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Author: Jim Stanford

  • Australia does not have a “productivity crisis” – new research

    Australia does not have a “productivity crisis” – new research

    by Jim Stanford

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    New research by The Australia Institute reveals there is little evidence of a “productivity crisis” in Australia, despite claims to the contrary from business leaders and politicians. 

    Like the rest of the world, productivity has been sluggish since the COVID pandemic, but that is largely due to businesses failing to adequately invest in machinery, equipment, technology and skills, at a time when many are recording record profits.

    The research also reveals that disappointing productivity is not the cause of the problems facing Australian households, like falling real wages, high prices, high interest rates and the unaffordability of housing.

    Key findings:

    • If real wages had grown at the same rate of productivity since 2000, average wages would be 18% – or $350 per week – higher.
    • Australian businesses now invest less than half as much in research and development as those in other OECD countries.
    • Higher productivity does not automatically “trickle down” to workers in terms of improved wages or living standards.
    • Productivity benefits are trending toward high-paid executives, shareholders and profits, rather than workers.
    • Business claims that productivity can be improved by wage cuts, tax cuts, deregulation or reduced unionisation are false.
    • The idea that workers should “tighten their belts and make do with less” to improve productivity is a lie.

    “Productivity has become an excuse for big, profitable businesses to do whatever they like,” said Greg Jericho, Chief Economist at The Australia Institute‘s Centre for Future Work.

    “Peter Dutton said he’d tear up the new right-to-disconnect laws, saying they hampered productivity, as if allowing employers to call staff any time of the day or night would somehow make them more efficient. This research dispels that kind of nonsense.

    “Australia’s so-called ‘productivity crisis’ is massively exaggerated. Low productivity is not to blame for the problems facing households today, like soaring interest rates, prices or low wage growth.

    “This research also shows that sluggish productivity is caused by companies investing far less in things like machinery, equipment and research.

    “The benefits of productivity should not go straight to profits, shareholders or fat cat CEOs. They should be shared with workers in the form of wages which grow at a similar rate.

    “That way productivity would deliver its true purpose: to provide economic prosperity and a higher quality of life for everyone.”


    Related research



    Productivity in the Real World



    Productivity in the Real World

  • Productivity in the Real World

    Employment & Unemployment, Tax, Spending & the Budget, Wages & Entitlements

    Productivity in the Real World

    What it is, what it isn’t, and how to make it work better for workers
    by Jim Stanford

    Author

    Jim Stanford

    Media release



    Australia does not have a “productivity crisis” – new research

    Claims that Australia faces a productivity crisis are overblown. Weak productivity didn’t cause the current problems facing Australian workers (falling real wages, high interest rates, unaffordability of essentials like housing and energy). Nor will higher productivity fix these problems.

    Faith that higher productivity will automatically trickle down, to be shared by all workers, is unfounded. Pro-active measures to lift wages and living standards are needed if stronger productivity growth is to support stronger living standards.

    This report presents empirical evidence showing that productivity growth in recent decades has not been equally reflected in higher real wages and better living standards.

    • Productivity grew four times faster since 2000 than average wages adjusted for consumer prices; it grew almost twice as fast as average wages adjusted for producer prices.
    • If workers had received wage increases since 2000 that matched productivity growth, wages would be as much as 18% higher than they are at present – worth $350 per week, or $18,000 per year.
    • Over time, the failure of wages to keep up with productivity has created a “productivity debt” effectively owed to workers, worth hundreds of thousands of dollars per worker.

    The fruits of productivity growth have been disproportionately captured in the form of business profits, dividend payouts, and executive compensation. It is only through deliberate measures to ensure productivity growth is reflected in improved compensation and conditions for workers that Australian workers can have any confidence their contributions to improved productivity will pay off in better lives. Repairing the link between productivity and mass prosperity, by strengthening the institutions of distribution and pushing wealth downward (rather than hoping it will trickle down automatically), is as important to Australia’s future productivity as any labour-saving technological breakthrough.

    The report concludes with a broad agenda of high-level policy themes that should be pursued to challenge and support Australian workplaces to become more productive – and to ensure the resulting gains are broadly shared.



    Productivity in the Real World




    Factsheet
    Australia does not have a “productivity crisis” – new research

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  • Leaving Money on the Table: Foregone Economic Gains from Continued SRS Underfunding

    Education & Training, Public Sector, Procurement & Privatisation

    Leaving Money on the Table: Foregone Economic Gains from Continued SRS Underfunding

    By locking in public school underfunding, Australia misses out on important economic, labour market, and fiscal benefits.
    by Jim Stanford

    Author

    Jim Stanford

    The Commonwealth government’s current offer to fund public schools to just 22.5% of the agreed Schooling Resource Standard would leave much of the current school funding shortfall unrepaired. This would squander many of the economic benefits that would otherwise result from full public school funding. Based on disaggregation of previous estimates of the economic benefits generated by stronger school funding and hence scholastic outcomes, we estimate the failure to fulfil the 25% Commonwealth contribution required for full SRS funding would ultimately forego GDP gains of $3.5 to $5 billion per year, and impose net fiscal costs on government (all levels) of $0.6 to $1.5 billion per year.

    International and Australian research has confirmed the substantial economic and fiscal benefits of well-funded and accessible public schools. Extrapolating international evidence, previous research from the Centre for Future Work estimated cumulating Australian GDP gains reaching $18-$25 billion per year after two decades, as a result of fully meeting SRS funding standards for public schools. Those gains are experienced via increased employment and value-added in the school sector; improved productivity and wage outcomes for school graduates; and reduced income support and social expenditures as a result of better overall education. Higher GDP would in turn generate revenue gains for government that exceed the expense of meeting SRS funding benchmarks in the first place.

    The failure to fully fund public schools is clearly a case of false economy. The relatively small amounts of money ‘saved’ in the near term, are more than offset by long-run underperformance according to numerous indicators: school attainment and completion, productivity, GDP, and fiscal balances. The Commonwealth government is leaving money on the table, with its failure to fully meet SRS funding requirements.



    Full report

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  • The Fiscal, Economic, and Public Health Dangers of Water Privatisation

    Public Sector, Procurement & Privatisation

    The Fiscal, Economic, and Public Health Dangers of Water Privatisation

    by Jim Stanford

    Author

    Jim Stanford

    Safe drinking water and sewage services are one of the most essential elements of public infrastructure in our society. Communities cannot survive and thrive without reliable water services. Providing those services is core business for any municipal or regional government.

    But beyond the obvious importance of good water systems to life, health, and well-being, the water system also constitutes a valuable economic asset in the overall portfolio of public enterprise (see box). Investments in high-quality water and sewage systems represent enormous sums of fixed capital. The financial and operational dimensions of water systems are significant to the fiscal and macroeconomic functioning of the whole state economy.

    In this context, suggestions that the Sydney Water system might be sold to private investors raise a wide range of significant concerns: regarding the efficiency and safety of their continued operation, access to healthy and affordable water services for state residents, and the economic implications for customers, workers, and state government itself. A new research report from the Centre for Future Work reviews some of those concerns, and considers the likely consequences of Sydney Water’s potential privatisation.

    Main findings of the report include:

    • Sydney Water represents an essential public asset, important for both economic as well as public health reasons
    • Sydney Water boasts total assets of almost $24 billion, public equity of $8 billion, annual revenues of $2.8 billion, and dividend and tax payments to the people of NSW that averaged $870 million per year since 2018
    • The state earns far more from dividend payments arising from its equity in Sydney Water, than it would pay in interest on an equivalent amount of public debt
    • Selling the utility would impose a significant fiscal cost on the state through lost dividend and tax revenues
    • Experience with privately-owned water systems in other countries suggests water charges would rise significantly under private ownership, largely because of higher interest costs, higher debt, and higher dividend payouts
    • Based on UK and US studies, Sydney Water customers could see their annual water bills grow under private ownership by 39% to 59% (or by an average of between $174 and $264 per customer per year).

    The report was commissioned by the NSW & ACT Branch of the Australian Services Union.



    Full report

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  • Profit-Price Spiral: The Truth Behind Australia’s Inflation

    Labour Standards & Workers’ Rights, Macroeconomics

    Profit-Price Spiral: The Truth Behind Australia’s Inflation

    by Jim Stanford

    Author

    Jim Stanford

    Media release



    Profit-Price Spiral: Excess Profits Fuelling Inflation & Interest Rates, not Wages

    Workers in Australia have suffered considerable economic losses as a result of accelerating inflation since the onset of the COVID pandemic. Reaching a year-over-year rate of 7.8% by end-2022, inflation has rapidly eroded the real purchasing power of workers’ incomes; average wages are currently growing at less than half the pace of prices. Now, severe monetary tightening by the Reserve Bank of Australia (through higher interest rates) is imposing additional pain on millions of workers. Tens of billions of dollars of household disposable income are being diverted away from consumer spending, into extra interest payments made to banks and other lenders. Most ominously, signs of macroeconomic slowdown from higher interest rates portend job losses and even greater income losses in the month ahead.

    The pain experienced by workers through this inflationary episode contrasts sharply with an unprecedented upsurge in business profitability at the same time. Additional profits resulted from businesses increasing prices for the goods and services they sell, above and beyond incremental expenses for their own purchases of inputs and supplies. This dramatic expansion of business profits (taking gross corporate profits to almost 30% of national GDP, the highest in history) has been mostly unremarked on by the RBA and other macroeconomic policy-makers. They have focused instead on the supposed risk of a ‘wage-price’ spiral. However, new empirical evidence confirms the dominant role of business profits in driving higher prices in Australia – not wages. This suggests the focus of monetary policy on wage restraint is misplaced and unfair.

    Major findings:

    • As of the September quarter of 2022 (most recent data available), Australian businesses had increased prices by a total of $160 billion per year over and above their higher
      expenses for labour, taxes, and other inputs, and over and above new profits generated by growth in real economic output.
    • Without the inclusion of those excess profits in final prices for Australian-made goods and services, inflation since the pandemic would have been much slower than was experienced in practice: an annual average of 2.7% per year, barely half of the 5.2% annual average actually recorded since end-2019.
    • That pace of inflation would have fallen within the RBA’s target inflation band (equal to its 2.5% target plus-or-minus 0.5%). Even within the RBA’s own policy rule, therefore, current painful interest rate hikes would be unnecessary.
    • A second scenario considered below allows for modest nominal inflation in unit profit margins, consistent with the RBA’s 2.5% target – once again, above and beyond the costs of other inputs (including labour and taxes) and the growth of profits due to expanded real output. Even in this scenario, inflation would have averaged just 3.3% since the pandemic, only slightly above the target band, and current harsh interest rate changes would again have been unnecessary.
    • Analysis of the income flows associated with excess inflation since end-2019 confirm the dominance of corporate profits in the acceleration of inflation since the pandemic. Excess corporate profits account for 69% of additional inflation beyond the RBA’s target. Rising unit labour costs account for just 18% of that inflation.
    • The distributional dimensions of post-COVID inflation (falling real wages, falling labour share of GDP, and record corporate profits) are completely opposite from the experience of the 1970s (when real wages rose, the labour share of GDP increased, and corporate profit margins fell). This historical comparison confirms that fears of a 1970s-style ‘wage price spiral’ are not justified. Instead, inflation in Australia since the pandemic clearly reflects a profit-price dynamic.



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  • Carmichael Centre Announces Appointment of Prof. David Peetz as Laurie Carmichael Distinguished Research Fellow

    Carmichael Centre Announces Appointment of Prof. David Peetz as Laurie Carmichael Distinguished Research Fellow

    by Jim Stanford

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    The Carmichael Centre at the Australia Institute’s Centre for Future Work is proud to announce the appointment of Prof. David Peetz, one of Australia’s most outstanding labour policy experts, as the new Laurie Carmichael Distinguished Research Fellow.

    Prof. Emeritus Peetz has recently retired from a long career at Griffith University, where he served as Professor of Employment Relations at the Centre for Work, Organisation and Wellbeing.

    He is also a Fellow of the Academy of Social Sciences in Australia, and author of several important books on labour policy, including: Unions in a Contrary World (1998), Brave New Workplace (2006), and The Realities and Futures of Work (2019).

    Prof. Peetz has provided expert opinion in numerous labour policy forums at the state and Commonwealth level, including providing research and expert input to the Fair Work Commission, and heading an independent review of the Queensland workers compensation system.

    “David Peetz has been a powerful and influential voice for a more balanced and fair approach to labour policy and employment relations for many years,” said Jim Stanford, Director of the Centre for Future Work, host of the Carmichael Centre.

    “His appointment as Distinguished Research Fellow will greatly enhance the capacity and influence of the Carmichael Centre, at a pivotal moment in Australia’s economic and political history,” concluded Dr. Jim Stanford.

    Remarks from Professor David Peetz:

    “The choices we make about labour policy now will shape society for decades, maybe permanently. So it’s an outstanding opportunity to be able to contribute to the formation of those choices through the work of the Carmichael Centre,” Professor Peetz concluded.

    Prof. Peetz will serve a three-year term as Distinguished Research Fellow. The Carmichael Centre was established in 2021 to undertake research and education activities related to the legacy of Laurie Carmichael, the long-time Australian union leader who passed away in 2018.


  • Public Services in the Hunter

    Public Sector, Procurement & Privatisation

    Public Services in the Hunter

    An Engine of Economic and Social Prosperity
    by Jim Stanford

    Author

    Jim Stanford

    The provision of essential public services generates extraordinary and far-reaching economic and social benefits for the Hunter region. A new report prepared by the Centre for Future Work documents the scale of these benefits for workers, families and communities across the Hunter. The fact sheets provide a portrait of the different ways public services build a stronger economy, strong communities, and better lives.

    State-funded programs account for the lion’s share of public service jobs in the Hunter region: over 80% in total (in health care, education, state government, transport, first responders, social services, and more). That means a strong and stable commitment by state government to funding these services will be essential for the Hunter to continue reaping these economic and social benefits.

    Major findings of the report include:

    • Four sectors in which public provision is especially important (including health care, education, public administration and safety, and transportation) account for 35% of total Hunter region employment, and 85% of net job growth, in the last 5 years.
    • State-funded services alone account for almost 30,000 direct full-time equivalent (FTE) positions in the Hunter region, making this sector the largest single employer in the region. Those services add over $3 billion per year to regional GDP.
    • Combined wages and salaries for state public sector workers in the Hunter total $2.65 billion per year – constituting an enormous injection of household income and spending power into the regional economy.
    • State-funded service providers in the Hunter (including hospitals and schools) purchase some $1.3 billion worth of “upstream” inputs, materials, supplies, and services from private businesses in the public sector supply chain.
    • Consumer spending by state public service workers in the Hunter (and those in the supply chain) adds $1.75 billion to the sales of consumer goods and services businesses, most of them located right in this region.
    • For every 10 direct jobs in state-funded public services, there are another 5 indirect jobs in upstream supply chain and downstream consumer industries. In total, 45,000 regional jobs (public and private) depend on continued provision of high-quality state public services.
    • Public sector jobs are an especially important source of work and income for women. Women account for 64% of jobs in major Hunter public sector industries. The gender wage gap in public services is much smaller (12% for full-time ordinary earnings) than in the private sector.
    • Public services are especially important in regional areas, due to dispersed and older populations; greater distances between communities; and limited alternative employment opportunities. State service jobs (FTEs) make up 11.4% of all employment in the Hunter, 2 percentage points more than in Sydney.

    There is an unfortunate tendency in politics to view public services as merely a cost item on a government budget. But in fact they are a vital driver of economic growth and job-creation.

    State-funded public services also support tens of thousands of private sector jobs in the Hunter, both upstream in the supply chain and downstream through consumer goods and service sectors. It is vital to the prosperity of the whole region that these services are supported and well-funded.

    International evidence indicates that quality of life considerations (including community safety, housing, transportation, and culture and recreation) are increasingly vital in attracting new business investment to a region. This requires continued public fiscal support for top-quality public services.

    Please see the full set of fact sheets, Public Services in the Hunter: An Engine of Economics and Social Prosperity, prepared by Jim Stanford below. The fact sheets were commissioned by Hunter Workers.



    Full report

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  • The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    Public Sector, Procurement & Privatisation, Wages & Entitlements

    The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    by Jim Stanford

    Author

    Jim Stanford

    Since 2012 the NSW government has arbitrarily suppressed pay gains for workers in state-funded public services (including health care, education, public administration, emergency services, and more). At first those pay caps were justified as a deficit-reduction measure, and then later as being supposedly tied to inflation trends. But both those arguments have been discarded, given state surpluses in most years since the cap was introduced, and now the dramatic acceleration in inflation (now running more than twice as fast as allowed compensation gains).

    In this new report, Centre for Future Work Economist and Director Jim Stanford adds up the enormous and growing cost of this decade-long wage suppression for nurses, midwives, and other public sector workers in NSW.

    In any given year, the state’s wage cap reduces compensation below what would have been determined under normal free collective bargaining processes. When sustained over many years, however, the wage caps have an exponential effect in suppressing compensation levels. That’s because each year’s continued wage cap is applied against a lower starting wage base. Over time, the gap between capped and negotiated pay widens dramatically.

    The report estimates that compared to long-run pre-cap compensation trends, experienced nurses and midwives made $335 less per week in 2021-22 (or $17,500 less for the year) compared to pre-cap trends. On a cumulative basis, they have already lost $80,000 in compensation since the caps were introduced.

    But that pay suppression will continue to get worse if the caps are maintained. By 2023-24, on the basis of the government’s stated plan to suppress compensation growth to 3% and 3.5% (and restrain wages even lower, after adjusting for superannuation), the loss in wages will grow to $390 per week (or over $20,000 for the year), and the cumulative loss for someone who has worked throughout the wage cap period will reach $120,000.

    Worse yet, for three consecutive years, the NSW pay caps have reduced wage growth well below inflation, resulting in a significant erosion of real wages for nurses, midwives and other public sector workers. Public sector workers will see real purchasing power decline by 7.5% by end 2023-24 (on the basis of RBA inflation forecasts and the NSW government’s stated cap). That is equivalent to a loss of $6750 for a full-time experienced nurse or midwife.

    The economic pain experienced by public sector workers will not even stop when they retire. Because superannuation contributions are tied automatically to wages, nurses, midwives, and other public sector workers have lost thousands of dollars in superannuation contributions from their employers — and thousands more in foregone investment income on those contributions. That will translate into reduced superannuation balances and pension income after retirement. Already, an experienced nurse or midwife has had their pension income reduced by $1000 per year, and those losses will get larger the longer the pay caps are maintained. And because of the sustained suppression of their wages (and hence their superannuation savings), the goal of a decent stable retirement is increasingly out of reach for many NSW workers — especially for women, and especially for those who do not own their home. The report indicates that under existing capped wages, a nurse or midwife who is single, female, and rents their accommodation will accumulate less than half of the superannuation savings required for them to meet the ASFA comfortable retirement income threshold.

    In summary, the NSW’s ongoing suppression of pay for public sector workers, whose commitment has been essential to helping NSW residents through the pandemic, is arbitrary, anti-democratic, and economically damaging. The report recommends that the government abandon this policy, and instead engage in normal pay negotiations with public sector workers and their unions, on the basis of normal wage determinants.



    Full report

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  • An Economy That Works for People

    Macroeconomics, Wages & Entitlements

    An Economy That Works for People

    by Jim Stanford

    Author

    Jim Stanford

    Selected media impact

    The new Commonwealth government is hosting a major Jobs Summit in September 2022, bring together representatives from a range of stakeholder groups to discuss the challenges facing Australia’s labour market, and how to achieve strong employment, job quality and security, and better skills and training opportunities.

    In preparation for the Summit, the Australian Council of Trade Unions is publishing a series of discussion papers to spark dialogue over key issues that will be discussed at the event. The first of these papers, on the failures of past macroeconomic policy and the need for better approaches, was prepared with input from Jim Stanford, Director of the Centre for Future Work.

    The 23-page report, titled An Economy That Works for People, first reviews the legacy of the last decade of one-sided macroeconomic and labour market policies from former Coalition governments. Boosted by government actions to reduce taxes, labour costs, and regulations, corporate profits have swelled to the highest share of GDP (almost 30%) in history. But that profit has not translated into investment or innovation: at present just 37 cents of each dollar in profit is reinvested in new projects. Meanwhile, the share of GDP going to workers has never been lower since records have been kept: falling to just 45% in 2022. This redistribution of income from workers to businesses is not just a moral failure. The impact of swelling profit margins on inflation, and the drain in spending power arising from uninvested profits, are holding back Australia’s economy considerably.

    An Economy That Works for People

    The paper discusses the causes and consequences of the current surge in inflation in detail, providing conclusive evidence the problem did not arise in the labour market. To the contrary, labour costs have servedto reduce inflation: nominal unit labour costs grew only 2.1% over the last 12 months (below the RBA inflation target), while unit profit margins surged (by over 14%).

    The paper also reviews statistical evidence on Australia’s productivity growth, and in particular on the failure of productivity growth to be reflected in rising real wages. Real put per hour of work has increased 13% over the past decade: not outstanding, but still positive and steady. Real wages, in contrast, have gone nowhere — and are now falling rapidly in the face of accelerating inflation. Rather than risking an economy-wide recession with rapid interest rate hikes (which impose the worst burden on workers and indebted households), the paper calls for a more multi-dimensional and targeted approach by government (supplementing actions by the RBA) to gradually bring inflation down without causing mass unemployment.

    The paper makes 6 specific recommendations for macroeconomic reforms to ensure working Australians share fairly in the benefits of future growth. The first is to elevate full employment in decent jobs as the central goal of macroeconomic policy, and to ensure that all policy interventions (including from the RBA, the Commonwealth government, and other regulatory agencies) are consistent with that top goal.

    Release of the paper generated extensive media coverage and public debate (which was its goal!): including stories in The Guardian, the ABC, The Sydney Morning Herald, The Australian Financial Review, and The Australian. In this feature interview with 2CC Radio host Leon Delaney, Dr Stanford discusses the main recommendations of the report, and whether it is really such a ‘radical’ idea to make full employment the top goal of economic policy:



    Full report

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  • More Resources on Australia’s Wages Crisis

    More Resources on Australia’s Wages Crisis

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    The debate over wages, prices, and living standards heated up even further this week, with the release of new ABS statistics showing continuing weakness in wages despite the acceleration of inflation. The latest data from the ABS Wage Price Index (WPI) shows nominal wages grew just 2.4% over the 12 months ending in March. That is less than half as fast as consumer prices grew (5.1%), producing the biggest decline in real wages this century.

    Our Centre continues to develop resources documenting the dimensions and causes of declining real wages, and countering the claim that trying to protect real living standards (by boosting wages at least as fast as inflation) will somehow cause hyperinflation and economic ruin.

    Our new landmark report, The Wages Crisis: Revisited, provides comprehensive data on the scale of Australia’s wage slowdown – which began in earnest around 2013. Even after the dramatic events of the COVID-19 pandemic, and the surprising decline in the official unemployment rate (now slightly below 4%), wage growth has only regained the same sluggish pace demonstrated for several years before COVID. And with consumer price inflation accelerating, weak nominal wage growth is now corresponding to major erosion in real wages.

    The three authors of that report – Prof Andrew Stewart from the Adelaide Law School, Assoc Prof Tess Hardy from Melbourne Law School, and the Centre for Future Work’s Director Jim Stanford – participated in a webinar hosted by our colleagues at the Australia Institute. They reviewed the main findings of the report, and answered several questions from the audience about the wages crisis and possible solutions. The webinar was hosted by Ebony Bennett, Deputy Director of the Australia Institute.

    Our team has also been working to analyse the implications of the latest wages data for real incomes, macroeconomic performance – and the federal election, in which wages have emerged as a major point of contention. Please see the following analysis from our team:

    Our team will continue to research the dimension, causes, consequences, and potential solutions to the worsening wages crisis in the coming weeks — no matter who wins Saturday’s election!


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