My Blog

Tag: Economics

  • 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.

    The post Economists Debunk Job-Creation Claims of Penalty Rate Cut appeared first on The Australia Institute's Centre for Future Work.

  • 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.

    The post Pain of penalty rate cuts can not be avoided through transition measures appeared first on The Australia Institute's Centre for Future Work.

  • 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.

    The post Employers’ pyrrhic penalty rates win reflects self-defeating economics appeared first on The Australia Institute's Centre for Future Work.

  • 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.

    The post Cutting penalty rates will reinforce wage stagnation appeared first on The Australia Institute's Centre for Future Work.

  • Economic Aspects of Paid Domestic Violence Leave Provisions

    Economic insecurity is one of the greatest factors inhibiting victims of domestic violence from escaping violent situations at home. To address that problem unions and employers have developed paid domestic violence leave provisions which allow victims to attend legal proceedings, medical appointments, or other events or activities related to the violence they have experienced, without risk of lost income or employment. Proposals have now been made to extend that provision to more Australian workers, by including a paid domestic violence leave provision in the Modern Awards (presently being reviewed by the Fair Work Commission), and/or by including it as a universal entitlement under the National Employment Standards.

    This report considers the likely impact of such an extension on the payroll costs of employers, and finds it to be so small it would be difficult to measure: we estimate that incremental payments to workers taking the leave would amount to one-fiftieth of one percent (0.02%) of current payrolls.

    These findings refute recent statements by Commonwealth Finance Minister Mathias Cormann, who recently described domestic violence leave as “another cost on our economy that will have an impact on our international competitiveness.” His government has opposed extending the provision — at least not until the Fair Work Commission has completed its review.

    The idea that a 0.02 percent increment to payrolls (less than one hundredeth of a percent of last year’s increase in average weekly wages) would even be noticed internationally, let alone undermine our “competitiveness,” is not credible. Worse yet, this argument misunderstands the nature of competitiveness in a modern, innovation-driven economy. Cementing a reputation as a safe, high-quality, inclusive place to live is beneficial to national competitiveness, and paid leave for victims of domestic violence would be an important symbol of Australia’s commitment in that regard.

    The post Economic Aspects of Paid Domestic Violence Leave Provisions appeared first on The Australia Institute's Centre for Future Work.

  • ABCC will do nothing for housing prices: Report

    Prime Minister Turnbull blamed construction workers and their union for the high cost of housing, when he re-introduced the ABCC bill in Parliament last month, claiming the bill would help “young Australian couples that can’t afford to buy a house because their costs are being pushed up by union thuggery.”

    But new research from the Centre for Future Work shows there is no statistical correlation between construction unionization or construction wages, and the soaring cost of housing.

    “The government’s claim that construction labour costs explain the rising price of housing has no basis in evidence,” Director of the Centre for Future Work, Jim Stanford said.

    “The suggestion that restricting union activity in construction can somehow deflate the great Australian property bubble reveals a critical misunderstanding of the Australian housing market.”

    The study provides detailed statistics regarding housing prices, union membership, wage growth, total construction costs, and replacement building costs. The report finds that:

    • Construction wages have grown more slowly than the Australian average over the last five years.
    • Real wage gains in construction have been slower than real productivity growth, and hence real unit labour costs in construction have declined.
    • Construction labour accounts for only 17-22 percent of the total costs of new building.
    • Construction costs, in turn, account for less than half the market value of residential property.
    • Construction labour costs correspond to less than 10 percent of housing prices (and even less than that in Australia’s biggest cities).
    • Construction labour accounts for about the same proportion of a house purchase as real estate commissions and stamp duty.

    “Homes in Australia are fast becoming unaffordable, even for the workers who build them. On average, a construction worker now needs 9.2 years of pre-tax earnings to purchase a median home – up 25 percent from just four years ago.

    “If the government is genuine in its desire to make housing more affordable in Australia, it should turn its attention to the real causes of the problem. Better policy responses would include measures to cool off property speculation, more carefully regulate the banking sector, and reform property-related taxes,” Dr Stanford said.

    The post ABCC will do nothing for housing prices: Report appeared first on The Australia Institute's Centre for Future Work.

  • New figures show Australians taking less annual leave

    “This year, Go Home On Time Day will focus on the need for Australian workers to be entitled to, and to feel safe in taking their holiday leave,” Director of The Australia Institute’s Centre for Future Work, Jim Stanford said.

    The Centre for Future Work, which is coordinating this year’s event, published a report which revealed growing number of Australian workers do not qualify for, or are not taking their entitled paid holiday leave.

    A study of 891 workers showed:

    • Almost one-third (32%) don’t have access to paid holiday leave.
    • Over half of those with annual leave didn’t take their whole entitlement.
    • That result would equate, across the whole labour market, to 48 million unused holiday days, worth $11.1 billion – annually.

    “About half of those who responded cited work-related pressures as inhibiting their leave: including being too busy, having too much to do, being reluctant to ask, or worried it would affect their job security or promotion chances.

    “We don’t want to see a nation of empty beaches, unblackened sausages and grandparents waiting too long between visits.

    “We do want to see refreshed workers who have had the chance to spend some quality time with their families,” Stanford said.

    The Unpaid Overtime Calculator app has been used by thousands of Australians, collecting data on excessive hours of work, this year including the provision and use of holiday leave.

    In addition to the growing inaccessibility of paid holidays, the survey data also revealed that the average full-time worker in Australia loses 5.1 hours per week to unpaid overtime – or 264 hours per year. Workers donate $116 billion dollars’ worth of hours to their bosses, every year.

    The post New figures show Australians taking less annual leave appeared first on The Australia Institute's Centre for Future Work.

  • Hard to Get Away: Is the paid holiday under threat? (GHOTD 2016)

    The focus of this year’s Go Home on Time Day is the threat to the “Great Aussie Holiday.” Thanks to the rise of precarious work in all its forms, a growing share of Australian workers (about one-third, according to our research) have no access to something we once took for granted: a paid annual holiday. Moreover, about half of those who ARE entitled to paid annual leave, don’t use all of their weeks – in many cases because of work-related pressures. And recent decisions by the Fair Work Commission allowing for the “cash out” of annual leave, mean that this great cultural institution – the Aussie holiday – is very much in jeopardy.

    Check out our special in-depth report, prepared by Troy Henderson of the University of Sydney, documenting these multiple threats to the Aussie holiday, and cataloguing the many economic, social, and health consequences that occur when we don’t get a break from work.

    The post Hard to Get Away: Is the paid holiday under threat in Australia? appeared first on The Australia Institute's Centre for Future Work.

  • Go Home on Time: Wednesday 23 November

    This year’s Go Home on Time Day is Wednesday, November 23. Visit our special Go Home on Time Day website for more information, to download posters and other materials, and use our online calculator to estimate the value of YOUR unpaid overtime.

    The focus of this year’s Go Home on Time Day is the threat to the “Great Aussie Holiday.” Thanks to the rise of precarious work in all its forms, a growing share of Australian workers (about one-third, according to our research) have no access to something we once took for granted: a paid annual holiday. Moreover, about half of those who ARE entitled to paid annual leave, don’t use all of their weeks – in many cases because of work-related pressures. And recent decisions by the Fair Work Commission allowing for the “cash out” of annual leave, mean that this great cultural institution – the Aussie holiday – is very much in jeopardy.

    Check out our special in-depth report, Hard to Get Away: Is the paid holiday under threat in Australia?, prepared by Troy Henderson of the University of Sydney, documenting these multiple threats to the Aussie holiday, and cataloguing the many economic, social, and health consequences that occur when we don’t get a break from work.

    We have also updated our regular calculations of the value of workers’ time that is effectively “stolen” each year by employers through massive amounts of unpaid overtime regularly worked in all industries and occupations: Excessive Hours and Unpaid Overtime: An Update.

    The post Go Home on Time: Wednesday 23 November appeared first on The Australia Institute's Centre for Future Work.