My Blog

Category: Wages & Entitlements

  • Penalty Rates and Employment: One Year Later

    Wages & Entitlements

    Penalty Rates and Employment: One Year Later

    by Jim Stanford and Tanya Carney

    Authors

    Jim Stanford

    Tanya Carney

    Media release



    Penalty rate cuts fail to ignite jobs boom

    On 1 July 2018, workers in several retail and hospitality industries will experience a second reduction in the penalty rates they receive for working on Sundays and public holidays.  The reductions were ordered by the Fair Work Commission, and follow an initial reduction imposed on 1 July 2017.

    Employer representatives argued that by reducing labour costs for work on Sundays and holidays, lower penalty rates would spur a big expansion in employment, via both new hiring and longer hours for existing workers.  One lobbyist predicted 40,000 new jobs.  Another said improved employment was “a certainty.”

    But a new report from the Centre for Future Work has examined employment and working hours in the retail and hospitality industries in the year since the first penalty rate reduction.  Far from spurring a jobs boom in the two sectors, they have actually significantly underperformed the rest of the economy on all of the indicators considered.

    The report reviews detailed data on employment, full-time employment, average hours of work, underemployment, and the incidence of short-hours work (under 20 hours per week).  By all these criteria, the retail and hospitality sectors performed among the worst of any other industries in the year since penalty rates were first cut.  Most industries where penalty rates did not change, created more work than the two sectors where penalty rates were cut.

    The retail sector in particular has performed very badly relative to the rest of the economy.  Total employment was unchanged in the year ending in May 2018 (according to most recent ABS data).  Full-time employment declined by 50,000 positions.  Average weekly hours of work declined by more than a full hour, and the underemployment ratio (share of workers who want more hours) grew almost 2 percentage points.

    The report does not suggest that lower penalty rates caused this poor performance (although it probably incrementally worsened underlying macroeconomic weakness, in particular stagnation in consumer incomes, that is the main cause of poor employment performance).  But the data certainly disprove inflated claims by employers and government that by cutting labour costs, the penalty rates decision would unleash a jobs boom in retail and hospitality.

    If we really want to strengthen employment conditions (in these and other sectors), we must emphasize stronger wages and incomes, stronger public and private investment, and strong purchasing power throughout the economy.  Cutting penalty rates (and other policy measures that have suppressed wage growth in recent years) won’t solve those problems — it will make them worse.



    Full report

    Share

  • Wages, Taxes, and the Budget

    Tax, Spending & the Budget, Wages & Entitlements

    Wages, Taxes, and the Budget

    by Jim Stanford and Troy Henderson

    Authors

    Jim Stanford

    Troy Henderson

    The Coalition government’s 2018 budget features a plan to cut personal income taxes for many Australians over the next several years. The government claims it wants to reward lower- and middle-income wage-earners with tax savings.  However, the biggest personal tax reductions would not be experienced until 2022 and beyond (after at least two more federal elections).  And the biggest savings go to those with incomes over $200,000 per year (the richest 3 percent of tax-filers).

    Our Briefing Note on the 2018 Budget explores the relationships between wages and taxes, and shows that working to reverse the recent unprecedented wage stagnation is the key to achieving ongoing improvements in living standards – not pre-election tweaks in the tax code.

    Our budget analysis finds that:

    • The boost in disposable incomes for most Australians from these changes will be miniscule, not making any measurable difference to their standard of living.
    • The biggest cause of stagnating living standards in Australia has been the deceleration of wage increases since 2012. The budget assumes that wage growth will suddenly rebound in coming years to more traditional rates (of 3.5 percent per year). This assumption underpins the government’s revenue forecasts – but there is no plan for achieving faster wage growth.
    • To the contrary, the government’s continuing labour policies will suppress future wage increases. This includes its own 2 percent cap on wage increases for federal public sector workers; the government is restraining wage growth for its own employees to barely half of what it hopes for the whole economy.
    • Restoring normal wage patterns would boost disposable incomes for Australian workers many times more than tweaks to personal tax rates and thresholds.

    For example, for a worker earning $60,000 per year (higher than the median income of Australians), the Coalition tax plan will increase disposable income by $530 by the last year of the budget period (2021-22).  In contrast, annual normal wage increases (of 3.5 percent per year) would boost disposable income that same year by almost $6000 – 11 times as much.



    Full report

    Share

  • Rebuilding the NSW Workers Compensation System

    Wages & Entitlements

    Rebuilding the NSW Workers Compensation System

    by Ian Watson and Jim Stanford

    Authors

    Ian Watson

    Jim Stanford

    Workers compensation benefits in New South Wales were dramatically reduced in 2012 by a newly-elected state government, citing an alleged financial crisis in the system.  Benefit payments (adjusted for inflation) declined 25 percent in just five years – and some cuts are still being imposed on injured workers and their families (including some losing benefits entirely).  But even as injured workers suffered the consequences of these benefit cuts, the financial position of the workers compensation system suddenly transformed from “famine to feast”: the supposedly dire deficit which justified the cutbacks disappeared entirely within one year, and by mid-2013 the fund was already back in surplus.  The system’s total surplus now exceeds $4 billion.

    This report reveals the artificial nature of the supposed crisis which justified the 2012 cuts, and highlights the continuing positive financial trends that are generating ever larger surpluses.  It proposes a five-year timetable for restoring benefits to injured workers in NSW, without increasing average premium levels or incurring funding deficits.

    There is no fiscal or moral justification for injured workers to continue to suffer reduced benefits, while the workers compensation system carries a multi-billion dollar surplus – poised to get even bigger in the years ahead.  Unions NSW commissioned the Centre for Future Work to conduct an independent review of the system’s financial position.  Our full 95-page report, Restoring Dignity and Respect: Rebuilding NSW’s Workers Compensation System, reviews the system’s roller-coaster ride over the past decade, and highlights the artificial and temporary nature of the financial circumstances which were invoked to justify cuts in 2012.  It documents and explains the improvements in injury rates, premium revenue, and financial markets that underpin the continued surplus-generating capacity of the system. 

    The report confirms that ample resources are available to fund a gradual but ambitious repair in benefit entitlements for injured workers in the years ahead, centred around Unions NSW’s 12-point vision for a fair, effective, and sustainable workers compensation system. The report makes 10 core recommendations to the state government and icare directors, including:

    1. Maintain overall effective average premium rates at current level.
    2. Simplify and make more transparent the formulae for calculating premiums for specific employers.
    3. Undertake an independent actuarial review of the cost of reversing specific components of the 2012 policy changes, and otherwise improving benefits (including the twelve reform principles outlined by Unions NSW).
    4. Develop a staged timetable for restoring and enhancing benefits, with liabilities increased by $1 billion annually over the next five years.
    5. Impose a moratorium on the cessation of monthly benefits under Section 39, and restore benefits for injured workers who have been cut off.
    6. Revise capital funding policy to target full funding (100 percent) of adjusted present value liabilities (including a cushion to reflect an 80-percent probability risk margin).
    7. Monitor financial balances of the system, and adjust the timing of benefit improvements accordingly.
    8. Release terms of the contract with EML (now monopoly private provider of core insurance and clams management services to the system), and investigate the potential for in-sourcing its services.
    9. Detailed evaluation of the performance of icare’s investment program to explain fully the recent underperformance of its investment income.
    10. Implement a meaningful tripartite system of consultation and governance.

    Under the five-year timetable, benefits for injured workers would be repaired in several stages, with no increase in average effective premium rates, and still exceeding full funding of obligations (including a $2 billion cushion for risk margin).  There is no fiscal excuse for treating injured workers with the callous disrespect they have endured since 2012.  That legacy cannot be reversed overnight, but it can be reversed with a significant and responsible commitment to rebuild the integrity of the program over the coming years.

    Relative to total labour costs and to NSW’s economy, workers compensation premiums have never been lower: down 60 percent since 2009.  When workplace injuries occur, society has an obligation to provide workers with compensation they can count on.  This report confirms that NSW is fully capable of meeting this responsibility.  It is simply a matter of political and fiscal priority on the part of the state government, to ensure it happens.



    Full report

    Share

  • Inquiry into the BCA Commitment to the Senate

    Wages & Entitlements

    Inquiry into the BCA Commitment to the Senate

    by Jim Stanford, Bill Browne and David Richardson

    Authors

    Jim Stanford

    Bill Browne

    Director, Democracy & Accountability Program

    David Richardson

    Senior Research Fellow

    The present submission questions the Business Council of Australia’s (BCA) Commitment to increasing investment, employment and wages in the event that the outstanding tax cuts are legislated. We looked specifically at the 10 corporate CEOs who made the commitment on behalf of their companies and found some half of those paid no tax. One wonders what their commitment could possibly mean.

    We then examine the logic of the tax cuts, issues to do with dividend imputation, problems with the theory, and problems in the modelling exercises as well as the evidence from cross-country data and the evidence from Australia’s own history. Much of this has been covered in earlier Australia Institute papers but there is a new treatment of the modelling problems. However, we were able to add a new section that examines the early indicators following the Trump tax cuts.

    Many of the same arguments were used by the US promoters of corporate tax cuts as were used in the Australian context. The main difference of course was that the US does not have the complications of dividend imputation. Nevertheless the early indicators are that very little is going to the workers with the bulk of the gains being spent in unproductive activities such as share buybacks and mergers and acquisitions.



    Full report

    Share

  • NSW Workers’ Compensation System has Ample Resources to Maintain Benefits

    Wages & Entitlements

    NSW Workers’ Compensation System has Ample Resources to Maintain Benefits

    by Jim Stanford

    Author

    Jim Stanford

    The workers’ compensation system in NSW has been dramatically scaled back and restructured since the current state government came to office in 2011.  Real benefit payouts have been cut by 30 percent, with the resulting “savings” passed on to employers in lower premiums (down 40 percent over the past decade).  Yet injured workers continue to bear the real cost of these changes, with benefit cuts (and further premium cuts) still occurring.  Over 4000 workers will have their monthly benefits cancelled entirely later this month.

    The changes were all justified by a supposed fiscal “emergency” that existed in 2011, but that deficit was exaggerated and mostly the result of temporary factors connected to the Global Financial Crisis.  Now the system boats a large and growing accumulated surplus.  Annual financial reports released by the NSW workers insurance scheme last week confirm that the system has ample financial reserves with which to fund the maintenance and improvement of benefits for injured workers.

    See our full 4-page fact sheet on the financial condition of the NSW Workers’ Compensation system for more details on the size of the accumulated surplus, other “hidden” financial cushions, and the extent of the benefit cuts that have been endured by injured workers in the state.



    Full report

    Share

  • False Economies: The Unintended Consequences of NSW Public Sector Wage Restraint

    Public Sector, Procurement & Privatisation, Wages & Entitlements

    False Economies: The Unintended Consequences of NSW Public Sector Wage Restraint

    by Troy Henderson and Jim Stanford

    Authors

    Troy Henderson

    Jim Stanford

    Budget-cutting political leaders regularly target the jobs and incomes of public sector workers as the first and most politically convenient target of their austerity measures. But their crusade to balance the books by downsizing headcounts, intensifying work, and freezing the pay of the workers who deliver essential public services can backfire. In this new report, Troy Henderson and Jim Stanford consider the unintended consequences of one prominent austerity measure: the cap on public sector wage increases that has been in place in New South Wales since 2011.

    The report considers the fiscal and economic context for the pay freeze, disproving claims that public sector employment was “bloated” before the freeze was imposed.  It then lists five unintended, harmful side-effects of the ongoing wage cap, including:

    1. Over the five years from 2011 through 2016, the state’s public sector wage suppression reduced consumer spending in the state by a cumulative total of some $3.4 billion, harming businesses large and small.
    2. Australia’s national GDP was reduced by an estimated cumulative total of almost $8 billion over the 2011-16 period.
    3. The NSW government’s wage austerity therefore reduced its own revenue (through that reduction in GDP) by an estimated $1.2 billion over the 2001-16 period.
    4. Each public sector worker’s “workload” increased by 7.5 percent in the last five years – yet the wages policy in fact suppresses true productivity growth in the public sector.
    5. The NSW government’s extraordinary interventions, removing normal wage bargaining rights from a significant and influential section of the state labour market, have contributed to the unprecedented stagnation of wages in the overall state labour market – one that the government itself admits is hampering both economic growth and fiscal well-being.

    The longer the wage cap remains in place, the larger will these costs (of foregone consumer spending, offsetting reductions in state revenues, and the spillover impact onto private labour market outcomes) become.

    This report was commissioned by the NSW branch of the Health Services Union.



    Full report

    Share

  • Wage Suppression a Time Bomb in Superannuation System

    Retirement, Wages & Entitlements

    Wage Suppression a Time Bomb in Superannuation System

    by Jim Stanford

    Author

    Jim Stanford

    The record-slow pace of wage growth in Australia’s economy is not just making it difficult for families to balance their budgets, it also threatens severe long-run damage to Australia’s superannuation retirement system.  That’s the finding of new research from the Centre for Future Work at the Australia Institute.

    A key factor behind the wage slowdown in Australia has been the aggressive measures implemented by employers in recent years to suppress wage growth, and even to significantly cut wages.  These actions directly undermine superannuation savings, and hence the future retirement incomes of affected workers.

    This new report from the Centre for Future Work simulates the impacts of eight specific wage suppression strategies on workers’ superannuation balances – ranging from temporary wage freezes, to wage caps, to more dramatic actions (such as widespread wage theft in retail and fast food franchises, reduced penalty rates for Sunday work, and the outright termination of enterprise agreements).  In every case, workers’ superannuation payments are negatively affected by the suppression in wages below normal trajectories.  The damage is then compounded over many years by the subsequent loss of investment income on foregone superannuation contributions.

    The report estimates that for a 40-year-old worker experiencing one of the simulated wage-suppressing measures, superannuation balances would be cut by between $30,000 and $270,000 by the time they retire.  Simulated effects depend on the worker’s starting income, gender, inflation, and other factors.

    The worst impacts are experienced in the case of enterprise agreement termination, an increasingly common strategy invoked by employers to cut wages by 40 percent or more.  If allowed to stay in place, wage cuts on this scale produce losses in workers’ superannuation savings that can exceed one-quarter million dollars per person.

    Aggregated across the millions of Australian workers who have experienced one or more of these wage-suppressing strategies, the overall costs of continuing wage suppression on superannuation savings would ultimately amount to many tens of billions of dollars.  Based on plausible estimates of the number of workers affected by wage suppression, the report predicts a total loss of superannuation savings that could reach $100 billion (in real 2017 dollar terms). In essence, employers’ efforts to suppress wage growth have planted a time bomb in Australia’s retirement system

    Government (and hence all Australians) will also bear a significant share of the resulting costs: tax revenues on superannuation contributions and investment income will be lower, and payouts of Age Pension benefits will be significantly larger (since workers’ own superannuation incomes will be reduced).  The report estimates the damage to government budgets at between $31 and $37 billion (in real 2017 dollar terms) if these wage suppression measures are allowed to stand.

    This report was commissioned by the Transportation Workers Union.



    Full report

    Share

  • June GDP Numbers Confirm Lopsided Economy

    Macroeconomics, Wages & Entitlements

    June GDP Numbers Confirm Lopsided Economy

    by Jim Stanford

    Author

    Jim Stanford

    This week the ABS released new GDP data, covering the June quarter, which confirm the continuing structural shift away labour toward capital in the distribution of income.

    We have prepared a short briefing note, contrasting the strong growth in corporate profits over the past year with the stagnation of labour incomes. 

    Workers simply do not have the bargaining power to demand and win wage increases that reflect steady productivity growth.  This reflects the erosion of the structures and regulations that once supported wages (including minimum wages, awards, and collective bargaining).  Those who advise workers to simply be patient, wage gains will come as a result of normal supply-and-demand forces, are ignoring this fundamental structural change in Australia’s economy.



    Full report

    Share

  • Economic Impacts of Reductions In Penalty Rates for Sunday & Holiday Work

    Wages & Entitlements

    Economic Impacts of Reductions In Penalty Rates for Sunday & Holiday Work

    by Jim Stanford

    Author

    Jim Stanford

    Our Centre has conducted considerable research into the impacts of the Fair Work Commission’s decision to substantially reduce penalty rates for Sunday and holiday for workers under the terms of the Modern Awards covering four sectors of the economy: fast food, retail, hospitality, and pharmacy. Penalties for Sunday work will be reduced by up to half; penalties will also be reduced for working on public holidays.

    The workforce employed in these predominantly low-wage service sectors already experiences several dimensions of precarious and insecure work arrangements, including a heavy incidence of part-time work, casual work, and irregular hours. The income derived from penalty rates makes an important contribution to the incomes of these workers – who already struggle with balancing their personal and household budgets given these generally irregular work arrangements. Reductions in weekend income will make matters worse for a group which is already struggling. This workforce includes a disproportionate share of relatively disadvantaged populations, including women, young workers, and immigrant workers.



    Full report

    Share

  • Labour Share of Australian GDP Hits All-Time Record Low

    Inequality, Macroeconomics, Wages & Entitlements

    Labour Share of Australian GDP Hits All-Time Record Low

    by Jim Stanford

    Author

    Jim Stanford

    Amidst increasing concerns among economists and budget forecasters about the historic stagnation of Australian wages, the latest GDP statistics from the Australian Bureau of Statistics have confirmed that the proportion of national economic output that is paid to workers has reached an all-time low.



    Full report

    Share