector.

    Specifically, there was strong support for targeted policies such as government procurement mandates (81%) and tax incentives tied to investments in domestic facilities (79%); support was strong across all age and voting groups. Australians opposed measures to attract industry by cutting wages, environmental standards, or across-the-board taxes. But measures focused on manufacturing, tied to Australian production and jobs, received overwhelming support – by a margin of up to five-to-one.

    “Both economically and politically, the smart move would be for legislators to get behind local manufacturing with targeted policies to support Australian jobs, ” Stanford said.

    The post Dogged manufacturing sector quietly adds 40,000 jobs appeared first on The Australia Institute's Centre for Future Work.

  • Budget Wrap-Up

    Wage Growth and Deficit Reduction

    Several commentators have highlighted the budget’s highly optimistic assumptions regarding future job-creation and wage growth incorporated into the budget forecast. The government is anticipating an immediate and sustained acceleration of all of the factors that contribute to the wage base for tax revenue: faster job-creation, significantly faster growth in hourly pay, and dramatically faster growth in total wages and salaries.

    Back in the real world, the labour market has been underperforming on ALL THREE of those components: slow job-growth, record slow growth in hourly wages, and falling weekly hours of work (due to the dramatic expansion of part-time and irregular work). For all of these reasons, total wages and salaries paid out in the economy (which forms the major basis for personal tax collections, both income and GST) actually declined in the latest quarter of GDP (Dec 2016).

    This table summarises the main wage assumptions in Mr. Morrison’s budget, contrasting them to the latest actual figures on each of the three criteria. The last budget (2016-17) missed the mark badly on all three criteria — but the likely undershooting error will be huge by the end of this budget’s forward estimates, unless there is a dramatic and sustained acceleration of employment and wages growth.

    Director Jim Stanford pointed out in this Huffington Post column that the current weakness in Australian wages is not an accident, nor is it likely to reverse automatically. Chronically weak aggregate labour market conditions, combined with structural attacks on the institutions that support wages (including unions, minimum wages, penalty rates, and others), have caused the unprecedented stagnation of wage incomes in Australia. The macroeconomic consequences of this state of affairs have been widely acknowledged — even by the government itself. (Mr. Morrison himself spoke recently of his concern with the impact of wage stagnation on his own budget targets.)

    As Stanford put it in his Huffington Post commentary, the contradiction between the government’s wage-suppressing economic and regulatory policies, and its hope that wage growth will nevertheless power the way to a balanced budget, is both glaring and unsustainable:

    “[Morrison’s] rose-coloured labour market assumptions will be sabotaged by his own government’s continuing war on workers and wages. And that’s one important reason why his hopeful deficit targets will not be realised.”

    General Optimism Regarding Revenue

    The budget’s optimistic wage growth assumptions are just one factor behind an overall revenue forecast that is downright ebullient. The main force behind the projected return to a balanced budget is an enormous assumed increase in tax revenues — very ironic coming from a government that regularly derides the alleged “tax-and-spend” procilivities of its opponents. Over the four years of the forward projection, annual revenues are expected to expand $120 billion by 2020-21 (or 30 percent). As a share of GDP, revenues are expected to swell by 2.2 percentage points, reaching the highest share (25.4% of GDP) since the peak of the mining boom (in 2005-06).

    There is no clear explanation of where these huge new revenues come from – especially given the revenue-reducing effect of other budget measures, including company tax cuts, the elimination of the deficit repair levy for high-income earners, last year’s bracket adjustments, and others. There are some modest revenue measures in the budget: including the 0.5% Medicare levy increase (after 2019), the levy on bank liabilities, and a new levy on employers who hire migrant labour. But those policy decisions account for just 6.5% of all new revenues assumed to be received over the coming 4 years — and they will be more than offset by the revenue losses from the other measures (especially the company tax cuts).

    If revenues stay constant as a share of GDP (instead of magically growing), the budget will be $45 billion short in 2020-21 – and the forecast small surplus will evaporate into a large continuing deficit. Indeed, as our colleagues at the Australia Institute have pointed out, this budget marks the fourth consecutive four-year LNP timetable for balancing the budget. The government’s tough talk on the dangers of deficit-financing, and stated intention to quickly achieve balance, have proven hollow. Many of its proposed spending cutbacks have been successfully resisted by community campaigning. And its rosy revenue forecasts have been consistently unfounded. There is no reason to believe this year’s four-year deficit elimination timetable is any more realistic than the last three.

    Robbing Peter to Pay Paul

    On the spending side, the government is announcing some modest new spending initiatives, totaling $9 billion over 4 years.

    But at the same time, they are announcing spending cuts to a wide range of programs (including higher education, welfare, and civil servants) – totaling $10 billion over the same period.

    The net impact of new policy decisions on spending is therefore $1 billion in the negative. Despite the promise of “better times” in the future, the government’s discretionary actions will reduce aggregate funding for the programs that Australians depend on.

    A Target Everyone Can Love: The Big Banks

    The government’s new 6 basis point “levy” on bank liabilities (ie. on outstanding loans) is forecast to raise $6.2 billion over 4 years.

    Many analysts believe this tax will be passed on to borrowers (since it is defined as a proportion of lending), and the government has not provided a convincing refutation of this concern. The levy is equivalent to a slight increase in the cost of capital for new lending. (In fact, this new “levy” is smaller than recent increases in interest rates which the banks have already passed on to their borrowers.)

    The government’s claim that the ACCC, with increased funding, will ensure the banks do not pass on the costs of the levy is laughable — as is its claims that competition from smaller banks will keep the big banks in line. Unless there is outright collusion and price-setting between the banks (something that is rare and unnecessary anyway), there is nothing illegal about passing on higher costs to consumers. Indeed, the ability to do this is precisely what explains the banks’ consistent above-normal profits (earning return on equity of 15 percent or more each and every year).

    At any rate, once the banks start to benefit from the full 5% reduction in their own corporate taxes (by 2026-27), they will still be saving billions each year on a net basis.

    The eminent economist Prof. Geoffrey Harcourt, a good friend of our Centre, put it this way in a blog comment:

    “The discussions on the levy/tax on the big four banks in the 2017 budget are often hysterical and beside the point. Because banks play an essential role in the running of the economy, they need protection through a guarantee from the government. Because of their oligopolistic market structure, they are in a privileged position to make large profits, a portion of which reflects their necessary privileged position, rather than any merit of their own. Common sense suggests that it would be both efficient and equitable that the banks be allowed to receive, say, the average rate of profits ruling in the economy as a whole without being taxed differently than any other form of enterprise in Australia. If their overall rates of profit are greater than the average – which they certainly are – the differences between the two sets of rates should be subject to a higher rate of tax so that the community at large receives a return on the privileged position the banks have been necessarily granted. The proposed levy is roughly akin to this proposal, which is tackling an equitable puzzle. It should not, in principle, be related to what is happening to the budget overall and especially to the sizes of any deficits or surpluses. These should reflect the outcome of attempting to meet the real aims of good government starting with achieving and sustaining full employment and sustainable growth.”

    Infrastructure Spending: Show Us the Money

    The government is boasting of $75 billion in infrastructure funding and financing over the next ten years. It is impossible to know how much of this represents new funds, nor when the funds would be delivered. Keep in mind that at present the government already spends over $18 billion per year on capital (or $200 billion over the next decade): both on new projects, and offsetting the wear and tear of existing assets. So the $75 billion “plan” ($7.5 billion per year) may or may not represent a substantial ramp-up in new capital spending by Canberra.

    In fact, the details of the budget do not seem to indicate any enormous expansion in capital spending. Net capital spending (after depreciation) is projected to decline in 2017-18: to just $0.5 billion, the smallest since 2002-03. (See Budget Table 3, reprinted below.) In essence, in the first year of the budget, the government will spend barely enough to offset depreciation of existing assets.

    Net investment grows in later years, but not dramatically. And as a share of GDP, net capital spending by the Commonwealth is projected to average just 0.2% of GDP over the forward projections. Over the last ten years, in contrast, it averaged 0.25% of GDP. In other words, under this budget, net Commonwealth capital spending will actually shrink relative to the economy.

    It is easy to come up with “big numbers” when talking about infrastructure programs (especially by summing totals over many years), and associated ribbon-cutting ceremonies will attract much attention. But there is no concrete evidence that this budget will accomplish the real and sustained increase in Commonwealth government capital spending that is needed. Commonwealth capital spending has declined in recent years compared to earlier decades, and there is no evidence that this budget will change that trend.

    Migrant Labour and Apprentices

    The government is imposing a new “head tax” on employers who hire foreign migrants: $1200 to $1800 per year per head for temporary migrants, and $3000 to $5000 for each permanent migrant (on a one-time basis). The revenues from this levy will be used to fund support for apprenticeships in conjunction with the states, to a total of $1.2 billion over the next 4 years.

    Funding skill programs through a tax on migrant labour is not an effective way to rebuild Australia’s battered vocational education system – nor is it an effective way to regulate employers’ over-reliance on temporary foreign migrants (rather than recruiting and training Australian workers). Indeed, the scale of revenues anticipated by the government suggests that incoming migrant labour will continue to constitute a major force in Australia’s labour market.

    Effectively regulating and reforming Australia’s migrant labour system – limiting its use to classifications where skilled workers are truly unavailable, and ensuring that migrant workers are entitled to the same protections as all other workers – would in fact undermine the head tax revenues that the government is now counting on.

    Check Out The Australia Institute’s Budget Analysis

    Our colleagues at the Australia Institute have also generated some useful and punchy commentary on the budget: see it all (including a hilarious podcast with economists Richard Denniss and Matt Grudnoff) on the Institute’s Budget Wrap page.

    The post Budget Wrap-Up appeared first on The Australia Institute's Centre for Future Work.

  • Economists Debunk Job-Creation Claims of Penalty Rate Cut

    A 3-person drafting committee wrote the letter and circulated it among the economics community. The committee included Stephen Koukoulas (Managing Director of Market Economics), John Quiggin (Dept. of Economics, University of Queensland), and our own Jim Stanford (Economist and Director of the Centre for Future Work). See the full letter, and list of signatories, below.

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  • Don’t Pop Champagne Corks Over Longest Growth Streak

    In this guest commentary, Prof. Anis Chowdhury – a new Associate of the Centre for Future Work, and a distinguished global economist – provides some important perspective on this longest expansion in history.

    Little to Rejoice About in Australia’s Record-Long Expansion

    by Anis Chowdhury

    On April 1, Australia will overtake the Netherlands to lay claim to the title of the longest economic expansion on record, entering our 104th quarter of economic growth, as the nation narrowly avoided slipping into a technical recession.

    With the release of the GDP figure on 1 March, the government expressed a sigh of relief. It showed that Australia’s economy grew by 1.1 per cent in the last quarter, after slipping 0.5 per cent in the three months to December 1.

    Should we rejoice at this?

    It seems, Treasurer Scott Morrison thinks so. As the government is breathing easy, the Treasurer responded by saying “Our growth continues to be above the OECD average and confirms the successful change that is taking place in our economy as we move from the largest resources investment boom in our history to broader-based growth.”

    To be fair, the Treasurer was also cautious and acknowledged that nation’s economic growth “cannot be taken for granted and is not being experienced by all Australians in all parts of the country in the same way”.

    However, with this cautionary note the Treasurer has contradicted himself. If the nation’s growth cannot be guaranteed; if all Australians in all parts of the country are not sharing the benefit of this longest stint of growth, then it is simply not broad-based; nor is it inclusive.

    The nation’s growth still comes largely from mining, agriculture, forestry and fishing, as its manufacturing sector continues to shrink. The share of manufacturing in GDP now stands at around 6 per cent which is less than half what was four decades ago. Despite the longest growth stint, Australia still remains a primary-producing, two-speed economy.

    Australia’s terms of trade — the ratio of the nation’s export prices to its import prices — grew by 9.1 per cent, thanks to strong price rises in coal and iron ore, marking a 15.6 per cent improvement on the December 2015 quarter.

    Thus, Australia’s economic growth continues to be driven by commodity price booms, behind which is the economic expansion in emerging Asian economies, mainly China and India. If these economies sneeze, Australia will catch a cold. Hence, the Treasurer is correct, the “nation’s growth cannot be guaranteed”; it cannot be sustained.

    Even if it is sustained, it is not sustainable in the sense of ensuring social stability and protecting the environment. Australia’s current development trajectory is unlikely to achieve the Agenda 2030, the most ambitious and transformative goals for sustainable development adopted by the nations of the world in September 2015 at the United Nations.

    Let us reflect on some key indicators. First, Australia’s official unemployment rate edges up to 5.9 per cent in February, from 5.7 per cent in January, while underemployment skyrocketed to 1.1 million. The staggering underemployment is more a structural problem than a result of cyclical phenomena. The rise in unemployment and underemployment happened, even when we were told that labour market flexibility would boost employment – the main argument put forward in supporting recent cuts in penalty rates.

    Second, even without the penalty rate cuts, wages growth has been stagnant. The 1.1 per cent GDP growth that technically saved the economy from a recession, was accompanied by falling employee compensations by 0.5 per cent.

    Thus, the 0.9 per cent increase in household consumption, contributing 0.5 per cent to growth, which according to the Treasurer, was a key factor in bolstering the post-mining boom economy, seems to have been debt-driven. No wonder, Australia’s household debt at close to 125 per cent of GDP, is now the third highest in the world. At 187 per cent of household income, the RBA’s worries about household debts are not unfounded.

    Third, the divide between rich and poor is growing in Australia, according to a new national survey, which found more than a quarter of households have experienced a drop in income. At the same time, the socio-economic conditions of indigenous Australians remains shamefully at the Third World level. They don’t live as long as other Australians. Their children are more likely to die as infants. And their health, education and employment outcomes are worse than non-Indigenous people. Despite promising to close this gap on health, education and employment, the 2017 “Closing the Gap” report card finds that we are failing on six out of seven key measures. With less than year until the first wave of “Closing the Gap” deadlines, the road to reducing Indigenous disadvantage appears ever longer.

    Fourth, the latest Australia’s Environment Report 2016 reveals that Australia’s biodiversity is under increased threat and has, overall, continued to decline. It also reveals that pressures on the environment has increased from coalmining and the coal-seam gas industry, habitat fragmentation and degradation, invasive species, litter in our coastal and marine environments, and greater traffic volumes in our capital cities.

    While the quality of growth and overall socio-economic well-being continue to regress, what is the response from government? Regrettably, it is the same mantra: “repair the budget”; “cut welfare expenditure”; “cut wages and employment conditions”; “cut company tax”; “cut environmental regulation”, etc.

    Why these cuts? Because they will help keep our triple A credit rating! In the words of the Treasurer, “We must take the necessary steps to keep expenditure under control structurally, to boost investment, to maintain the AAA credit rating…”

    That is a huge leap of faith in the face of contrary findings world-wide, including Australia, that these sorts of measures do not boost investment; they do not fix the structural problems in the economy; they do not close the societal divide (between the rich and the poor, between indigenous peoples and the rest of Australia); and they do not protect our biodiversity or mitigate pressure on our environment.

    Public policies for structural transformation and environmentally sound, inclusive growth are for the brave hearts, not for the meek who remain hostage to the unaccountable credit rating agencies.

    The post Don’t Pop Champagne Corks Over Longest Growth Streak appeared first on The Australia Institute's Centre for Future Work.

  • Pain of penalty rate cuts can not be avoided through transition measures

    Analysis from The Australia Institute’s Centre for Future Work has shown that proposals for phasing in lower penalty rates for work on Sundays and holidays will not “protect” the workers affected by those cuts, and in some cases would make things worse.

    Simulations of various proposals from political and business leaders for deferring lower penalty rates, making offsetting adjustments in base wages, and/or “grandfathering” the wages of people already employed in the sector, suggest that none are capable of truly avoiding the resulting hardship.

    “Taking several years to implement a painful, damaging policy does not erase the impacts of that policy,” said Jim Stanford, Economist and Director of The Centre for Future Work, and the report’s author.

    “There appears to be a lack of understanding by some as to how much Sunday and holiday wages will fall under these proposals. A wage cut of that scale can’t be disguised simply by introducing it in stages.”

    The Centre’s report investigates the Prime Minister’s suggestion that penalty rate cuts could be “offset” by the impact of normal wage increases over time. At current rates of wage growth, it would take 17 years until higher base wages for retail workers fully offset the effect of lower penalty rates on nominal incomes.

    CFW Pen rate

    Making matters worse, ongoing inflation during those 17 years would reduce the real purchasing power of wages by 22 percent: almost equal to the reduction in Sunday pay proposed.

    Another transition proposal is to lift the minimum wage for retail and hospitality workers – either gradually or all at once. The report shows that this would substantially increase weighted average labour costs across retail and hospitality sectors by up to 25 percent (since the higher base wage must be paid to workers on other days of the week, too). This approach would be fiercely resisted by retail and hospitality employers.

    “Grandfathering” wages of existing retail and hospitality workers is also not feasible, largely because employers can easily reschedule existing workers to other days of the week, or even end their employment altogether.

    “The reduction in penalty rates for retail and hospitality workers will have a significant, negative impact on hundreds of thousands of employees, who are already among Australia’s most low-paid, insecure workers.

    “It is impossible to imagine a phase-in system to protect their compensation, when the whole point of this decision is to reduce it,” Stanford said.

    Stanford noted that lower penalty rates will exacerbate the problem of wage stagnation, which he argues is a more serious threat to growth and job-creation in Australia than penalty rates.

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

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

    Penalty rate cut: how did it happen?

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

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

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

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

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

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

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

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

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

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

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

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

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

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  • Cutting penalty rates will reinforce wage stagnation

    The Fair Work Commission’s decision to reduce penalty rates for Sundays and holidays in retail and hospitality jobs will reinforce wage stagnation and further widen income inequality, which is bad news for the economy as a whole, according to Dr. Jim Stanford, Director of the Centre for Future Work at the Australia Institute.

    “It’s painfully ironic that the Fair Work Commission’s decision was released just a day after the ABS confirmed the pace of Australian wages had already slowed to the worst in the history of their data,” Dr. Stanford said.

    “With household incomes going nowhere, and the economy slowing accordingly, now is the time to support the wages of low-income workers, not suppress them further.”

    “The economic argument that business will open longer, creating jobs has no basis. It will simply spread limited demand, and therefore jobs, over a longer period without increased employment.”

    ABS data released on Wednesday showed annual wage increases in the year to December 2016 fell to just 1.87 percent. Wages in retail and hospitality already lag far behind economy-wide averages, and part-time and casual jobs are the norm.

    Record low wage growth

    “Worse yet, workers in these sectors also face widespread wage fraud and violation of minimum wage laws, as documented at employers like 7-11 stores and Domino’s Pizza.”

    “By cutting Sunday and holiday penalty rates to as low as 125 percent, the Commission’s decision will significantly damage incomes for workers who already face precarious schedules and incomes.”

    Dr. Stanford was especially critical of claims that lower weekend wages will spur new job-creation in retail and hospitality.

    “It is elementary economics that employment in service sectors like retail and restaurants is constrained by the level of consumer demand, not by the level of wages.”

    “Lower wages will not lead to lower prices, they cannot boost consumer spending, and they will not create new jobs. In fact, by further suppressing labour incomes, this decision will undermine economic growth and job-creation even further.”

    “The idea that more businesses will open up on a Sunday and this will lead to more employment is also flawed logic. Since total demand will remain unchanged, a business will simply sell the same amount over 7 days instead of 6 days,” Stanford said.

    Read our previous polling of public attitudes to cutting penalty rates.

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