Showing posts with label labour market. Show all posts
Showing posts with label labour market. Show all posts

Wednesday, September 27, 2023

Labor sets out its alternative to neoliberalism

If, rather than wading through all the things the Albanese government has decided to do, you read what its white paper on employment actually says, you realise a remarkable thing: it reveals a vision of an alternative economy the government wants to take us to.

In recent weeks we’ve seen before our eyes the worst of the economy that several decades of “neoliberalism” – the doctrine that what’s good for big business is best for the rest of us – has brought to us. The rise of the nation’s chief executives as commercial Brahman castes, taking short-cuts to higher profits by chiselling customers and mistreating employees, and seeing themselves as above the law, has left a sour taste.

Treasurer Jim Chalmers and his colleagues want to move from an economy centred on what the bosses want, to one centred on what’s best for the workers. It’s a shift from managing the economy for the few, rather than the many. The great majority of Australia’s households depend on income from wages.

The white paper spells it out from the beginning. “The government’s vision is for a dynamic and inclusive labour market in which everyone has the opportunity for secure, fairly paid work and people, businesses and communities can be beneficiaries of change and thrive. We are working to create more opportunities for more people in more places,” it says.

Our surprise return to our lowest rate of unemployment in almost 50 years – about 3.5 per cent, which we’ve maintained for more than a year – has revived the government’s ambition to pursue a goal we lost sight of in the 1970s, full employment.

The white paper says what the government takes that term to mean in our very different world, and how it will be pursued. Full employment has never meant an unemployment rate of zero. At the very least, there will always be a small proportion of workers moving between jobs or looking for their first job.

The paper announces the government’s definition of the term: it is working to create an economy where “everyone who wants a job is able to find one without having to search for too long”.

That’s a demanding specification. Sometimes unemployment will be high because the economy’s in recession. In normal times, unemployment is high precisely because too many people have gone for months without finding a job.

Some part of unemployment comes from the economy’s ever-changing industry structure, as some industries decline while others expand. This can leave some workers high and dry. They may have skills that some business wants, but that business may be many miles from where they live.

So for the government to commit to people not having to search too long to find a job imposes on it a great responsibility to help those people having problems.

But the government adds an important qualification to the requirement that no one be jobless for long: “These should be decent jobs that are secure and fairly paid.”

All this, it tells us, “is central to a strong economy and a prosperous and inclusive society”.

Just so. The only reason to want a strong economy is for prosperity that’s widely shared among the people who constitute the economy. And a simple truth that was lost in the era of neoliberalism is the value people place on having a job that’s secure.

It’s the peace of mind that comes from knowing that, if you turn up every day, do what you’re told and work hard, you can stop worrying about where your next meal’s coming from.

This can be just as important as how well the job pays, if not more so. But in recent decades we’ve seen the growth of businesses increasing their profits by using casualisation to make jobs less secure and devices such as labour hire and outsourcing to side-step existing wages and conditions.

The white paper says the government’s objective is “sustained and inclusive full employment”.

Sustained full employment is about minimising volatility in economic cycles and keeping employment as close as possible to the current maximum level consistent with low and stable inflation.

Inclusive full employment is about broadening opportunities, lowering barriers to work including discrimination, and reducing structural under-utilisation [part-time workers who can’t get as many hours of work as they want] over time to increase the level of employment in our economy.”

The paper says building a strong and skilled workforce “will be fundamental to achieving full employment and productivity growth”. This will require substantial growth in the high-skilled workforce.

“Australia needs an increasingly highly skilled labour force, equipped with the right tools and technology” to maximise gains from the transition to renewable energy, the increased use of artificial intelligence and the growing care economy.

Now, I know what you’re thinking. It would be a much better world to live in. But they’re just words ... just aspirations. True. But by setting it all down so formally, the Albanese government is raising our expectations.

It’s setting a standard for us to judge its performance by – a standard much higher than its predecessors ever set. We must hold Albo to it.

Read more >>

Friday, August 18, 2023

RBA's double whammy: hit wages and raise interest rates

If the sharp increase in interest rates we’ve seen leads to a recession, it will be the recession we didn’t have to have. The judgment of hindsight will be that the Reserve Bank’s mistake was to worry about wage growth being too high, when it should have worried about it being too low.

The underrated economic news this week was the Australian Bureau of Statistics’ announcement that its wage price index grew by 0.8 per cent over the three months to the end of June, and by 3.6 per cent over the year to June.

This was the third quarter in a row that wages had risen by 0.8 per cent, but annual growth was down a fraction from 3.7 per cent over the year to March. It was a slowdown the Reserve hadn’t expected.

So, the obvious question arises: is it good news or bad? Short answer: depends on your perspective. Long answer: keep reading.

The Reserve would have regarded the modest fall as good news because its focus is on getting the rate of inflation down to its 2 to 3 per cent target range as soon as reasonably possible. The slight lowering in wage growth will help in two ways.

First, it means a slightly smaller increase in businesses’ wage costs, which should mean they increase their prices by a little less.

Second, the slight fall in wage growth slightly increases the squeeze on households’ incomes, making it a little harder for them to keep spending as much on goods and services. The less the demand for their products, the less the scope for businesses to raise their prices.

It’s hardly a big change, obviously, but it’s in the right direction. It’s a sign the Reserve’s anti-inflation strategy is working and that the return to low inflation may happen a little earlier.

But what if you’re just a worker – is it good news or bad, from your perspective? Well, Treasurer Jim Chalmers would like to remind you that wage growth of 3.7 or 3.6 per cent is the highest we’ve had since mid-2012.

Not bad, eh? Trust Labor to get your wages up.

I trust you’re sufficiently economically literate to see through that one. Back then, the annual rate of inflation was about 2 per cent, whereas in June quarter this year it was 6 per cent – not long down from a peak of 7.8 per cent.

So wage growth of 3.6 per cent is hardly anything to boast about. Wages might be up, but prices are up by a lot more. Take account of inflation, and “real” wages actually fell by 2.4 per cent over the year to June.

Over the 11 years to June, consumer prices rose by 33 per cent, whereas the wage price index rose by 29 per cent. If you’re a worker, that’s hardly something to celebrate.

Why do ordinary people put up with the capitalist system, in which big business people are revered like Greek gods, permitted to lecture us on our many failings, and allowed to pay themselves maybe 40 times what an ordinary worker gets?

Because the punters get their cut. Because enough of the benefits trickle down to ordinary workers to give them a steadily improving standard of living. Because wages almost always rise a bit faster than prices do.

This is the “social contract” the rich and powerful have made with the rest of us for letting them call the shots. But for the past decade or more we’ve got nothing from the deal. Indeed, our standard of living has slipped back.

Don’t worry, say Chalmers and his boss Anthony Albanese, it won’t be more than a year or three before inflation’s down lower than wage growth and real wages are back to growing a bit each year.

Yeah, maybe. It’s certainly what should happen, it happened in the past, so maybe it will happen again. But one thing we can be sure of: we’re unlikely ever to catch up for the losing decade.

Throughout the Reserve’s response to the post-pandemic period, it’s had next to nothing to say about the abandon with which businesses have been whacking up their prices, while always on about the need for wage growth to be restrained.

It’s tempting to think that, in the mind of the Reserve, the only function wages serve is to help it achieve its inflation target. When inflation’s below the target, the Reserve wants bigger pay rises to get inflation up. When inflation’s above the target, it wants lower pay rises to get inflation down.

The truth is, the Reserve’s been mesmerised by the threat that roaring wages would pose to lower inflation. Its limited understanding of the forces bearing on wages is revealed by its persistent over-forecasting of how fast they will grow.

Once the unemployment rate began falling towards 3.5 per cent and the jobs market became so tight – with job vacancies far exceeding the number of unemployed workers – it has lived in fear of surging wages as employers bid up wages in their frantic efforts to hang on to or recruit skilled workers.

It just hasn’t happened. As we’ve seen, wages haven’t risen enough merely to keep up with prices, much less soar above them.

The Reserve has worried unceasingly that the price surge would adversely affect people’s expectations about inflation, leading to a wage-price spiral that would keep inflation high forever. This is why it’s kept raising interest rates and been rushing to see inflation fall back.

Again, it just hasn’t happened.

Normally, when inflation’s been surging and the Reserve has been raising interest rates to slow down our spending, real wages have been growing strongly. But not this time. This time, falling real wages have greatly contributed to the squeeze on households and their spending.

That’s why, if this week’s falling employment and rising unemployment continue to the point of recession, people will realise the Reserve’s mistake was to worry about wage growth being too high, when it should have worried about it being too low.

Read more >>

Friday, July 14, 2023

Less competition reduces the power of interest rates to cut inflation

The ground has been shifting under the feet of the world’s central bankers, including our own Dr Philip Lowe, the outgoing chief of the RBA. This has weakened the power of higher interest rates to get inflation down.

Like all economists, central bankers believe their theory – their “model” – gives them great understanding of how the economy works and what they have to do to keep inflation low and employment high.

They know, for instance, that inflation – rising prices – occurs when the demand for goods and services exceeds the economy’s ability to supply those goods and services. So they can use an increase in interest rates to discourage businesses and households from spending so much.

This will reduce the demand for goods and services, bringing it into alignment with supply and so stop it causing prices to rise so quickly. It will also slow the rate at which the economy’s growing, of course.

But, with a bit of care, they won’t need to push interest rates so high the economy goes into “recession”, when demand (spending) becomes so weak that the economy gets smaller, causing some businesses to go bust and many workers to lose their jobs.

This theorising has worked reasonably well for many years, leading central bankers to be confident they know how to fix the present surge in inflation.

But the economy keeps changing, particularly as we keep using advances in technology to improve the range of goods and services we produce, and the way we produce them.

One consequence of our businesses’ unending pursuit of labour-saving technology – more of the work being done by machines and less by humans – has not been fewer jobs, but bigger factories and businesses.

As in all the rich economies, many industries are now dominated by just a few huge companies. In our case, we’re down to just four big banks, three big power companies, three big phone companies, two airlines and two supermarket chains. And that’s before you get the handful of giants dominating the rich world’s internet hardware, software and platforms.

Trouble is, when just a few firms dominate an industry, they gain “market power” – the power to hold their prices well above their costs; to increase their “markup”, as economists say.

The size of markups is a measure of the degree of competition in an industry. When competition between firms is strong, markups are low. When competition is weak, markups are high.

There is much empirical evidence that industries in the rich countries have become more concentrated over time, and markups have risen. And, as I’ve written before, Australia’s no exception to this trend.

In economics, “monopoly” means just one seller. “Monopsony” means just one buyer. So, when a firm has a degree of monopoly power, it can overcharge its customers. When a firm has a degree of monopsony power – when workers don’t have many employers to pick from – it can underpay its workers.

Researchers have found much evidence of labour-market power. And again, I’ve written before about the evidence this, too, is happening in Australia.

But this week, at the annual Australian Conference of Economists, federal Competition Minister Andrew Leigh, himself a former economics professor, drew attention to two recent International Monetary Fund research papers suggesting that a lack of competition is reducing the effectiveness of monetary policy – the manipulation of interest rates – in influencing inflation.

The first paper, by Romain Duval and colleagues, uses American data and data from 14 advanced economies to find that, compared with low-markup firms, high-markup firms are less likely to respond to changes in interest rates. The level of their sales changes less, as do their decisions about future investment in production capacity.

So, fat markups mean companies are less likely to change their behaviour. They’re not likely to cut their investment spending, for example.

This means more of the pressure to respond to higher rates will fall on households with big mortgages, but also on firms with low markups.

The second paper, by Anastasia Burya and colleagues, uses online job ads from across the United States to find that in regions where firms have a lot of labour-market power – that is, where workers don’t have much choice of where to work – those firms can hire workers without having to offer higher wages to attract the people they need.

This is the opposite of what standard theory predicts. It’s bad news for workers, who could have expected strong demand for labour to push up wages.

But another way to look at it is that, where big firms have labour-market power, there’s little relationship between employment and the change in wages. If so, conventional calculations of the “non-accelerating-inflation rate of unemployment” – the lowest point to which unemployment can fall without causing wages to take off – will give wrong results, encouraging central banks to keep unemployment higher than it needs to be.

And at times when price inflation is too high, unemployment will have to rise by more than you’d expect to get the rate of inflation back down to where you want it. How do you bring about a bigger rise in unemployment? By increasing interest rates more than you expected you’d have to.

So, whether it’s inadequate competition in the markets for particular products, or inadequate competition in the market for workers’ labour, lack of competition makes monetary policy – moving interest rates – less effective than central bankers have assumed it to be.

The model of how markets work that central bankers (and most other economists) rely on assumes that the competition between firms – including the competition for workers – is intense.

In the real world, however, markets have increasingly become dominated by just a few huge firms, which has given them the power to keep prices higher than they should be, and wages lower than they should be.

Leigh, Minister for Competition, gets the last word: “If you care about central banks being able to do their jobs, then you should care about a competitive and dynamic economy.”

Read more >>

Wednesday, June 7, 2023

It's not the wolf at the door that's driving women to work harder

Why do mothers go out to work? Why are more women doing paid work than ever before? And why are more of those women working full-time? At a time when so many are struggling with the cost of living, it’s easy to conclude that more women are having to work more hours just to keep up. But I think that sells women short.

Worse, it’s a fundamental misreading of perhaps the greatest social change of our age: the economic emancipation of women.

I don’t doubt that women are just as concerned about the cost of living as men, maybe more so if they’re in charge of the family budget. Nor do I doubt that, if you ask a woman why she’s been doing more paid work lately, the cost of living’s likely to be mentioned.

But things are not always as they seem. For instance, when people complain about the cost of living, their focus is on rising prices. But prices rise almost continuously. What matters more is whether wages are rising as fast as prices are – or, preferably, a little faster.

It’s true that the prices for goods and services have risen at a much faster rate than normal over the past two years or so. But the real problem is that wages – which usually do keep up – have been falling behind since the start of the pandemic. Yet people are far more conscious of the rising prices than of the weak wage growth.

Another distinction that’s clearer to economists than to normal people is between the cost of living and the standard of living. When people have trouble maintaining the same standard of living as their friends – a comparable car, comparable house, comparable private school – they would often rather blame the cost of living than their need to keep up with the Joneses.

No, what’s driving the change in women’s lives – causing them to behave very differently from their grandmothers – isn’t the cost of living, it’s education. And with education has come aspiration. Aspiration to put their learning to work, to have a career as well as a family, and to be treated equally with men.

I think it all started sometime in the 1960s when, for some unknown reason, the parents of the rich world accepted that their daughters were just as entitled to a good education as their sons. Everything flows from that fateful change in social attitudes and behaviour. What father today would dream of telling his daughter that, being a girl, she didn’t need an education?

The trouble for boys is that girls do education better. It’s now several decades since the number of girls going to university first exceeded the number of boys.

That being so, the figures for two-income families should come as little surprise. The latest report from the federal government’s Australian Institute of Family Studies, Employment patterns and trends for families with children, finds that in 2022, both parents were employed in 71 per cent of couple families with children under 15. This is up from 56 per cent in 2000, and 40 per cent in 1979.

Within those couple families, the proportion with both parents working full-time was 31 per cent in 2021, up from 22 per cent 12 years earlier. The proportion with one parent working full-time and the other part-time is unchanged at 36 per cent.

Only 4 per cent of these families involved fathers who weren’t working and mothers who were. (Which leaves the young men in my immediate family looking good.)

But there’s something else you need to understand. In the days when there weren’t many two-income families, this gave them a distinct advantage in the housing market. They could afford a better house than their peers.

Once most young home-buying couples have two incomes, however, their greater purchasing power gets built into the prices of the kind of houses they buy, so that what began as an advantage turns into a requirement.

Now it’s the couples who choose not to have both partners working who’ll have trouble affording a home comparable to those of other couples. They’ll have to accept a lower standard of living.

Similarly, it’s a misconception to say, as some do, that you need to have both parents working to afford a family. No, you just have to accept a lower standard of living.

I’ve long suspected that the rise of the two-income family helps explain the growing practice of sending kids to private schools. Two incomes make this easier to afford – though this, too, gets built into the size of the fees the schools can get away with charging.

There’s no reason a mother – or a father – who chooses to have a career should feel guilty about it. But I suspect some double-income couples find it easier to justify if they can say that the extra money is buying their kids a better education.

Sorry, a mountain of evidence says that, once you allow for the parents’ socio-economic status, private schools don’t add to students’ academic performance. Buyer beware.

Read more >>

Wednesday, March 15, 2023

Don't miss the good news among the bad: we've hit jobs, jobs, jobs

Here is the news: not everything in the economy is going to hell. Right now, jobs, jobs, jobs are going great, great, great.

The news media (and yours truly) focus on whatever’s going wrong – the cost of living, interest rates, to take two minor examples – because they know that’s what interests their paying customers most.

This bias in our thinking exists because humans have evolved to be continually on the lookout for threats. Those threats used to be wild animals, poisonous berries and the rival tribe over the river, but these days they come more in the form of politicians who aren’t doing their job and business people on the make.

If you’re not careful, however, the preoccupation with bad news can leave you with a jaundiced view of the total picture. Everything’s bad and nothing’s good.

But it’s rare for anything to be all bad or all good. And, particularly where the economy’s concerned, it’s common for good things and bad things to go together.

For instance, when unemployment is high, inflation is usually low. And when inflation is high, unemployment’s usually low. (It’s in the rare event where they’re both high at the same time – “stagflation” – that you know we’re really in trouble.)

So, when our present Public Enemy No. 1 – Reserve Bank governor Dr Philip Lowe – began a speech last week by making this point, I realised I should make sure that you, gentle reader, hadn’t missed the rose among all the thorns.

Lowe said the high inflation we’re experiencing was “one of the legacies of the pandemic and of Russia’s invasion of Ukraine”. But “another remarkable, but less remarked upon, legacy of the pandemic is the significant improvement in Australia’s labour market”.

“Significant improvement” is putting it mildly. Have you heard of “full employment”, where everyone who wants a job has one? It’s the way our economy used to be for about three decades following World War II.

But you have to be as ancient as me to remember what it was like. One reason I quit my job and embarked on a course that eventually led me to this august organ was the knowledge that, should I need to get a job, all I had to do was wait until next Saturday’s classified job ads, and pick the one I wanted.

That’s full employment. And the world hasn’t been like that since Gough Whitlam was prime minister. Until now. We have more people with jobs than ever in our history.

At about 3.5 per cent, the rate of unemployment is lower than at any time since 1974. And before any of the imagined experts let fly on Twitter, this is not because any government, Labor or Liberal, has fiddled the figures.

What’s true is that, in recent decades, more people have been under-employed – they haven’t been able to get as many hours of work as they’ve needed.

But as Lowe says, in recent times, people have found it easier to obtain more hours of work. So the rate of underemployment is at multi-decade lows, and the proportion of jobs that are full-time is higher than it’s been in ages.

We now have 64 per cent of people of working-age actually in a job, the highest ever. The proportion of people either already in a job or actively seeking one – the “participation rate” - is also at its highest.

A lot of this is explained by the record high in women’s participation in the labour force.

Lowe says the rate of participation by young people is “the highest it has been in a long time” and the youth unemployment rate is “the lowest that it has been in many decades”.

If all that’s not worth celebrating, I don’t know what is.

But for all those desperate to find a negative – often for reasons of partisanship – it’s not that you can’t believe the figures. It’s this: can you believe they’ll continue?

With the Reserve raising interest rates so fast and far to slow the economy’s growth and reduce inflation pressure, it’s clear that this is as good as it gets in the present episode.

For the past couple of months, we’ve seen the figures edging back a fraction from their best, and on Thursday we’ll see if that’s yet become a trend.

At present, Lowe is at the controls bringing the economic plane in to land. He’s aiming for a soft landing, but may miscalculate and give us a bumpy landing which, to mangle the metaphor, will send unemployment shooting up.

If so, we may have had just a fleeting glimpse of full-employment nirvana before it disappeared into the mist.

But for the more optimistically inclined, even if the landing is harder than planned, we’ll have started from a much lower unemployment rate than in past recessions, meaning it won’t go as high as it has before, and it should be easier to get back to the low levels we’d now like to become accustomed to.

Read more >>

Wednesday, November 2, 2022

If only Labor's wage changes were as bad as the bosses claim

Have you ever wondered why capitalism has survived for several centuries in the advanced economies? How a relative handful of rich families and company executives have been getting richer and more powerful for so long in countries where everyone gets a vote and could, if they chose, insist on something different?

It’s because the capitalists, counselled and coerced by politicians anxious to keep the peace, have made sure that the plebs, punters and ordinary working families have been given enough of the spoils to keep them reasonably content.

I remind you of this because, for 30 or 40 years in America, and now about a decade in Australia, the capitalist system – economists prefer calling it the market system – hasn’t been giving ordinary workers enough to keep them getting better off, while the few people at the top of the tree have been doing better, year after year.

If you wonder why so many Americans voted for a man like Donald Trump, and now delude themselves that he didn’t lose the last election, why the Yanks seem to be rapidly dismantling their democracy, a big part of their discontent is their loss of faith that the economic system is giving them a fair shake.

Fortunately, it’s nothing like that bad in Australia. Not yet, anyway. What’s true is that the average standard of living in Australia today is no better than it was a decade ago – something that hasn’t happened before in the more than 75 years since World War II.

Over the eight years before the pandemic, wages rose barely faster than inflation. We’ve had wage stagnation, now made a lot worse by the supply-chain disruptions of the pandemic, soaring electricity and gas prices caused by Russia’s war, and by the way floods keep wiping out our fruit and vegetable crops.

When Labor went to this year’s federal election promising to “get wages moving”, I think it struck a chord with many voters.

After we ended centralised wage-fixing by the Industrial Relations Commission in the early 1990s, we moved to collective bargaining at the level of the individual enterprise. Workers’ right to strike was hedged about with many requirements and limits.

At the beginning, more than 40 per cent of workers were covered by enterprise agreements. By now, however, some academic experts calculate that the proportion of workers covered by active agreements is down to about 15 per cent.

At the jobs and skills summit in September, all sides agreed that the enterprise bargaining system had broken down. Last week the government introduced its answer to wage stagnation, the Secure Jobs, Better Pay bill.

It would make a host of changes, many of which strengthen existing provisions of the Fair Work Act, and most of which the industrial parties agree would be improvements. It makes job security and gender pay equity explicit goals of the act, prohibits sexual harassment and requirements that workers keep their pay secret, and strengthens the right of workers with family responsibilities to request flexible working hours. More debatably, it abolishes the Australian Building and Construction Commission.

To repair enterprise bargaining, it clarifies the BOOT – better off overall test – requiring that agreements leave no worker worse off. This was the Business Council’s greatest complaint against enterprise agreements.

One reason such agreements now cover so few workers is that they’re expensive and complex for small and middle-size employers to organise. Hence, the proposal to widen the existing provision for “multi-employer bargaining”: workers in similar enterprises allowed to bargain collectively with a number of employers.

This would widen access to enterprise bargaining. It’s aimed particularly at strengthening the bargaining position of women in low-paid jobs in the aged care, childcare and disability care sector.

Ambit claims and exaggerated rhetoric are standard fare in industrial relations, but the cries of fear and outrage coming from the various employer groups are over the top.

It would “create more complexity, more strikes and higher unemployment,” said one. It was “so fatally flawed” it would “emasculate enterprise bargaining”, according to another outfit. It was “seismic” in its impact, claimed a third.

Methinks they doth … I’d be amazed if they actually believe that stuff. They’re probably still adjusting to the shock of having the unions back in the government tent. They know they won’t be able to stop the bill being passed, so they want at least to be seen opposing it with all their voice.

What changing the law won’t change is that the proportion of workers in a union has fallen from 50 per cent to 14 per cent. The small and middle-size businesses we’re talking about have even fewer union members than that.

No union members, no strike. No strike, no big pay rise. In any case, really powerful unions get big pay rises without needing to strike.

This is an attempt to make bargaining provisions that didn’t work last time, work this time. I doubt if these modest changes will do much to “get wages moving” again. More’s the pity. If I’m right, Australia’s capitalism will remain broken.

Read more >>

Wednesday, September 7, 2022

Why labour shortages can be good for you - and the economy

In Professor Ross Garnaut’s much-praised speech to last week’s jobs summit, he told a story about politicians desperately seeking workers. At about the time Anthony Albanese was in Fiji talking about recruiting nurses, the West Australian premier was in Ireland, also trying to recruit nurses.

He sought a meeting with the Irish minister for health, but without success. Why? Because the Irish minister was in Perth trying to recruit nurses.

Garnaut’s point was that, when a country underpays its nurses, it’s open to having them pinched by another, better-paying country.

But I drew a different conclusion. It’s all very well for the nation’s employers to go to Canberra complaining about the desperate labour shortage and demanding that the government lift its target for how many visas for permanent immigrants it will issue this year.

Albanese was persuaded to raise the target from 160,000 to 195,000. But when we’re short of skilled labour at the same time many other rich countries are also short, raising the target and achieving the target are two different things.

My guess is that we’ll be hearing complaints about labour shortages for years to come. And I’m not sure that will be a bad thing. Give me a choice between a jobs market that’s “tight” – as it is now – and one that’s “loose”, with high unemployment, and I know which I’d prefer.

Journalists are trained to be sceptical of claims people make. And when economists hear people complaining that they can’t get enough workers, or that there’ll be shortage of X thousand teachers/doctors/chicken sexers by the year Y, they’re more questioning than sympathetic.

For a start, some part of the worker shortages we keep hearing about is caused by people off work because of COVID. This, surely, must be a problem that will ease in coming months. For another thing, while shortages of skilled workers get the most publicity, many of the shortages are actually for relatively unskilled work as a waiter or behind a counter.

When economists hear businesspeople complaining they “can’t get the staff”, their first question is: have you tried offering a higher wage? What employers never say is “with the low wage and bad conditions I’m offering, I can’t get any takers”. Think fruit-picking.

When you hear of bosses so desperate that they’re giving their existing workers a “loyalty bonus” or offering new workers a “sign-on bonus”, remember this: paying any kind of once-off bonus is a way of avoiding granting a proper pay rise.

This means they’re not yet at desperation point. Sometimes I wonder if businesses are delaying improving pay and conditions while they increase pressure on the government to solve their problem the easier and cheaper way, by hastening the post-pandemic inflow of skilled workers on temporary visas, plus backpackers and overseas students.

But though employers have used high levels of immigration to keep wages low and reduce the need for educating and training our own young people, I doubt they’ll be able to return to that lazy, second-rate world.

Garnaut says immigration is much more likely to raise, rather than lower, average real wages if it’s focused on the permanent migration of people with genuinely scarce and valuable skills that are bottlenecks to valuable Australian production, and which cannot be provided by training Australians.

The other much-praised speech at the jobs summit came from the boss of the Grattan Institute, our top independent think tank, Danielle Wood. Garnaut and Wood had the same message: with the unemployment rate down to 3.4 per cent, we must seize this chance to return to the “full employment” Australia hasn’t enjoyed since Garnaut (and I) were growing up in the 1950s, ’60s, and early ’70s.

Wood wants achieving and maintaining full employment to be our “economic lodestar”. Already being so close to it “means that more people who want a job now have one. It means that some people otherwise at the fringes of the labour market – young people looking for their first job, people with a disability, older workers, and the long-term unemployed – are now seeing doors open in ways they haven’t in the past,” she said.

“When unemployment is low, it lowers the cost of leaving a bad job and finding a better one. This is good for productivity.

“Poor-performing businesses that survive, not on the strength of their products or services but off the back of exploiting their workers, are driven out. Investments and workers flow instead to better-run businesses.

“And when workers are harder to find, businesses have an incentive to invest in new equipment and processes, which ultimately boosts productivity and drives higher living standards,” she said.

Garnaut agrees. “Full employment is hard work for employers,” he said. “Many prefer unemployment, with easy recruitment at lower wages. Yet full employment has advantages for many employers. It brings larger and more stable demand for consumer goods and services for businesses selling in the Australian market.

“And for employers who identify as Australians, it brings enjoyment of a more cohesive and successful society.” Sounds good to me.

Read more >>

Monday, September 5, 2022

Breaking news: unions play a central role, for good and ill

Welcome back to a tripartite world, where Labor has returned to power and its union mates are back inside the tent – and at last week’s jobs summit could be seen moving in their furniture. For those who don’t remember the 1983 glory days of Bob Hawke, Paul Keating, consensus, the Accord, and former ACTU secretary Bill Kelty as an honorary member of the cabinet, it will take some getting used to.

For those who’ve been watching only since the John Howard era, it may even seem unnatural. One of Howard’s first acts upon succeeding Hawke and Keating in 1996 was to delegitimise the unions.

He allowed the tripartite committees to lapse, and didn’t reappoint the ACTU secretary to the board of the Reserve Bank. I doubt if many even informal links between ministers and union leaders continued.

The Libs didn’t know the union bosses, and didn’t want to know ’em. They were the enemy – always had been, always would be. Big business bosses, on the other hand, would be privately consulted and were always welcome to phone up for a quiet word with the minister.

This, by the way, helps explain the Reserve Bank’s pro-business bias. Its board is loaded with business worthies - who are there to help keep the central bankers’ feet on the ground – and its extensive program of regular and formal “liaison” with key firms and industries, doesn’t include asking union leaders what they think’s happening.

If you wonder why Reserve governor Dr Philip Lowe’s remarks about wages can sometimes seem naive – even out of “boomer fantasy land” – it’s because he only ever hears the bosses’ side of the story. And I doubt if they ever shock his neoclassical socks by talking about how they exercise their market power.

It’s easy to justify the Liberals’ delegitimation of the unions by noting that, these days, only about 14 per cent of employees belong to a union. But if you find that argument persuasive, you’re revealing your ignorance of our wage-fixing institutions.

Most workers are subject to an industrial award, and there’s a union (and an employer or employer group) on one end of every award, and almost every enterprise agreement. In the Fair Work Commission’s annual wage review – which sets the wages of about a quarter of all employees – it’s the ACTU that stands against the employer groups arguing that times are tough, and they couldn’t possibly afford a rise of anything much.

So, to say the unions have what economists would call a giant “free-rider” problem – a lot of people happy to receive benefits without paying for them – is not to say they shouldn’t be given a seat at the table.

Liberals, business and their media cheer squad may be appalled by sanctification of the unions, but at least Labor’s making it clear it wants business to keep its seat at the table. It will be consulted. This too is Labor’s inheritance from the Hawke-Keating experience: to the extent possible, keep business on side.

The ACT’s second-biggest industry – lobbying – will be busier than ever. It’s third-biggest – consulting – not so much.

What all agreed at the summit is that Labor has taken over an economy with many structural problems that need fixing. Not the least of these is that the wage-bargaining system is broken.

What we learnt last week, from everything ministers said and from the 14-page “outcomes document” is that, in marked contrast to its predecessor, Labor does intend to fix things.

The whole summit, tripartite business is about giving all the key players a say in how things are fixed, giving them a heads-up on the government’s intentions, and an introduction to the minister. About winning support – or, at least, acquiescence – from as many of the powerful players as possible, to minimise the political risks of making changes.

Under Labor’s tripartism, the three parties aren’t equal. The government will, in the end, do what it decides to do. The unions start well ahead of business, because of their special relationship with a Labor government.

They have a further advantage over business: solidarity. The many unions are used to speaking with one, unified voice through the ACTU, whereas business fractures into big versus small, and rival employer groups. The unions know all about playing one business group off against another.

What business has to decide is whether it wants to stay in the government’s tent or walk out. Because, in business, pragmatism usually trumps idealism, my guess is that business will play ball for as long as Labor looks like staying in office.

After the summit ended, the ACTU’s statement said it had always “been clear that we need to get wages moving and increase skills and training for local workers in order for unions to support lifting skilled migration levels. We welcome that this summit has delivered those commitments.”

It was all a talk fest? No, a deal was done and that quote reveals just what the deal was. However, a big part of the business side didn’t support fixing the wage-bargaining system by returning to “multi-employer” bargaining.

What’s clear is that the government will be pressing on with some form of multi-employer bargaining. What isn’t yet clear is what that form will be. Until it’s finalised, business will be busy inside the tent pushing for whatever modifications it can get.

With Labor back in power and the unions back walking the halls of power, it’s important to understand the relationship between the two arms of the “labour movement”. Whereas the relationship between the Libs and business is quite informal, the relationship between Labor and the unions is highly formal. They’re not mates, they’re close rellos.

Historically, the unions set up the Labor Party to be their political arm. To this day, those unions that pay dues to the Labor Party still wield considerable influence over it and the members of the federal parliamentary caucus.

Labor parliamentarians are affiliated with particular unions, which gives some of the bigger unions considerable influence over preselections, on who gets to stay leader of the party, and on certain policy matters.

When Labor is in government, businesses in certain industries use their unions to get to the government. This explains why Labor governments haven’t done as much as they should to tighten up our competition law.

And whereas Howard left the Libs with a visceral hatred of industry super funds, Labor’s links with the unions – and the unions’ links with the ticket-clippers of the super industry – mean it can’t always be trusted to favour the interests of super members over super managers.

Read more >>

Friday, April 22, 2022

Job insecurity: close your eyes and you can't see it

Well, that’s a relief. Labor and the unions are claiming we have a problem with increasing casualisation and job insecurity, but The Australian Financial Review has looked up the official figures and discovered that, if anything, the proportion of casual workers has been falling. So, the problem’s a furphy? Sorry, ain’t that simple.

Strictly speaking, the Australian Bureau of Statistics’ labour force survey doesn’t measure “casual” employment, and certainly makes no attempt to measure whether jobs are secure or insecure, precarious or solid as a rock.

What it does do is ask the workers it surveys whether their job entitles them to annual and sick leave. We’re left free to assume that those who say no must be “casuals”, whereas those who say yes must be “permanents”.

It is true that, by this measure, the proportion of all workers who are casuals grew strongly in the decades before 2000, but then was little changed until the onset of the pandemic in 2020.

But it’s also true that the absolute number of casuals continued to rise until the pandemic.

In the two years since February 2020, the number has fallen – by 61,000, or 2.3 per cent – and so have casuals as proportion of total employment.

I very much doubt the pandemic has cured us of insecure employment.

With some people unable to work because they had the virus or were in isolation, and with our borders closed to the usual supply of temporary workers from overseas, employers became acutely short of labour. But I wouldn’t assume that what employers do during a pandemic is what they’ll keep doing when conditions improve.

So whether the labour movement is wrong to say casualisation is increasing is open to debate. And even if the proportion of casuals continues to decline in the years ahead, does that mean insecure employment isn’t worth worrying about?

In any case, casualisation isn’t really what Laborites are on about. It’s job insecurity that’s the issue. And a casual look at the statistics won’t tell you much about that either.

One man who has taken a very careful look is David Peetz, a professor of employment relations at Griffith University. He summarised his findings in two articles for The Conversation.

He started by taking a closer look at what the figures say about the nature of casual jobs. Why do some jobs need to be casual, and why do some employers need casual jobs?

Surely the answer is that employers want flexibility because they need some people to work at varying times for short periods.

But Peetz found that about a third of casuals worked full-time hours. About half had the same working hours from week to week, and were not on standby. More than half could not choose the days on which they worked.

Almost 60 per cent had been with their employer for more than a year. And about 80 per cent expected to be with the same employer in a year’s time.

What this suggests is that many workers classed as casuals don’t need to be casual in the traditional sense. Peetz found that only 27 per cent of casuals worked varying hours and had no minimum guarantee of hours.

This means a huge proportion of the workers classed as casual because they’re not eligible for paid leave could be classed as permanent, but aren’t.

Why not? One possibility is that the employer simply wants to save on the cost of leave. But defenders of the status quo assure us casual workers receive a special 25 per cent loading in lieu of paid leave. What’s more, many casuals prefer the loading to the entitlement, we’re assured.

The statistics bureau no longer asks workers who say they have no leave entitlement whether they receive a loading – or whether it’s as high as 25 per cent. But back when it did ask, less than half of casuals said they got it.

I wonder how many cases of “wage theft” involve the non-payment or under-payment of leave loading. As for people wanting cash now not paid leave in the future, that’s a sign they’re living hand-to-mouth on a wage too low to give them financial security.

Peetz argues the reason so many people working regular full-time jobs are classed as casuals is because employers have the bargaining power to impose insecurity on some of their less-skilled or less senior workers.

Even if the employer isn’t also saving on how much they have to pay the worker, they get the “flexibility” of being able to get rid of workers without notice or redundancy payout. The worker may not even be formally terminated, just not be given any more hours.

Did someone mention job insecurity?

Looking more broadly, Peetz found that the real causes of insecurity aren’t the type of contract workers are on – casual or permanent, full-time or part-time – but rather the way organisations are being structured these days.

“This is designed to minimise costs, transfer risk from corporations to employees, and centralise power away from employees,” he argued.

This motivation helps explain the dramatic increase in franchised businesses. It’s the franchisee that bears responsibility for scandals such as underpaying workers.

Other corporations call in labour-hire companies to take on responsibility for their workers. This cuts costs and transfers risk down the chain – thus making jobs more insecure. Labour-hire workers are usually casual full-time workers, he argues.

Some companies set up spin-offs or subsidiaries. Some just outsource to contracting firms.

“On the other hand, some organisations have found relying on part-time casuals counterproductive, as workers had no commitment and became unreliable. Some large retailers now use ‘permanent’ part-timers rather than casuals,” he wrote.

Between 2009 and 2016, “casual” part-timers grew by just 13 per cent, whereas “permanent” part-timers grew by 36 per cent.

Businesses have used their power to cut their labour costs. Many workers’ jobs have become less secure in the process.

Read more >>

Wednesday, April 20, 2022

It's not jobs we're short of, it's jobs that pay decent wages

When it comes to knowing what’s going on in the jobs market, there’s a bit more to it than being able to remember the present rate of unemployment. It helps to know why the unemployment rate is at the level it is, and what that implies for the family’s future finances.

In case you’ve gone deaf – or just stopped listening – Scott Morrison wants you to know the rate of unemployment has been falling rapidly over the past six months, and is now a fraction under 4 per cent.

That’s the lowest it’s been in about 50 years.

But wait, there’s more. Morrison said last week his priorities are “jobs, jobs, jobs, jobs and jobs”. To which effect he’s promising to create a further 1.3 million over the next five years. This will be on top of the 1.9 million jobs already created since the Coalition returned to power in 2013.

The growth in employment and the fall in unemployment since the economy’s massive contraction during the “coronacession” in the June quarter of 2020 is a truly remarkable achievement, for which the Morrison government deserves much credit. Don’t let any carping Labor critic convince you otherwise.

Don’t let anyone tell you the government has changed the definition of unemployment. It isn’t true. What is true is that the problem of underemployment – people who have jobs, but aren’t able to find as many hours as they’d like – is a bigger problem today than it was 50 years ago.

But the rate of underemployment has fallen to 6.3 per cent, down from 8.8 per cent two years ago, and the lowest it’s been since 2008.

In any case, almost all the 395,000 net extra jobs created since the start of the pandemic two years ago are full-time.

Next, get this. The proportion of the working-age population holding a job now stands at 63.8 per cent – the highest it has ever been.

And the biggest winners in this have been young people. Their rate of employment is 4.6 percentage points higher than it was two years ago. The rate for people aged 25 to 64 is up 1.9 percentage points, while the rate for those aged 65 and over is up 0.4 points.

But all the growth in employment hasn’t been sufficient to meet the demand from employers. The number of job vacancies is at a record level of 423,500. That is, getting on for a half a million job openings are going begging.

Now, let me ask you a question: does it sound to you as though our big problem at present is an acute shortage of jobs, jobs, jobs?

If you’ve heard of generals fighting the last war rather than coming to grips with the present one, now you know that prime ministers are prone to the same mistake.

So, why is Morrison claiming to have made getting us a lot more jobs his priority, when there must surely be more pressing problems he should be focused on? Two reasons.

One is that Australia’s had a problem with insufficient jobs – aka high rates of unemployment – since the late 1970s. This was the case for so long – did I mention 50 years? – the notion that a shortage of jobs is an eternal feature of economic life is now lodged deeply in many people’s minds.

And, as is the practice of modern politicians, Morrison finds it easier to pander to our misconceptions than to straighten them out.

“You think we can never have enough jobs? OK, I promise to create another 1.3 million of ’em.”

But how on earth do we finally seem to have got on top of a 50-year problem? Mainly because our first recession in almost 30 years turned out to be more benign than any we’ve had.

In particular, the government spent unprecedented multi-billions on the JobKeeper wage subsidy scheme, which was designed to preserve the link between employers and their workers, even when they had no work for their workers to do. It worked brilliantly.

The billions federal and state governments spent on this and many other programs to protect the incomes of businesses and workers have given an enormous boost to the demand for workers.

But remember, this surge in demand came at a time when our borders were closed to our usual supply of imported labour: overseas students, backpackers and skilled workers on temporary visas.

Now that our borders have reopened, the demand for workers will increase, but so will their supply. If employment does grow by 1.3 million in the next five years, it will be mainly because of population growth, coming mainly from immigration.

The other reason Morrison wants to talk about jobs, jobs, jobs is to direct our attention towards his economic successes and away from his economic failure: since a year or two before the Coalition’s election in 2013, wages have struggled to keep up with the rising cost of living.

If Anthony Albanese was a sharper politician, he’d be telling us his priorities were wages, wages, wages.

Read more >>

Wednesday, February 23, 2022

Interest rates won't rise until wages are higher

Let’s talk about pay. Been getting pretty good rises of late? Well, some people have. But if your pay increases have been small and far between, you’re in good company. And I have some good news. Well, not so much good news as not-as-bad-as-it-could-be news.

In recent times people in our financial markets – including the banks – have been predicting that the Reserve Bank will start raising its official interest rate within a few months and, once it starts, there’ll be more increases in quick succession.

The media have been reporting these predictions with great enthusiasm, almost implying they’re a certainty. The financial types are so confident because interest rates really are about to rise in America, and they save on research time by assuming anything the Americans do, we’ll do a few months later.

The Americans have had a lot of price rises lately and, thanks partly to their Great Resignation, also seen strong growth in wage rates. When prices rise a lot and this flows through to higher wages, that’s when you do have a problem with ongoing inflation – a “wage-price spiral”.

But here’s the thing. We’ve had a smaller rise in prices but, so far, little rise in wages. (We’ll see on Wednesday, with the publication of the Bureau of Statistics’ wage price index, how much that changed in the three months to December.)

And Reserve Bank governor Dr Philip Lowe has said repeatedly that he won’t be raising interest rates until he sees that the rise in prices is also reflected in wage rises. As he put it in his recent parliamentary testimony, “the higher interest rates will be occurring in an environment where people have stronger wages growth and jobs”.

So the banks’ predictions about rising interest rates imply that most workers will be getting a pay rise of 3 per cent or so this year. Find that hard to believe?

According to the wage price index, wage rises have averaged 2 per cent a year over the past six years. And, as you remember, businesses and governments were quick to impose wage freezes when the pandemic began in 2020.

A move to 3 per cent rises is always possible of course but, given recent history, I’ll believe it when I see it. And Lowe’s also waiting for the evidence. As he puts it, “is the stronger labour market going to translate to higher wages?”

The fad of assuming that whatever happens in America also happens here has led some to talk about our own Great Resignation. It’s not true.

In the US, many workers have simply given up working or looking for work. Some are staying home to care for family, some to avoid the plague, some because the upheaval has caused them to re-evaluate their lives.

“Especially if you were working in a low-wage job, you probably thought that the risk [of infection] was not worth the return,” Lowe says. Older Americans were “leaving the workforce in droves”.

But whereas the proportion of working-age people who are in the US labour force has fallen heavily – thus requiring employers to offer higher wages to attract the workers they need – this hasn’t happened here. Our rate of people “participating” in the labour force has returned to its record level pre-pandemic.

Which is just one sign of how much “tighter” our jobs market has become. We have 270,000 more people in jobs than we did before the pandemic, and both unemployment and underemployment are at 13-year lows, while the number of job vacancies is at a record high. (Our closed borders to skilled workers, backpackers and overseas students have helped in this, of course.)

This tight market is the main reason the econocrats are hoping it won’t be long before employers are obliged to start offering higher pay rates to get – poach – the workers they need.

When that happens, it will be a new experience for a lot of employers, many of whom have got into the habit of thinking their profitability comes from keeping wage costs as low as possible.

In the old days, the unions and the regulated wage-fixing system could be relied on to ensure that wages kept up with rising prices – plus a bit more to ensure living standards kept rising. Not any more.

These days, few workers belong to unions, and it’s not hard for employers to stop engaging in enterprise bargaining. And, as we’re seeing with the NSW government’s resistance to its transport workers’ wage claim, workers don’t get much sympathy from conservative governments.

These days, if you want a pay rise you have to get it yourself. Although we haven’t had a Great Resignation, the econocrats say we have had a significant increase in workers willing to change jobs for higher pay. We’ve also had employers agreeing to move workers to a higher pay grade.

The top econocrats hope that by keeping the job market tight they’ll finally crack the wages dam, getting the latest generation of employers used to the frightening idea than their workers are entitled to decent pay rises. Good luck, guys.

Read more >>

Friday, February 11, 2022

Can we believe the great news on unemployment? Yes and no

Scott Morrison has a great re-election pitch: forget the problems with the pandemic, just look at how well the economy’s going. The rate of unemployment is already down to 4.2 per cent, and his goal is to get it below 4 per cent, the lowest it’s been in 50 years. Wow. What fabulous economic managers the Libs must be. But can you believe unemployment’s that low? Didn’t they fiddle with the figures some time back?

It’s good to be sceptical about the claims politicians make on the economy. Government politicians tend to tell us about the good bits and fail to mention the not-so-good parts of the story. Opposition politicians tend to do the opposite.

But not everything we think we know about the tricks politicians play is true. For instance, many people think they remember that, some years ago, a government changed the definition of unemployment to make the figures look better. They made it so that someone who worked just one hour a week was classed as employed.

This week I’ve had people asking me about this. In my experience, when a Labor government’s boasting about good unemployment figures, Liberal supporters remember Labor fiddled the figures. When, as now, it’s a Liberal government doing the boasting, it’s Labor supporters who remember a Liberal government doing the fiddling.

Which hints at the truth: actually, no government has changed the definition of unemployment. It’s an urban myth which, I suspect, has arisen because people get confused between who’s getting unemployment benefits and who’s unemployed.

The two are related, obviously, but they’re not the same. For instance, you can be unemployed and not get the dole because your spouse is working. On the other hand, single people working a few hours a week wouldn’t be earning enough to make them ineligible for the dole.

Governments can, and do, change the rules about who does or doesn’t get unemployment benefits. But who’s unemployed is measured by a huge monthly sample survey conducted by the independent Australian Bureau of Statistics.

It doesn’t let politicians decide who’s counted as unemployed and who ain’t. Rather, its definitions come from international conventions set by the UN’s International Labour Organisation in Geneva.

So it was the ILO that decided, decades ago, to define anyone doing as little as an hour’s work a week as employed. (I remember talking to an official of the Australian Council of Trade Unions who was an Australian delegate on the sub-committee that, a few years ago, decided to leave that definition unchanged. He vigorously defended the decision.)

Remember, you have to draw the line between being employed or unemployed somewhere – where would you draw it? Five hours work a week? Fifteen? Thirty-five? – and it was set so low ages ago when part-time work was much less common than it is today.

What’s true is not that the unemployment figures have been fudged, but that classing everyone working an hour or more as employed defines unemployment too narrowly. So narrowly as to understate the extent of the problem.

In fact, few people work as little an hour a week. But, though it’s wrong to imagine the only satisfactory jobs are full-time – it suits many students, parents of young children and retirees to work only a few days a week – it’s also true that many people working part-time would prefer more hours.

So for several decades, the bureau has supplemented the official unemployment figures by also publishing the number of people underemployed – those part-timers who’d prefer working work more hours. The latest figures show an unemployment rate of 4.2 per cent, plus an underemployment rate of 6.6 per cent.

Thus it is true the official unemployment rate of 4.2 per cent isn’t as good as it looks. It does understate the proportion of people who aren’t able to find as much work as they want.

And, since we know the proportion of underemployed workers is much higher today that it was 50 years ago, it’s also true that getting back to the lowest unemployment rate in 50 years isn’t likely to be as good as it was 50 years ago.

Even so, it’s quite realistic to expect that, since unemployment is already down to 4.2 per cent, and regardless of who wins the federal election, it won’t be too hard to get the rate down below 4 per cent sometime this year or next.

And whether you hate Morrison – or hate Anthony Albanese – don’t let any smarty pants tell you that will be anything other than a great achievement. If it’s not the best we’ve had the jobs market in 50 years, add in underemployment and it would be the best in maybe 40 years. Unemployment isn’t something you should wish on anyone.

No, the main reason for having reservations is the uncertainty about how long we’ll be able to keep unemployment that low.

We’ve had great success in creating extra jobs in the past year – most of which have been full-time – mainly because the government has responded to the pandemic with massively increased government spending. But the economy may slow if, as all that “fiscal stimulus” runs out, the private sector doesn’t take up the running.

The jobs market has also had a lot of help from an unprecedented (and temporary) source: for two years our borders have been closed to incoming workers. Skilled workers on temporary visas, and overseas students and backpackers doing unskilled and casual jobs.

You’ve heard employers complaining they can’t get workers and that job vacancies are at a far higher level than usual. The consequence is that many older workers who might have been pensioned off, haven’t been. And some of the jobs that haven’t been filled by overseas students and backpackers have gone to local young people.

But now our borders are re-opening to immigrant labour, we’ll see how tight the jobs market stays. I reckon it’ll be a fair while before we get back to the high levels of immigration pre-pandemic.

Read more >>

Monday, June 7, 2021

Morrison needs the guts to save business (and the unions) from folly

Talk about don’t mention the war. The great and good – who miss jetting off overseas several times a year – keep telling us the economy won’t recover until we’ve reopened to the world. Seems they just can’t bring themselves to focus on the obvious: it’s wages, stupid.

It’s self-evident that, ultimately, it would be bad for our economy for us to stay a hermit kingdom. But these worthies are wrong if they imagine that re-opening our borders would immediately strengthen the recovery.

It’s true that our airlines won’t recover until the borders open, and our universities will remain crippled. But because Aussies normally spend far more on touring overseas than foreigners spend touring here, our tourism industry (including every country town) has been doing nicely thank you from the temporary ban on Aussies doing their touring abroad.

Our econocrats have been busy extending the fiscal stimulus to get unemployment down and skill shortages up, in the hope this will bid up wages, and so give the nation’s households more to spend through our businesses.

Trouble is, business has grown used to covering shortages of skilled labour by importing workers on temporary visas, thus avoiding pushing up wage rates (and training costs). Get it? The real reason they want the borders re-opened ASAP is so they can go on playing this game.

But it’s just one of many stratagems our businesses have been using to keep the lid on wages: increased use of part-time and casual employment, labour hire companies, discouragement of collective bargaining and greater use individual contracts, evading labour laws by pretending workers are independent contractors, and even wage theft.

Little wonder “most Australians have not had a meaningful pay rise for almost a decade” and “living standards have stagnated”, as Brendan Coates, of the Grattan Institute, reminds us.

And little wonder the economy’s growth was so weak before the arrival of the pandemic, and threatens to go back to being weak once last year’s massive fiscal stimulus has dissipated.

Market economies are circular – the money goes round and round. And nowhere is this clearer than in the two-sided nature of wages. Wages are both the chief cost faced by most businesses, and the chief source of income for their customers.

See the problem? The more success the nation’s businesses have in keeping the lid on wage costs, the less money the nation’s households have to spend on all the things business wants to sell them.

When the two sides of the wage coin get out of whack, so to speak, business starts strangling the golden goose. Efforts to achieve a healthy rate of economic growth – and rising living standards – won’t be sustained.

This is a form of market failure called a collective action problem. What seems to makes sense for the individual business is contrary to the interests of business as a whole. But no business wants to be the first to stop skimping on wage costs for fear of losing out to its competitors.

The solution to collective action problems is for some authority to come in over the top and impose a solution on all players, thus leaving none at a competitive disadvantage and all of them better off in the end because their customers have more money to spend.

In other words, the only way for us to escape an anaemic, wage-less recovery is for Scott Morrison to intervene in the economy to get wages up.

Since the Fair Work Commission’s annual minimum wage case affects the wages of one worker in four, he should have intervened in the case – as has always been the feds’ right – to encourage the commission to give a generous increase after last year’s miscued pandemic minginess.

He should be trying to set a higher wage “norm” for private sector employers by giving his own federal employees a decent, 3 per cent annual pay rise, and pressuring the premiers – Labor and Liberal – to do likewise.

He should be legislating to protect Australian workers – and his own tax collections - from the ravages of the “gig economy”, which tries to hide its evasion of our labour laws behind its genuine and welcome technological innovation.

And the very least he should be doing is to beef up the Fair Work Ombudsman’s staffing and ability to stamp out wage theft which – purely by mistake, you understand – has become endemic. This outbreak of utterly unAustralian illegal behaviour tells us a lot about the ultimately self-destructive, anti-wage mania that is gripping the nation’s business people.

The obvious problem is that doing anything to increase wage rates is totally foreign to a Liberal politician’s every instinct. The Business Council would be incandescent. Nixon going to China is one thing, but a Liberal putting up wages? Never.

Sorry, but the world turns, and successful leaders must turn with it. We used to have a chronic problem with inflation; now it’s chronic spending weakness. The unions used to have too much power; now they have too little.

Even so, there’s one thing a Liberal Prime Minister could be doing to help without giving offence to Liberal sensibilities. It would actually be a blow against his union and Labor enemies that would do a lot to strengthen the economy’s prospects over the next four years, should he have the strength to put the economy ahead of his own political discomfort.

It would save Australia’s workers from the self-interest of the union elite and the mindless tribalism of Labor (not to mention the bullying of a certain former Labor prime minister), which is happy to give their unions mates what they demand because the Libs want to destroy industry super (which is true, but not a good enough reason to oppose a change that would leave workers and the wider economy better off).

The strange thing about last month’s budget is that, though it sees the econocrats’ wage-lifting strategy getting unemployment down to 4.5 per cent by about the end of 2023, it sees no growth in real wages for the next four years.

In evidence to a Senate committee last week, Treasury secretary Dr Steven Kennedy was obliged to explain this discrepancy. It’s because, starting next month, legislation requires compulsory employer contributions to their workers’ superannuation to be increased by 0.5 percentage points for five Julys in a row, until they reach 12 per cent of wages in July 2025.

Relying on strong empirical evidence, Treasury has assumed that employers will cover 80 per cent of the cost of this impost by raising wages by that much less. The nation’s workers will thus be forced to save rather than spend a significant portion of what would have been their future pay rises.

The nation’s greedy, ticket-clipping super-fund managers play on everyone’s instinctive fear that they aren’t saving nearly enough to provide for a comfortable retirement. It suits the union elite (and their gullible Labor mates) to go along with this deception, even though Grattan’s Coates (and Treasury before him, and the recent Retirement Income Review since him) has demonstrated that, after including a part-pension, most workers will have plenty.

So the Labor tribe wants to force the nation’s employees to live on less during their working lives so they can live like royalty in retirement. Why doesn’t Morrison seek to reverse this Labor-initiated legislation? Because he fears he’d lose votes in the labour movement’s ensuing fear campaign.

Read more >>

Saturday, February 23, 2019

We've had plenty of new jobs - for the young, not so much

You can be sure Scott Morrison and Josh Frydenberg will be boasting about this week’s job figures, which show the jobs market remaining unusually strong. But their critics know not to believe the numbers.

The Australian Bureau of Statistics’ figures for January show the seasonally adjusted rate of unemployment steady at 5 per cent – the lowest it has been since the start of the decade. The more reliable “trend” (smoothed) estimate is little different at 5.1 per cent.

Sticking with the trend figures, employment has increased by more than 295,000 people over the past year. That’s a rise of 2.4 per cent – a lot bigger than the average annual growth rate over the past 20 years of 2 per cent.

Almost three-quarters of those extra jobs were full-time. Full-time employment has been growing particularly strongly in the past few years.

Another good indicator of how well the economy is going at providing jobs for those who want to work is the employment ratio – the proportion of everyone in the population aged 15 and over who has a job. It’s steady at 62.4 per cent, the highest it’s been.

Just during January, employment increased by 24,900 to reach 12.7 million. That’s an increase of 0.2 per cent, above the monthly average growth rate over the past 20 years of 0.16 per cent.

But don’t get the idea this means all of us stayed in our jobs while another 24,900 joined us. That’s just the net increase. There was a lot more coming and going than that. Indeed, the bureau informs us that, each month, about 300,000 people leave employment and about 300,000 enter it.

Looking at that strong performance over the past couple of years, what’s not to like? With a federal election coming up, why shouldn’t Morrison and Frydenberg boast about the great job they’ve done on jobs?

Well, a lot of their critics would be happy to tell you. They know the official unemployment figures understate the true extent of joblessness.

Did you realise, for instance, that the bureau counts you as employed even if you’ve worked for as little as one hour a week?

This means that, as well as the 680,000 people counted as being unemployed, there are another 1.1 million people who are under-employed – those who have a part-time job, but want to work more hours a week than they are.

Those 1.1 million represent 8.3 per cent of the “labour force” (all those with jobs or looking for jobs). Add that 8.3 per cent to the official unemployment rate and you get a total “labour under-utilisation rate” of 13.3 per cent.

This is down from 14 per cent a year ago, with under-employment accounting for just 0.2 percentage points of the fall and unemployment accounting for the rest.

So the under-employment rate, which rose in the years after the global financial crisis, has fallen since its peak of 8.8 per cent in early 2017, but much more slowly than the fall in unemployment.

That’s the standard critique of the official story: the “true” extent of joblessness is far higher than the official unemployment rate tells us, and when you take account of widespread under-employment you see also that the rate of improvement has been a lot smaller.

What are we to make of this criticism? Well, it’s correct factually, but when you look deeper you see it goes to the other extreme of overstating the extent of the problem.

Take, for instance, the oft-repeated news that people are counted as unemployed if they work for as little as an hour a week. That’s true, but how many people do work as little as an hour?

Answer: almost no one. This week the bureau issued a special note about this matter. It says that only about 14,500 people do, out of total workforce of 12.7 million – that is, 0.1 per cent. (If you think 14,500 people is a lot, you don't realise how big our economy is.)

Make it people working up to three hours a week and you’re still only up to 100,400 people, or 0.8 per cent. In fact, about 97 per cent of workers usually work seven hours or more a week. That’s at least one full shift a week.

The point is that you have to draw the dividing line between unemployed and employed somewhere, and by adhering to the longstanding international convention of drawing it at an hour a week, we are not significantly overstating the position.

Many people assume the only good job is one that’s full-time. Wrong. Many students, parents and semi-retired people are perfectly happy working only part-time.

Further, many people assume that every part-time worker who says they’d like to work more hours is someone who’d rather have a full-time job if only they could find one. That’s wrong, too. Though many would indeed prefer a full-time job, many part-timers want to stay part-time, but wouldn’t mind working a few extra hours.

So when you take the unemployment rate (people with no job) and simply add the under-employment rate of 8.3 per cent on to it, you’re exaggerating the number of people working significantly fewer hours than they want to.

But let’s take a closer look at under-employment. As the bureau has explained, it is concentrated among the young. More than a third of the under-employed are aged 15 to 24. About 18 per cent of all workers in this age group are under-employed.

It seems clear that education-leavers have borne more than their fair share of the pain during the period of below-par growth since the global financial crisis in 2008. Many people leaving university have had to settle for a part-time job and, until quite recently, they’ve taken more months to make it into full-time employment.

The latest figures from the universities show their new graduates are now taking less time to find a decent job than they were.

But, in any case, caring about the troubles of young people is deeply unfashionable. It’s the well-off elderly we should be worrying about.
Read more >>

Monday, February 4, 2019

Hey pollies: weak wage growth won't fix itself

The economy’s prospects are threatened by various risks from overseas – about which we can do little – and by continuing weakness in wage growth – about which the two sides contesting the May federal election have little desire to talk.

In his major economic speech last week, Scott Morrison gave wages only a passing mention: “by focusing on delivering a strong economy we create the right environment for wages growth, which we are now beginning to see, and more will follow”.

Actually, you need a microscope to see any improvement. The microscope shows that most of it is explained by the Fair Work Commission’s hefty 3.5 per cent increase in minimum wage rates last June.

(And why was it so generous? To offset the effect on pay packets of its earlier decision to phase down Sunday penalty rates.)

Not, however, that Bill Shorten has had a lot more than Morrison to say about the causes and cure of weak wage growth. Presumably, Shorten fears that anything he says about changes to wage fixing will be used to feed yet another scare campaign about him being a patsy for a union takeover.

Two or three years ago, I was happy to entertain the view still publicly espoused by the Reserve Bank (and still happily hidden behind by Morrison) that the wage problem was simply cyclical: wages are taking longer than expected to recover from the ups and downs of the resources boom but, be patient, they’ll come good soon enough.

Sorry, that possible explanation gets harder to believe as each quarter passes without any sign of nominal wage growth moving ahead of weak inflation, so as to give employees their rightful share of the improvement we’ve achieved in the productivity of their labour.

(And thus – ScoMo please note - giving the boost to real household disposable income, then consumer spending and then business investment spending, that has always been the greatest single contributor to “delivering a strong economy”.)

No, as years pass without the cycle restoring real wage growth, it becomes easier to believe the problem arises from some deeper issue with the structure of the economy.

The most popular structural explanation – best espoused by Professor Joe Isaac, an eminent labour economist – is that the “reform” of wage fixing went too far in shifting the balance of industrial bargaining power in favour of employers.

Isaac’s various proposals for reforming the reform – including restoring unions’ right of entry to the workplace, reducing the rigmarole before workers can strike, and restoring permission for industry-wide bargaining – would no doubt have crossed Labor’s mind for serious consideration should it win the election.

But another noted labour economist, former top econocrat Dr Mike Keating, has his doubts. He says he has no great objection to Isaac’s wage-fixing reforms, but doubts they’ll get wages moving because the structural problem is much deeper.

As argued in detail in his book with Professor Stephen Bell, Fair Share, and many articles and blogs, Keating sees our wages problem in the much broader context of the malaise of “secular stagnation” that’s been gripping the US and other advanced economies for at least a decade.

Keating reminds us that wage growth has been weak in most of the advanced economies for several decades, accompanied by rising inequality.

The distribution of earnings (that is, wages, rather than income from all sources) has become more unequal, Keating argues, mainly because of technological change and, to a lesser extent, globalisation.

Technological change has been “skill-biased”, with strong growth in high-skilled employment, and reasonable growth in unskilled jobs, but a decline in middle-level jobs, where routine jobs are being done by computers.

The result is a change in the structure of employment, one which increases earnings inequality. If so, it’s not a problem that could be fixed by higher wage-rates.

Keating says we’ve been slow in Australia to see what’s increasingly been realised overseas and by the international economic agencies: income inequality is bad for economic growth (mainly because the high-paid save rather than spend a higher proportion of their incomes).

But Keating’s more fundamental policy response to the problem of technology-driven weak wage growth and increased inequality is enhanced education and training, to help workers adjust to the challenges posed by new technologies, as well as spur the adoption of those technologies.

He’d give priority to early childhood learning and life-long learning through the TAFE system. He's happy to note this would require us to pay more tax rather than less – another thought the pollies don’t want us thinking about right now.
Read more >>

Wednesday, January 23, 2019

More jobs for older workers than ever before

“Too old, too senior, too experienced, too expensive – heard ’em all. Ours is a society which does not value age and lived experience. Over 50? It’s the scrap heap for you.”

I can’t remember where I saw that quote, but I bet you’ve heard those sentiments many times. The media are always bringing us stories about people who, having lost their job in late middle age, find it very hard – even impossible - to get another one.

It’s understandable that people experiencing such treatment get pretty bitter about it. And it’s not surprising the media and the politicians take their complaints so seriously. The federal government has appointed successive age discrimination commissioners, and instigated various schemes offering subsidies to employers willing to hire older workers.

All of which is just as likely to increase prejudice as reduce it. The more public figures bang on about the prevalence of age discrimination, the more they risk sending a message to employers that if everyone else is ridding themselves of older workers, why aren’t they?

And if older workers weren’t sub-standard, why would the government find it necessary to subsidise their cost?

It would be silly to deny that some employers are prejudiced against older workers – just as some are prejudiced against young workers (an injustice the media are far less eager to tell us about).

But it’s just as silly to leap from the truth that some proportion of older workers has trouble finding re-employment to the outlandish claim that every worker over 50 is headed for the scrap heap.

I don’t know the true extent of discrimination against older workers, but I’m pretty sure we’ve been given an exaggerated impression of it, with many older workers caused to worry unnecessarily.

If there was any truth to the notion that everyone over 50 is headed for the scrap heap, we should be seeing a sharp decline in the rate at which people over 50 are participating in the labour force.

But we’re not. Indeed, the reverse is happening. The statistical truth is that the participation rates of older age groups are higher than they’ve ever been – a point Reserve Bank governor Dr Philip Lowe made in a little-noticed speech last year.

The ageing of the population – and, more particularly, the retirement of the baby-boomer bulge – means the proportion of older people working should have declined. Remarkably, it’s increased.

There was a time when early retirement was all the rage. As soon as you could retire, you did. And a lot of workers were retired involuntarily.

But those days are long gone. The age at which men and women are retiring keeps rising. In the 1980s and ‘90s, less than one worker in 10 was over 55. Today it’s almost one in five.

Since 2000, the “participation rate” for men aged 55 to 64 has risen from 60 per cent to about 67 per cent. The rate for women has been rising since the early ‘80s – from 20 per cent to 60 per cent.

For men aged 65 and over, the participation rate has risen since 2000 from 10 per cent to almost 20 per cent. (Read that again if it didn’t sink in.) For women in the same age group, participation has gone from a per cent or two to about 10 per cent.

The big news is that older people are staying longer in the workforce than ever before, but the story we’re being fed is that employers are discriminating against older workers wherever you look.

How has this remarkably under-reported truth come about? Partly for negative reasons. The higher cost of homes has caused people to take on mortgages later in life, meaning some people have higher levels of mortgage debt as they approach retirement and don’t want to stop working until it’s paid off.

The knowledge that we’re living longer – combined with the super industry’s unceasing efforts to convince us we haven’t saved enough – has prompted some people to delay their retirement.

Governments have lifted the age pension age to 65 for women, and are now phasing the age for both sexes up to 67. They’ve also raised the age at which you may access your superannuation savings.

But then there are the positive reasons. The present generation of older workers is much healthier than earlier generations.

And we’re living longer. Which makes it hardly surprising we’re working longer. Of course, another factor that’s helping is greater acceptance by employers of “flexible work practices” – including allowing workers to shift from full-time to part-time. That is, there’s been a rise in semi-retirement.

Then there’s the fact that more and more people work in the services sector, in jobs that tend to be less physically demanding.

But perhaps the biggest factor is the delayed effect of the trend for most mothers to return to the workforce after childrearing. Now more of them are still working decades later.

Oldies are always expounding on the supposed shortcomings of the younger generation. But there’s one respect in which oldies set youngsters a bad example: they’re champions at feeling sorry for themselves – even when the facts don’t back them up.
Read more >>

Monday, January 21, 2019

Positions vacant: economists (women preferred)

Never in the field of economic conflict was so much analytical effort devoted to so few... as in Reserve Bank governor Philip Lowe’s one-man crusade to save the economics profession.

This latter-day Lord Kitchener wants more young Australians studying economics at high school and university, then enlisting as economists in the holy war against economic inefficiency.

His message: Your country needs you. Opportunity cost is being flouted on every hand, yet we have just 3000 professional economists fighting the tide of economic illiteracy.

Young women, in particular, should look at themselves in the mirror and ask the hard question: what good reason have I not to become an economist? Why should I squander my life on any lesser calling than the orderly regulation of mammon?

And let’s have no weak excuses that you know nothing about being an economist – what kind of people they are, what they do, where they work, how hard it is to find a job. Not forgetting a question that could cross the mind of someone with the right stuff to be a dismal scientist: how well does it pay?

Field marshal Lowe has had his people working night and day scouring data bases far and wide to answer all such questions. Rochelle Guttmann (ably assisted by James Bishop, a mere male) does so in the subtly titled paper, Does It Pay to Study Economics? taken from my rapidly dwindling pile of unused reports, seasonally adjusted from 2018.

According to the 2016 census, fewer than 3000 people work as economists, even though there are 73,000 people with post-school qualifications in economics. What’s worse, only about two-thirds of people working as economists actually hold a qualification in economics.

But this is misleading. It’s not nearly that bad. For a start, the 3000 excludes about 2000 academic economists, who are classed as university lecturers. More significantly, to be classed as holding a qualification in economics, you must have that word in the name of your degree.

This is silly. In the day, the title of your degree said as much about which uni you went to as about the subject you majored in. Economics majors at Melbourne or UNSW walked away with a BCom, whereas accounting majors at Sydney got a BEc.

Little wonder people holding an “economics” degree are more likely to work as an accountant than as an economist. And you can forget the notion that a third of working economists are unqualified academically.

Returning to the recruiting drive, the authors make two observations about the huge disparity between those having done an economics degree and those getting a job as an economist.

First, it probably shows it’s hard for someone with an economics degree to actually get a job as an economist (ie, S > D). But it probably also shows that an economics degree is generalist in nature and provides a breadth of skills that allows you to work in a broader range of jobs compared to other degrees.

Get this: “80 per cent of economics graduates work in high-skilled white-collar occupations”.

More than a third of economists (narrowly defined) work in public administration, well over a quarter in private-sector professional services and about 15 per cent in financial services. But people with economics degrees work in a broader range of occupations and industries than people with degrees in most other fields.

Whether you’re talking economists or people with economics degrees, more than 60 per cent of them are men. Lowe believes – as does his teenage daughter, apparently – this disparity must be corrected. (The daughters of powerful men are far more influential than is commonly understood.)

Now to the question no economist would regard as sordid. Figures from the Australian Tax Office say economists have hourly earnings that put them in the top 3 per cent of earnings by occupation.

Graduates with economics degrees typically have higher full-time earnings than other graduates. They’re comparable with STEM (science, technology, engineering and maths) degrees, and higher than for business and other social science degrees.

Guttmann and her male sidekick say the labour market tends to pay the highest wages to people with the skills, abilities and knowledge that are in shortest supply [relative to employers’ demand].

So which skills make economists well-paid? Apart from their knowledge of economics, economists have skill in maths that’s way above the average for other skilled occupations, and above-average analytical skill, for reasoning and problem solving (which is what brings the big bucks).

Looking for the catch? You’ve found it. If you’re weak on maths, you might be happier as a journo.
Read more >>

Saturday, January 5, 2019

Compared to you and me, the feudal serfs had it easy

Back at work yet, or still enjoying your summer break? Either way, you probably wish you had more annual leave. I could tell you to count your blessings, that today’s full-time workers get much longer holidays than workers have ever had.

But maybe that isn't true. It’s certainly true that we get longer holidays and work fewer hours than workers did in the 19th century but, according to the sociologist Juliet Schor, the 19th century – not long after the end of the Industrial Revolution – was an aberration in the history of human labour.

Indeed, if we’re to believe Dr Lynn Parramore, senior research analyst at the Institute for New Economic Thinking, we’re working a lot harder than medieval peasants did. “Ploughing and harvesting were backbreaking toil,” she says, “but the peasant enjoyed anywhere from eight weeks to half the year off.”

The church, mindful of how to keep a population from rebelling, enforced frequent holy-days. Weddings, wakes and births might mean a week off, quaffing ale to celebrate, and when wandering jugglers or sporting events came to town, the peasant expected time off for entertainment, she says.

There was no work on Sundays, and when ploughing and harvesting seasons were over, peasants got time to rest, too. In fact, according to Schor, during periods of particularly high wages, such as 14th century England, peasants might put in no more than 150 days a year.

I’m not sure every scholar would agree with this assessment, and the 14th century was the tail end of England’s feudal system, which began after the French Norman Conquest of England in 1066.

So if you’re not sure you’d have been happier as a serf – good thinking.

Feudalism was the system of political and economic organisation that preceded England’s Agricultural Revolution and Industrial Revolution, before we got to a capitalist or market economy approximating what we have today.

According to the father of modern economics, Adam Smith, feudalism was a social and economic system defined by inherited social ranks, each of which possessed social and economic privileges and obligations. Wealth derived from agriculture, which was arranged not according to market forces but on the basis of customary labour service owed by serfs to landowning nobles.

The king owned all the country’s land, but leased much of it to nobles, often called barons. The barons ran the decentralised, feudal system. These “lords of the manor” were in complete control of their manor, meting out justice, minting their own money and setting their own taxes.

The barons divided some of their land between their knights. The knights, in turn, distributed some of their land to the serfs, also known as villeins or peasants.

That covers people’s privileges, now their obligations. In return for their land, the barons paid rent to the king and provided him with knights to fight his battles when required. In return for their land, the knights provided their baron with personal protection and military service to the king.

In return for their land, the serfs paid their master with maybe a third of the food they grew, as well as being compelled to work on his own land. They couldn’t leave the manor and needed their lord’s permission to marry. They were often charged a fee for use of any of the improvements on the manor – roads, bridges, mills and bakehouses. And sometimes they had to fight in the baron’s battles.

Serfs lived with their animals in one-room homes they built themselves with wattle-and-daub (woven twigs daubed with mud). Their clothes were self-made, mainly of wool and very scratchy. They grew rye, wheat and other grains, grazed sheep on the common, had a kitchen garden and a few apple and pear trees.

Most of what they ate they grew themselves: little meat, but lots of rye bread and a stew of peas, beans and onions, called pottage. Berries, nuts and honey were gathered from the woods.

The feudal system fell into decline for many reasons. One was that the military became full-time professionals. Another was the Black Death (bubonic plague) of 1348, which killed many of the serfs. Landowners desperate for workers to harvest their crops had to do the unthinkable: pay actual wages to anyone who’d work their land – and the wages were high. Thus did the lords lose their hold over the serfs.

But Professor Richard Grabowski, of Southern Illinois University, has advanced a more economic theory. Manorial agriculture wasn’t very efficient, even though productivity could have been improved by such measures as removing stones from fields, adding mineral fertilisers and making greater use of fodder crops.

But the system of forced labour precluded use of these techniques because they required more care and skill than the serfs had any incentive to apply when working in the lord’s fields rather than their own.

Creating this incentive would have required shifting to paid labour, but this would cost the lord the ability to order his serfs to help fight a rival lord trying to grab his land. The first lord to free his serfs would lose his land to the others.

So the lack of national enforcement of property rights was another barrier to greater productivity. As the feudal system gradually broke down, the basis for power shifted from how many serfs you controlled to how good you were at using your land to generate more income.

England’s long Agricultural Revolution involved moving to market relationships between land owners and labourers, and almost all rural production being sold in markets, as well as huge improvements in agricultural productivity, making the nation much more prosperous.

People may have worked more hours on more days in the year, but they were much better paid to do it.
Read more >>