Severe Policy Skills Shortage

A quick update on the IR wars. Kenneth Davidson has a cogent op/ed piece in The Age today demonstrating how lowering the minimum wage would not necessarily contribute to employment, would harm the low-paid, and do nothing for the skills shortage.

The government’s latest gambit is to prevent contractors such as truck drivers from using unions as bargaining agents. Whatever happened to the much vaunted principle of “freedom of association” that the Workplace Relations Act supposedly enshrines?

Brand new Courier-Mail columnist and occasional Troppo commenter Nicholas Gruen has some interesting thoughts on working hours. It may interest people to know as well that the standard of the Courier-Mail op/ed pages is generally much higher than that of the other Murdoch rags.

And, for those wanting to follow the fastest moving “reform” front where policy is made on the run and according to the latest ill thought out whisper in Ministers’ ears from big business, Employment Relations Consultant and Adjunct Lecturer in IR at Griffith Uni, Jim McDonald, has set up a website to track the whole debate, with a very extensive set of links to matters IR generally. Highly recommended!

About Mark Bahnisch

Mark Bahnisch is a sociologist and is the founder of this blog. He has an undergraduate degree in history and politics from UQ, and postgraduate qualifications in sociology, industrial relations and political economy from Griffith and QUT. He has recently been awarded his PhD through the Humanities Program at QUT. Mark's full bio is on this page.
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Rafe
2022 years ago

Many people will not be surprised to read the report from Nicholas Gruen that people are backing off extended working hours. Maybe this is a result of a reality check on the way that the long working days were spent. It is a common observation that a great deal of time is spent in bureaucratic organisations doing things that contribute next to nothing to the bottom line (in the case of private enterprise) or to service delivery (in the case of the public service). Maybe there is a growing awareness that smart and efficent work between 9 and 5 will get the job done, most of the time.

I wonder if the trend that Nicholas documented is a counterpart to the realisation that some of the heavy-handed downsizing of yesteryear was counter-productive in terms of staff morale and also the loss of corporate knowledge? Is there any evidence of compensatory “upsizing”? That would build up staff numbers and presumably reduce the need for long days to produce the same output.

derrida derider
derrida derider
2022 years ago

I consider Fred Argy something of a mate, but I think his article on minimum wages was pretty well dead wrong:
– we’re currently below the NAIRU, as the moaning by employers about skill shortages makes clear. Keynesian unemployment is non-existent at the moment.

– frictional unemployment is a relatively small part of involuntary unemployment in Australia (though one that could be lowered with a little policy effort, which IMO should be done).

– that leaves Fred’s “structural” unemployment. This is an old fashioned concept, BTW, founded in older static rather than modern flow models of the labour market. But even within that framework the obvious question to be faced when there is involuntary structural unemployment amongst the low skilled is why don’t employers offer lower wages in the face of the excess labour?
Well, there are several reasons why they mightn’t – but one of them is award wage legislation (the 1.5m Davidson refers to, BTW, are not those on the Federal Minimum Wage but those on ‘safety net’ awards, some of which are very much higher than FMW). How important this reason is compared to others (efficiency wages, union power, etc)is not addressed by Fred’s paper, but as I’ve argued elsewhere on this blog there are good reasons to think it is important in Australia (unlike countries with much lower minimum wages), and (also unlike many other countries) there’s not much pain in cutting it a bit, while there’s a lot of pain to be relieved by even a small cut in unemployment.

If I lived in the US, I’d be arguing for a *rise* in the minimum wage. In Australia I think there’s a net welfare gain for low-income people in cutting it.

Nicholas Gruen
2022 years ago

DD, What do you think of Quiggin’s and Dowrick’s stuff which suggests that even at its high absolute and relative level, our minimum wage doesn’t harm employment? I know that this may conform with Quiggin’s priors (though I’m not sure) but both are honest scholars and that’s what their econometrics tells them.

Your comment about being for a rise in the US and a fall in minimum wages here reminds me of the trouble I get into when I argue that a lower dollar would be a good thing. Then I argue that a higher dollar might be a good thing. I am accused of inconsistency. (There are three years between these utterances and the dollar has fallen a long way in the meantime).

Michael Warby
2022 years ago

When I read that there was ‘cogent op-ed’ by Kenneth Davidson on the labour market, I thought miracles could happen. Alas no.

The tedious conservatives-are-evil stuff aside, that wages are ‘sticky’ downwards is one of the more robust economic observations. Labour market economics has usefully identified a range of reasons for this.

Minimum wages do not push wages up, they simply exclude those who marginal product is worth less than the wage. The notion that all power rests with employers is simply false — which is what Davidson’s argument implicitly relies on. Those already employed are clearly worth their marginal product and will be paid accordingly.

As for training, that is just the typical “I have no ideas” hand-waving. If there is one thing that is quite clear from decades of experience, govt training for the unemployed is not particularly useful.

Mark Bahnisch
2022 years ago

“govt training for the unemployed is not particularly useful.”

But there isn’t much of it around these days, Michael. What we get is either useless “make work” on work for the dole which doesn’t impart any skills, and whose effects from the evaluations are dubious, or generic training by private providers in things like resume writing. The Keating labour market programmes at least had the virtue of being oriented to skills acquisition.

polly
polly
2022 years ago

“govt training for the unemployed is not particularly useful.”

This also ignores the fact that business should have a role to play in providing training for the skills they will want to utilise and it is in their own interests to do so.

The is much talk at the moment about skills shortages and how this may push up wages. Well bugger me if they had spent some of their profits on training we wouldn’t now have a skills shortage.

Now due to their failure to train the workforce to provide the skills they need they want the government to step in and spend taxpayer $ on training and to allow workers to be imported so they don’t have to pay higher wages when the capitalist heros supply and demand kick in.

Businesses will often go for the short term profit. This is largely a problem with how management is rewarded. More often than not management are rewarded for short term profit and share price movements. Any long term problems caused by their short term actions are someones elses problem and likely to manifest after they have received their bonus and moved on.

Rafe
2022 years ago

Polly has made some good points about the quality of management. We still have to get over the legacy of protectionism when the most rewarding action by management was to travel to Canberra to ask for more protection rather than travelling overseas to look for markets.

We also have to get over the legacy of us versus them that was fostered by the Marxist notions of class war and exploitation, and also by the way the unions opted to go the road of the “strike threat system” rather than alternatives that would pay off better all round.

Homer Paxton
Homer Paxton
2022 years ago

DD,
we couldn’t have reached the NAIRU yet otherwise wage rates would have shot up.
The RBA believes we are approaching it and hence have raised rates.

Alex
Alex
2022 years ago

Polly, your point about companies and skills shortages would be valid if company managements had perfect foreknowledge. They don’t. Realistically, who predicted thirteen years of uninterrupted growth? And I’m sure most companies are using a variety of means to address the skill shortages – including importing the skills where possible (and necessary). Agree with your observations about executive remuneration being biased towards short term results, though. (Although I see it as a diminishing rather than increasing problem at present).

Alex
Alex
2022 years ago

Re the minimum wage issue – minimum wages could be lowered a fair bit if the govt was prepared to raise the income tax threshold to a more sensible level. This might do something to address the income tax/social security interaction high EMTR problem as well.

Don Wigan
Don Wigan
2022 years ago

“govt training for the unemployed is not particularly useful.”

This was the accepted wisdom of the prevailing economic ideologues of the late 80s and 90s, but it is an assertion rather than something that can be proven. Also, at that time we were told that job creation schemes were a waste of money and we’d be better off subsidising employers. I’d suggest that there is room for both.

Where I live in Warrnambool, the Lake Pertobe recreation Park was built from just such a job creation scheme in the late 70s. I don’t know the result of those employed on it at the time, but do know from professional experience that skills, confidence and work habits gained from such a project can be transferred to other employment. And for what it cost in public money, Lake Pertobe as a major local recreation facility and tourist attraction would have paid for itself at least ten times over.

As for subsidies, in the CES I was long associated with the Disabled Apprentice Wage Subsidy (DAWS) program, which provided subsidies tutorial and other assistance to place people with disabilities in apprenticeships. It gave otherwise disadvantaged people marketable trade skills, as well as allowing employers to afford to train people.

Although this government quickly canned all other labour market programs, DAWS (last I heard) was still maintained in a somewhat meaner form than previously. It might be useful to revisit its history in view of the current concern about shifting people off disability pension.

Polly
Polly
2022 years ago

“Polly, your point about companies and skills shortages would be valid if company managements had perfect foreknowledge”

Sorry but that is wrong IMO. Management knew that due to the aging of the skilled workforce, natural attrition, etc that there would be a need to replace skilled workers. Perfect foreknowledge is NOT needed just decent future planning.
The current skills shortage is as much about the loss of current workers and no-one to replace them (something which could be foreseen). The problem may be made even worse by the period of sustained economic growth but it is not the sole cause of that shortage.

“(Although I see it as a diminishing rather than increasing problem at present).”

I would be interested to know why you think this. I do not agree. Look at the remuneration policies of any big company and you will see they are still based on short term goals not long term.

Michael Warby
2022 years ago

My first job was in the CES, which included putting people in training programs. Not very effective. There is plenty of subsequent work that suggests that most of these programs are not very effective.

As Layard, Nickell & Jackman in *Unemployment: Macreconomic Performance and the Labour Market* point out, there may be a case fof *subsidising* skill training, since there are genuine externality issues.

Once upon a time, the deal was trainees got very low initial wages, so it was worth employers taking the risk of training them and the trainees got the trade-off of much increased long-term income.

Since then, employers can no longer make those same trade-offs, and investing in training has become much more risky for them, so they do it less. Blaming “managemet” for changes in the general rules governing labour markets is a tad unfair. Alas, blaming any market outcome on employers/management rather than looking at the general market structure (largely set by government) is easy and often congenial.

Joel Parsons
2022 years ago

The best training for the unemployed is a job no matter how low paying. Even if you are on the lowest rung, any job usually involves a basic level of training, gives you the opportunity to gain experience in basic workplace ettiquette and gives you an inside view of opportunities in the economy.

That said, we are in a skills shortage and most people unemployed right now are the bottom of the barrel – the least desirable employees around. I just went through the process of changing jobs, and in trying to fill an entry level call centre position, my new employer is pretty desperate in it’s search for staff.

Which I guess leaves us with the question of why are there so many people out there who aren’t suitable for work? Partly, I think it is the result of an education system that focuses everyone on University (everyone else must just be a loser, don’t bother with them) and partly I think it is the result of social decay – if you grew up with no working adult in the household, who can you learn about the workforce from? If you learnt at 15 or 16 that getting on Centrelink was easier than getting a job at Maccas, Coles or Safeway, and if you are reasonably satisfied on Centrelink payments, why should you bother getting a job?

I also agree that we need to reduce EMTRs, if the Australian people can’t stomach welfare cuts then tax rates should be cut or thresholds should be raised.

blank
blank
2022 years ago

It’s a bit harder to leave school and dole bludge at 16 these days.

Officially, if you have not done Year 12, and you are under 18, you must be in some form of education or training to be eligible for Youth Allowance.

There are some exceptions.

Michael Warby
2022 years ago

Desperation for staff is a matter of cost/benefit trade-offs.

If, as Australia does, you have high minimum wages, people have to be quite productive before it is worth employing them.

If, as Australia does, you have quite strong unfair dismissal laws, that raises the risk even more. Merely changing the unfair dismissal laws so they only applied to employees after 12 months would improve matters.

On the ‘short-termism’ of management. We live in very technologically dynamic societies. That is going to shorten time-horizons for decisions.

In a huge range of commercial decisions, the most important single cost is actual or possible tax liability. Tax rules are subject to unpredictable changes. That will shorten the time-horizon for decisions.

We live in a time where the volume of new legislation is enormous. In the four years 2000 to 2003, the Commonwealth Parliament passed as many pages of legislation (22,339) as were passed from 1901 to 1969, inclusive (21,925) — clearly a pathological propensity to legislate. Again, regulatory uncertainty will shorten the time-horizon for decisions.

While it might be easy to dismiss management as stupid (and some management is), more general trends are likely to have more general causes.

Finally, on govt training courses. Money comes in four forms — your own money that you spend on yourself, your own money that your spend on others, other people’s money that you spend on yourself and other people’s money that you spend on other people. Each involves less reason to care about value for money than the stage before. Employers spending money on training courses is type 1 or 2. Public servants spending money on training courses for thd unemployed is type 4. Have a wild guess which is likely to be more effective.

Alex
Alex
2022 years ago

Polly, re the skills shortage – I agree that some of this may be due to lack of management foresight. However, even where companies did have sensible strategies for succession planning, training of new workers to replace those retiring, etc, the skills shortages caused by less competent managers combined with the long period of economic growth might lead to difficulties in recruiting sufficient numbers of skilled workers.

Part of the difficulty is also a problem with education systems (both high school and tertiary). The high school system (unlike eg Germany) is not closely linked to the needs of employers. At tertiary level, students often make unwise choices of course based on yesterday’s skill shortages.

As regards the short term incentive issue, although short term incentives are still a problem, management of large Australian companies seems to me in general to be more focused on long term growth than might be expected, given the prevalence of short term incentives. For example, look at the cultural changes being wrought at Westpac by David Morgan, or the change process NAB is undergoing. Part of the reason for managers focusing on longer term issues is that resource projects, for example, inherently have long lead times. The heavy construction industry is similar. The other reason is that the market anticipates future growth and builds this into the share price. Thus laying the foundations for long term growth can lead to short term price rises, rewarding managers who have options built in to their remuneration package.