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  • The Paradox of Rising Underemployment and Growing Hours

    The Paradox of Rising Underemployment and Growing Hours

    by Anis Chowdhury

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

    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.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • Budget Wrap-Up

    Budget Wrap-Up

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    Commonwealth Treasurer Scott Morrison tabled his 2017-18 budget in Parliament House on May 9, and the Centre for Future Work’s Director Jim Stanford was there in the lock-up to analyse its likely impacts. Here are some of our main impressions and comments:

    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.


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    Commonwealth Budget 2025-2026: Our analysis

    by Fiona Macdonald

    The Centre for Future Work’s research team has analysed the Commonwealth Government’s budget, focusing on key areas for workers, working lives, and labour markets. As expected with a Federal election looming, the budget is not a horror one of austerity. However, the 2025-2026 budget is characterised by the absence of any significant initiatives. There is

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • Economists Debunk Job-Creation Claims of Penalty Rate Cut

    Economists Debunk Job-Creation Claims of Penalty Rate Cut

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    The Fair Work Commission has ruled that penalty rates for Sunday and public holiday work in the retail and hospitality sectors should be reduced, which would reduce hourly wages on those days by up to $10 per hour. Business lobbyists predict this will spark a hiring surge in stores and restaurants, as employers take advantage of lower wages to extend hours and ramp up operations. The economic logic of this claim is highly suspect, however – especially in light of the fundamental factors which truly limit employment in these sectors (namely, the sluggish growth of personal incomes). 78 Australian economists have signed a public letter debunking these job-creation claims, arguing that the FWC’s decision will lead to more inequality, not more employment.

    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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    Public letter

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    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

  • Don’t Pop Champagne Corks Over Longest Growth Streak

    Don’t Pop Champagne Corks Over Longest Growth Streak

    by Anis Chowdhury

    Anis Chowdhury

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    On April 1, Australia will surpass the Netherland’s old record to mark the longest unbroken expansion of real GDP in modern history. While this result permits much chest-thumping on the part of some politicians, we should never assume that there is an automatic correlation between GDP growth and the well-being of people, society, and the environment.

    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.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

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

    Employers’ pyrrhic penalty rates win reflects self-defeating economics

    by Jim Stanford in The Sydney Morning Herald

    Jim Stanford

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    Originally published in The Sydney Morning Herald on February 24, 2017

    The Fair Work Commission unveiled its long-awaited decision on penalty rates for Sunday and holiday work this week. Penalty rates for most retail and hospitality workers will be cut, by up to 50 percentage points of the base wage. Hardest hit will be retail employees: their wages on Sundays will fall by $10 an hour or more. For regular weekend workers, that could mean $6000 in lost annual income.

    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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  • Go Home on Time: Wednesday 23 November

    Go Home on Time: Wednesday 23 November

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    The Centre for Future Work is proud to host this year’s Go Home on Time Day. It’s the eighth annual edition of this event, which draws light-hearted attention to a serious issue: the economic, social, and health consequences of excess working hours.

    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.


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  • What’s Wrong With Privatization?

    What’s Wrong With Privatization?

    by Jim Stanford

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    You know that the tides of public opinion are starting to turn, when even the head of the Australian Competition and Consumer Commission, Mr. Rod Sims, will come out in public and criticize the usual claims that privatization is good for efficiency and national well-being.

    Our Director Jim Stanford recently spoke with Unions NSW about this surprising development, and the general flaws in the argument for privatization.


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    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • The Flawed Economics of Cutting Penalty Rates

    The Flawed Economics of Cutting Penalty Rates

    by Jim Stanford

    Jim Stanford

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    It was a “sleeper” issue in the recent election, and led to the defeat of some high-profile Liberal candidates.  But now the debate over penalty rates for work on weekends and public holidays shifts to the Fair Work Commission.  The economic arguments in favour of cutting penalties (as advocated by lobbyists for the retail and hospitality sectors) are deeply flawed.

    Penalty rates for working on weekends were an important “sleeper” issue in the recent federal election.  On the surface, both Labor and the Coalition agreed the future of penalty rates would be determined by the Fair Work Commission.  But that superficial consensus couldn’t hide deep differences in what the respective parties were actually hoping for.  Labor explicitly urged the FWC to maintain existing penalties: double-time on Sundays, and time-and-a-half for Saturdays.  Many Coalition candidates, on the other hand, endorsed a reduction in penalties – consistent with the views of business lobbyists who want lower operating costs on weekends.

    At the grass-roots level, meanwhile, the issue resonated strongly with significant numbers of voters.  Union activists launched an 18-month “Save Our Weekend” campaign, knocking on tens of thousands of doors in marginal seats before the election was even called.  Opinion polls showed strong support for retaining (or even increasing) weekend penalty rates; respondents opposed cutting penalties by two-to-one margins, or more.  The swing against the Coalition in ridings targeted by the penalty rates campaign was nearly twice as large (6 percentage points) as the national swing.

    Penalty rates will remain a charged issue in the political arena.  But for now, the main attention shifts to the FWC, whose decision is expected in coming weeks.  The Commission should reject the entreaties of retail and restaurant employers for lower penalties, because the economic case for cutting penalties looks shakier all the time.

    Employers in all sectors routinely claim that cutting wages will strengthen job-creation.  But this purported trade-off between compensation and employment is refuted by macroeconomic evidence.  Indeed, historical data suggest higher wages are more often associated with stronger employment outcomes, not weaker: in part because household consumption spending (which depends directly on wages) is crucial for overall spending power and hence economic vitality.  The retail and hospitality industries have been the most aggressive advocates of weaker penalty rates.  Yet ironically, it is in these sectors that the argument for wage-cutting is weakest of all.

    After all, employment in stores and restaurants depends directly on the level of consumer spending.  And this demand constraint is more binding in domestic service sectors than any other part of the economy.  In export-oriented industries, employers can at least pretend that lower labour costs will boost sales (by undercutting foreign competition and hence winning new business).  Even here the argument is not convincing, since in practice global competitiveness depends more on productivity, quality, and innovation than on low wages.  But in non-traded domestic sectors, where Australians produce services for other Australians, the logic falls apart completely.

    Remember, Australian consumers already spend far more than they earn.  That’s why average consumer debt is growing rapidly: now equal to 125 percent of national GDP.  How could making it less costly for shops and cafes to open on weekends, somehow unleash new reservoirs of spending power, and stimulate tens of thousands of new jobs?  In macroeconomic terms it’s simply not possible.

    Keeping businesses open for longer hours on weekends, doesn’t mean consumers have more money in their wallets.  Instead, the same amount of retail and hospitality spending must now be spread across longer opening hours.  If anything, that hurts productivity and profitability, and will eventually lead to the closure of some retail and hospitality firms that were already operating on the financial edge.

    It’s the same reason why opening a new shopping mall cannot, on its own, increase total employment levels.  Unless there are other factors driving an expansion in broader incomes and spending, opening one store must inevitably lead to a closure somewhere else.

    It’s especially laughable to hope that cheaper weekend labour could somehow attract new business to Australia’s stores and cafes.  Are penalty rate opponents expecting a surge in tourists from China, perhaps – who were just waiting for cheaper Sunday shopping before booking their trips?

    In short, the very industries pushing hardest for reduced penalties – retail and hospitality – are the ones most dependent on the spending power of domestic consumers.  Hence they would directly experience the most economic blowback from their own wage cuts.

    Indeed, there is abundant evidence that unprecedented stagnation in wages is already undermining growth and job creation.  Nominal wages are inching along at their slowest pace in recorded history (barely 1 percent per year).  Real wages, adjusted for inflation, have been falling since 2013.  Economists of all persuasions have highlighted the resulting weakness in household incomes as a key factor behind sluggish growth, rising personal debt, and unemployment and underemployment.

    Ultimately, rolling back penalties would simply constitute a major effective wage cut for workers who are already among the worst-paid in society.  It will exacerbate the broader wage stagnation that is holding back Australian growth.  And it will whet the appetites of other employers for more wage suppression – now on grounds of “keeping up” with the advantages granted to retail and hospitality.

    Australia needs higher wages, not lower.  Let’s hope the Fair Work Commission sees this big picture.


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    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • Looking for “Jobs and Growth”: Six Infographics

    Looking for “Jobs and Growth”: Six Infographics

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    We have prepared six shareable infographics based on material in our research paper, “Jobs and Growth… and a Few Hard Numbers,” which compared Australia’s economic performance under the respective postwar Prime Ministers.

    The infographics summarize several of the specific economic variables considered in the full report, dating back to 1950 (and Prime Minister Menzies) in most cases.

    Average Annual Growth, Real Wages
    Average Employment Rate
    Growth in Personal Debt
    Average Annual Growth, Business Investment
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    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have

    Centre For Future Work to evolve into standalone entity

    The Centre for Future Work was established by the Australia Institute in 2016 to conduct and publish progressive economic research on work, employment, and labour markets. Supported by the Australian Union movement, the centre produced cutting edge research and led the national conversation on economic issues facing working people: including the future of jobs, wages

  • Jobs and Growth… and a Few Hard Numbers

    Jobs and Growth… and a Few Hard Numbers

    by Jim Stanford

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    Voters typically rank economic issues among their top concerns. And campaigning politicians regularly make bold (but vague) pronouncements regarding their competence and credibility as “economic managers.”  In popular discourse, economic “competence” is commonly equated with being “business-friendly.”

    However, the economy consists of more than just private businesses – and certainly more than the large businesses which attract the main attention from politicians and reporters.  Other stakeholders are at least as crucial for powering real economic progress: including workers, households, governments at all levels, small businesses, public and non-profit institutions, NGOs and the voluntary sector, and more.  So being “business-friendly” is no guarantee that the real economy (measured by employment, output, and incomes) will automatically improve.  Having a more complete understanding of all of the different ingredients required for economic progress is necessary, in order to properly analyze the likely impact of specific measures.

    To demonstrate the lack of correlation between a government’s stated economic orientation, and the actual performance of the real economy, this briefing paper compiles historical data on twelve standard indicators of economic performance: including employment, unemployment, real output, investment (of various forms), foreign trade, incomes, and debt burdens.  Consistent annual data is gathered going back to the 1950s, allowing for a statistical comparison of Australia’s economic record under the various post-war Prime Ministers.  We compare Australia’s economic performance under each Prime Minister, on the basis of these twelve selected indicators.

    There is no obvious correlation between these respective swings in Australia’s economic history, and the policy orientation of the government that oversaw them. And the statistical review indicates that the present government, regardless of its business-friendly credentials, has in fact presided over one of the weakest economic periods in Australia’s entire postwar history.


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    Dutton’s nuclear push will cost renewable jobs

    by Charlie Joyce

    Dutton’s nuclear push will cost renewable jobs As Australia’s federal election campaign has finally begun, opposition leader Peter Dutton’s proposal to spend hundreds of billions in public money to build seven nuclear power plants across the country has been carefully scrutinized. The technological unfeasibility, staggering cost, and scant detail of the Coalition’s nuclear proposal have