Here’s this week’s column in the Courier Mail. And here’s the devastating graph which shows how poorly correlated with poverty low wages and minimum wages are. There is almost no relation between these jobs and household income.
So, at considerable cost and while it generates unemployment, the thicket of IR regulation we have doesn’t look like it does much for equality. As the chart shows what’s really associated with inequality is unemployment and absence from the labour market.
Anyway, the column is over the fold.
Whose side are we on?
The Government’s new WorkChoices package of IR reform will allow workers to negotiate away a range of entitlements. It will make collective bargaining more difficult. And minimum wages will probably increase more slowly.
So whose side are you on?
The problem is the two sides of the debate don’t want you to know much about the other side of the story. (In fact one side doesn’t really want you to know much about their own side of the story!)
Of course the conservatives the unions and the ALP have no trouble telling you what’s bad the package will eat away at the pay and conditions of lower paid workers.
But the radicals the Government can’t come clean and tell you what’s good about them. Because to do so would involve first, frankly accepting that the conservatives claims are true (if routinely exaggerated) then explaining what might be good about that (I’ll tell you that in a sec).
Instead they’re working from the George Orwell manual of public relations.
Step One: Spend tens of millions of your dollars on political ads for policies which are still being refined and have not even been properly specified in draft legislation. Step Two: Remember those chains that burst asunder as the GST gave us mountain of new paperwork? Be similarly bold. Advertise this stripping away of working conditions as a raft of new “fairer” protections for workers. “Protected by law”.
So what can be said for undermining existing protections for workers? Actually quite a lot.
Surprisingly enough low paid jobs are spread almost evenly through our households, from Redfern and Ipswich to Hamilton and Double Bay. Many low paid workers are young and will be promoted into better jobs. Others have partners who are doing fine. Some are ‘doctors wives’ picking up some spare cash when it doesn’t conflict with tennis parties.
Now most economists think that job creation will respond fairly sluggishly to minimum wage falls but we’re not sure. And if you cut too far the dole becomes more attractive than work.
On the other hand minimum wages and conditions are relatively high compared with similar countries. And alarming numbers of workers are simply unable to hold down jobs at those wages and settle for benefits.
And in my book the long term unemployment visited upon those who lose heart in the labour market is far more devastating, to themselves their families and communities, than some belt tightening by workers on minimum wages.
Tricky isn’t it?
Is there a better way? Well yes there is. We nibble away at a better approach with other policies like retraining, job subsidies and family tax supplements to raise worker skills, create entry level jobs and make them more attractive than the dole.
But for these policies to really work to mop up the collateral damage from stronger industrial relations regulation as they do for instance in Scandinavia we need to aggressively fund them.
We don’t do that. Never have.
So even though Paul Keating’s “Job Compact” which guaranteed the unemployed training or a job and John Howard’s “Work for the Dole” came with the usual ads to make us feel all shiny and new, they’ve always been crippled by under-funding.
The cost of the “Job Compact” was contained by restricting it to those who’d rotted on the dole for at least eighteen months. And Work for the Dole was always at least as much a symbol in the ongoing culture war as it was a piece of economic or social policy. The government spends around twice as much on sport.
But don’t fall for the line that with falling unemployment the problem is solving itself. Since 1970, and despite the last fifteen years of solid growth, the proportion of working age men without full time work has nearly tripled to over a million! (Using men tells us more because many women prefer part time work). They’re on the dole, disability payments or part time work. And most of them are unskilled.
That astonishing change is driven by the relentless march of cost saving technology. Think word processors, internet banking and big, big machines that lay roads and dig tunnels with just a few people feeding in fuel and materials. And there’s globalisation. Our imports of manufactures are labour intensive whilst our mineral and agricultural exports are capital, resource and skill intensive.
For ten years the Government’s priorities have focused on tax cuts with increasing emphasis on those with healthy incomes rather than subsidising job creation and reducing the ‘effective marginal tax rates’ of sixty percent plus created by benefits being withdrawn as people move from welfare to work.
So while we enjoy the politics of taking sides for or against the IR changes, just remember how few friends those priced out of the labour market really have.
Then decide whether you support or oppose the IR changes as best you can.
I’ll have a paper out on this tomorrow.
the bit about men in full time work is true, but very misleading. As I keep saying over and over, the drop in the last fifteen years is wholly a product of an aging workforce. Most age-specific employment rates for men have risen sharply, and most *full time* employment rates have also risen, although much more slowly. And while men who work part time are more prone than women to say they want to work more hours, a majority of them still say they are content with their hours.
On the broad point about why cuts in minimum wages should *reduce* poverty, I agree – it’s an argument I think I’ve previously made on this blog. I do think, though, that if such cuts are substantial we’ll need an EITC or other instrument to prevent some serious incentive problems.
And Andrew, I liked your paper on minimum wages in WA – could you post a link to your new paper here so we can all have a look?
I’ll have the second part up on Friday but I’d like to get an opinion on http://velausanakha.smvnetwork.com/wordpress/2005/10/19/enterprise-zones-pt-1
I similar like PML’s Negative Payroll Tax idea, sorry I mean negative income tax – but as I say I’m no economist just a lay centrist
http://users.netlink.com.au/~peterl/publicns.html#AFRLET1
As for WFTD – to use the economists favourite catchphrase – economies of scale – it just doesn’t work in the bush.
This and the previous piece are very interesting comments which I would like to see also in the ‘Southern’ press.
One of the major concerns I have with the reforms is that they are directed at undermining established form of collective bargaining and unions without addressing the consequent ‘representation gap’. There are many functions of employee associations other than influencing wage rates and job security. Even if it is the case that there are negative impacts from these activities on the unemployed, it does not follow that employee association should be discouraged/inhibited generally.
There are sound arguments for encouraging employee representation in relation to matters such as occupational health and safety, grievance resolution, monitoring/ensuring compliance of firms with legal requirements and policy commitments, reasonable hours of work, non-firm specific training, portability of benefits, whistleblowing, privacy, employee input on firm restructing and so on.
The trajectory of the IR reforms seems likely to lead to these matters (with the possible exception of OHS) being dealt with by a combination of managerial unilateralism, restrained only by the ‘exit’ option and traditional command and control regulation – the state specifying the standards and then enforcing them with increasing numbers of compliance officers.
Out of the picture is any sense that it may be useful to permit new forms of non-state but collective/representative ordering that respond to these issues, minimise detrimental effects on the unemployed, straddle firm boundaries and adapt to varieties of work relationships. Such new forms might or might not, involve existing unions, but existing unions should at least be given an opportunity to participate in such arrangements.
There are many instances of new representative arrangements overseas, and indeed in Australia. However, the Australian arrangements at the federal level are distinguished by their aversion to employee organisations. For example, the government is facilitating collective bargaining by small business in its Trade Practices Act amendments. This expressly excludes employee organisations, even those that have significant independent contractor membership.
In short, it would seem possible to address any negative effects current arrangements have on unemployed/underemployed workers without attacking employee associations per se. This is not, of course, the way the government is proceeding.
Thanks Sean.
DD, Table 1 of the Frijters and Gregory paper “From Golden Age to Golden Age”, has large falls in full time participation in full time work across all ages. Can you clarify your point a little.
The mistake for older men is in focusing on the participation rate rather than the employment/population ratio. Unemployment has nosedived among this group – it used to be above the population average, it is now below that average.
Broadly, what seems to have happened in the last decade or so is that roughly the same proportion of older men are out of the labour force, but far fewer are unemployed. So the proportion employed has risen, with much (though, pace Bob G, not all) of the rise being in part time work. This is consistent with (though not proof of) a pattern of increasing voluntary retirement and decreasing involuntary retirement. It’s what you’d expect given the increasing wealth and education (hence employability and earning power) of later cohorts.
My point is that a focus on labour *demand* for this age group was utterly appropriate fifteen or twenty years ago, and we should have done a lot more about it then instead of focusing on youth unemployment as we did. But the cohort of older factory workers and middle managers affected by economic restructuring is now mostly on the age pension. For the current, and hopefully future, cohorts we need to focus at least as strongly on their labour *supply*.
Whats happening to *prime age* male employment is another set of issues – and one I’m a bit less sanguine about. Maybe the Gen X whingers have a point here.
Sign me up as a friend of the unemployed and those who will always be unemployed as long as we have a minimum wage.
The problem is that the Government has been forced to promise that nobody can be any worse off and so there can be no relief for the unemployed on the minimum wage front.
Alongside the min wage as a barrier for getting people into work is the absurd marginal tax rate they have to pay when they start to earn. I was hoping that we have bipartisan support to fix that.
Nicholas is well placed to write about these things, his father was involved in the Aboriginal stockmen case at the Arbitration Commission some decades ago. He warned that increasing their wages would lower the demand for their labour. The Commissioners decreed that they should be paid the going award rate, despite a well researched submission from the station owners pointing out that the Aboriginal stockmen were effectively employed on a different basis from the white employees. To no avail. Exit Aboriginal stockmen, so once-proud and independent workers in the industry became welfare-dependent bums. Congratulations to the central wage fixing system.
Rafe I might write more about the Aboriginal wage case. But I don’t think my father would have described the aborigines before the case as “once-proud and independent workers”. It’s just that what came after was truly catastrophic.
Nicholas
I certainly hope you DO write about the aboriginal stockmen case. It’s an object lesson in how not to do things, although what positive guidance it might offer in attacking the appalling present-day situation of remote Aboriginal Australians is less clear. It clearly has to have something to do with fostering education, skills acquisition, work and self-reliance. But how you can actually achieve those goals given how dysfunctional the communities mostly now are, and the appalling health and nutrition standards of a high proportion of kids (so that they can’t learn even when they do occasionally attend school) is much less obvious.