It's skilless men, not mothers, we should get into jobs

One of the main things I've concluded after years in this job is that, although the economic dimension of our lives – the earning and spending of income – is vitally important, it's far from being the only important aspect. And we disregard those other dimensions – the relational, the social, the cultural and the spiritual – at our peril.

In this age of hyper-materialism, we're in constant danger of forgetting that. It's true of both sides of politics, but was well illustrated by Tony Abbott's changes to paid parental leave and childcare in the budget.

The nation's economists are worried that, between the ageing of the population and the end of the resources boom, we face much slower growth in our material standard of living than we've become used to.

Their solution – as advocated in the government's recent intergenerational report – is to get more of us participating in the paid workforce and to raise the average worker's productiveness (by working smarter, not harder).

During the years Abbott was pushing his far more generous paid parental leave, one of his key arguments was that it would increase young mothers' participation in the workforce.

But a report by the Productivity Commission seems finally to have convinced the government that if increasing women's participation was its main objective, raising the subsidy to childcare would do more than more generous parental leave would (though it wouldn't all that much).

Thus was the announcement of yet another broken election promise hidden behind the announcement of more generous childcare subsidies. Predictably, the media missed the sleight of hand.

But having lost its enthusiasm for paid leave, the government took its Labor predecessors' scheme – whose parsimony it had repeatedly criticised – and made it more inadequate by removing the ability of some mothers to supplement the government's 18 weeks of paid leave with further weeks paid for by their employer.

This saved the taxpayer about $1 billion, as well as having the presumably intended effect of encouraging the mothers of babies to get back to work earlier.

Oh yes, cried the feminists, what about the rights of the child? What about the official recommendation that new mothers not return to work for at least six months, something Abbott had previously harped on when criticising Labor's mean scheme?

Whoops. A classic case of (male) politicians putting "the economy" – actually, our material prosperity – ahead of such lesser matters as a mother's bonding with her child and the crucial early mental development of the next generation.

Let's hope the newly more reasonable Abbott will correct this simple misstep. But let's also consider the views of Dr Mike Keating, a retired super-senior econocrat, whose contributions to the public debate are often greatly enlightening, especially relative to the official obfuscation.

The Other Keating makes two important points. His first is that there's a lot more to be gained from paid employment than just money. "Being employed creates many of the social contacts and sense of self-esteem that are vital to our individual wellbeing," he says.

"Increasing employment participation is most important if governments want to improve living standards, individual wellbeing and equality."

His second point is that, contrary to what some argue, the weak point in our participation isn't married women. Our overall rate of "employment participation" as he calls it – the proportion of the working-age population with a paid job – is just under 61 per cent, which breaks down into averages of 67 per cent for men and 55 per cent for women.

Surprisingly, this overall 61 per cent is the same as it was 50 years ago. But its composition has changed markedly. Male employment participation is as much as 18 percentage points lower than it was in 1966, whereas the female rate is 15 percentage points higher.

The decline for men is explained mainly by the decline in blue-collar jobs, as computerisation has eliminated many unskilled jobs. The rise for women reflects changing social attitudes and women's greater suitability for filling jobs in the ever-growing services sector.

Here's the point. Almost all the long-term decline in employment participation by men aged 25 to 55 was accounted for by those who didn't complete secondary school and have no further qualifications.

What's more, in that age range, employment participation is much lower for those who didn't complete year 12 and have no further qualifications – 71 per cent for men and 60 per cent for women – than it is for those who did complete schooling and may have further qualifications: almost 18 percentage points higher for men and 22 points for women.

Keating notes that the overall rate of employment participation for Australian women is only a little lower than for women in comparable countries, and for women with tertiary qualifications there's virtually no difference.

Get it? It's not women who are causing our employment participation to be lower than we'd like, it's the less skilled.

"It is people whose educational qualifications are poor and who lack skills who have most scope to increase their employment participation." So "the focus should be on policies to improve the job prospects of low-skilled and disadvantaged people".

For Keating's more specific proposals, you'll have to see my little video on the website.

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Teenagers suffering most from slow growth

I hate to say it, but the spectacular events that hit the headlines aren't necessarily the things most worth worrying about. The big news on the economy this week was the spectacular jump in the unemployment rate from 6 per cent to 6.4 per just during July. Not a big worry.

Question is, what does it prove? That the economy fell into a hole around the middle of the year? Doubt it. There's little other evidence that it did and a lot that it didn't.

That the slow upward creep in unemployment we've been seeing for about two years may have accelerated? Doubt that, too. Again, the other economic indicators aren't pointing that way.

(Indeed, some economists have been wondering if unemployment was close to peaking. So far this year employment has grown by an average of 15,600 jobs a month, compared with just 5100 a month last year.)

That the unemployment figures are volatile from month to month and this is an unexplained statistical blip that should be corrected next month? Seems a bit too big for that.

Truth is it's hard to know what the problem is. Easier to be sure when we've seen another month or two's figures.

But my guess is it's a once-only upward step in the measured rate of unemployment, caused by a seemingly small change in the questions that people in the Bureau of Statistics' monthly survey are asked so as to ascertain whether they've been "actively" seeking a job if they don't have one.

The change - made partly because of the switch to searching for jobs on the internet rather than at Centrelink - seems to have led to more people being classed as unemployed and fewer as "not in the labour force".

If this guess proves right, it's not so worrying. It doesn't change reality, just the way we measure it. In any case, we've long known that the official measure of unemployment is very narrow and understates the extent of the problem.

That's why the bureau publishes every quarter a broader measure of unemployment, which takes the official unemployment rate and adds the under-employed - people with jobs who aren't working as many hours a week as they'd like to - to give the "labour force underutilisation rate".

The figures for May show narrowly measured unemployment of 6 per cent, and an underemployment rate of 7.5 per cent, to give a broader measure of 13.5 per cent.

Less spectacular than this month's jump in the official rate but, to me, more worthy of worry is news that hasn't hit the headlines: the rapid worsening in teenage unemployment.

Whereas so far this year the trend rate of overall unemployment has risen by 0.2 percentage points, the trend rate for people aged 15 to 19 has risen by 2.8 percentage points to 19.3 per cent.

Note, this doesn't mean almost one youth in five is unemployed. Most people that age are in full-time education, so aren't in the calculation. Turns out about one in 20 of all 15 to 19 year-olds is unemployed and looking for a full-time job.

Many people have it in their heads that unemployment rises because people lose their jobs and employment falls. That's true only in recessions. It's rare for employment to fall - it fell only briefly even during the global financial crisis.

No, the main reason unemployment rises outside of recessions is that the economy isn't growing fast enough to employ all the extra people joining the labour force from education, as immigrants or as mothers rejoining.

That's what's been happening over the past two years. And young people - particularly those who leave school or training too early - have borne most of the burden of insufficient job creation. We should be doing much better by them than Work for the Dole and denying them benefits for six months to keep them hungry.

But there's nothing spectacular about this quiet suffering, so it doesn't hit the headlines. Much better to scandalise over factory closures, which surely signal the end of the world. So let's look at the facts on retrenchment, courtesy of a Bureau of Statistics study.

About 2 million people left their jobs over the year to February 2013 (the latest period for which figures are available). About 60 per cent of these left voluntarily and 21 per cent left because of their illness or injury, leaving 19 per cent - 380,000 - who left because they were retrenched.

That's a rate of retrenchment of 3.1 per cent. The rate hit 4 per cent in 2000, but then fell to a low of 2 per cent in 2008, just before the global financial crisis, then increased sharply to 3.1 per cent in 2010, where it has pretty much stayed since.

Over the year to 2013, all industries experienced retrenchments, but the most were in construction, 65,000; retailing, 40,000; and manufacturing, just under 40,000.

But the number of people employed in particular industries differs a lot so, judged by rate of retrenchment, utilities and construction come equal first with 6.4 per cent, then mining with 6 per cent, pushing manufacturing into fourth place with 4.5 per cent.

The rate of retrenchment is consistently higher for men because men tend to dominate those industries where retrenchment rates are higher, whereas retrenchment rates tend to be lower in industries dominated by women workers, such as education and health.

The likelihood of being retrenched falls as your level of educational attainment rises. We're more conscious of older workers being laid off but, in fact, retrenchment is greatest among workers aged 25 to 44.

And what happens to people who're laid off? For those retrenched over the year to February 2013, half were back in jobs by the end of the year, leaving 29 per cent unemployed and 21 per cent not in the labour force.

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Social and economic case for helping women work

Surely the most momentous social change of our times began sometime in the 1960s or '70s when parents decided their daughters were just as entitled to an education as their sons. Girls embraced this opportunity with such diligence that today they leave schools and universities better educated than boys.

Fine. But this has required much change to social and economic institutions, which we've found quite painful and is far from complete. It's changed the way marriages and families operate - changed even the demands made on grandparents - greatly increased public and private spending on education, led to the rise of new classes of education and childcare, changed professions and changed the workplace.

It has led to greater "assortative mating", where people are more likely to marry those not just of similar social background, but of a similar level of education.

For centuries the labour market was built around the needs of men. Changing it to accommodate the needs of the child-bearing sex has met much resistance, and we have a lot further to go. This is evident from last week's report of the Human Rights Commission, which found much evidence to show "discrimination towards pregnant employees and working parents remains a widespread and systemic issue which inhibits the full and equal participation of working parents, and in particular, women, in the labour force".

You can see this from a largely social perspective - accommodating the rising aspirations of women and ensuring they get equal treatment - or, as is the custom in this more materialist age, you can see it from an economic perspective.

By now we - the taxpayer, parents and the young women themselves - have made a hugely expensive investment in the education of women. It accounts for a little over half our annual investment in education.

If we fail to make it reasonably easy for women to use their education in the paid workforce, we'll waste a lot of that money. Our neglect will cause us to be a lot less prosperous than we could be.

Of late, economists are worried our material standard of living will rise more slowly than we're used to, partly because mineral export prices have fallen but also because, with the ageing of the baby boomers, a smaller proportion of the population will be working.

They see increased female participation in the labour force - more women with paid work, more working women with full-time jobs - as a big part of the answer to this looming catastrophe (not).

But how? One way would be to impose more requirements on employers, but in an era where the interests of business are paramount, politicians are reluctant to do that. Make employers provide childcare or paid parental leave? Unthinkable.

So, for the most part, taxpayers have picked up the tab. Government funding of childcare has reached about $7 billion a year, covering almost two-thirds of the total cost. The cost of government-provided paid parental leave is on top of that.

Governments' goals in childcare have evolved over time. In the '70s and '80s, the focus was on increasing the number of places provided. In the '90s, the focus shifted to improving the affordability of care, with the introduction of, first, the means-tested childcare benefit, and then the unmeans-tested childcare rebate. Under the Howard government, the rebate covered 30 per cent of net cost, but Labor increased it to 50 per cent.

More recently, increased evidence of the impact of the early years of a child's life on their future wellbeing has shifted governments' objectives towards child development and higher-quality, more educationally informed, childcare. This includes getting all children to attend pre-school. Linked with this has been a push to raise the pay of childcare workers.

The federal government asked the Productivity Commission to inquire into childcare and early childhood learning. Last week it produced a draft report. I suspect the pollies were hoping the commission would find a way to reduce regulation of what they kept calling the childcare "market"; thus improving workforce participation and "flexibility" while achieving "fiscal sustainability".

If so, they wouldn't have been pleased with the results. The main proposal was that the childcare benefit and rebate be combined into one, means-tested subsidy payment paid direct to childcare providers.

This would involve low-income families getting more help while high-income families get less. There would be a small additional cost to the government, but this could be covered by diverting money from Tony Abbott's proposed changes to paid parental leave. It was "unclear" his changes would bring significant additional benefits to the community.

The commission wasn't able to claim its proposals would do much to raise participation in the labour force, mainly because our system of means-testing benefits - which works well in keeping taxes low, something that seems to be this government's overriding goal - means women face almost prohibitively high effective tax rates as their incomes rise, particularly moving from part-time to full-time jobs.

Like the Henry tax review before it, the commission just threw up its hands at this problem. And even the commission couldn't bring itself to propose major reductions in the quality of education and care. Sorry, no easy answers on childcare.

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How to reform industrial relations

Tony Abbott's strategy for getting back into government was to make himself a small target by adopting few controversial policies. He mollified his big business backers by promising to hold many inquiries and take any proposals for controversial reform to the 2016 election.

But once in government Abbott couldn't avoid announcing many unpopular measures to get the budget back on track. These have hit his standing in the polls, while causing difficulty and delay in getting budget measures through the Senate.

It's likely a lot of them won't pass, implying the government will have to put a lot of effort into finding more palatable savings. Even then, some of this year's unpopular measures - particularly the age-pension changes - will have to be defended at the election.

Meanwhile, most of a year has passed without the government getting on with its promised inquiries into controversial issues such as industrial relations, tax reform and federal-state relations (think three letters: GST).

Not a lot of time is left for the various inquiry processes to report, for the government to consider the reports, decide what reforms it proposes and then explain and justify them to voters before the election.

Does Abbott's unexpected radicalism on budget measures presage equally radical proposals in these other issues? If so, the next election campaign will be a lot more exciting than the last one.

Or does all the hostility he has aroused just with his budget measures make it more likely Abbott won't want to bite off a lot more trouble on other fronts?

On the question of industrial relations reform, Abbott and his minister, Eric Abetz - not to mention the Productivity Commission, which will be conducting the inquiry - would do well to ponder a recent speech by Geoff McGill, a long-experienced industrial practitioner and now a visiting scholar at Sydney University's Workplace Relations Centre.

McGill observes that the history of federal industrial relations legislation "has been punctuated by swings in the IR pendulum across the political cycle". First the Howard government's Work Choices swung the pendulum in favour of employers, then the Labor government's Fair Work swung it back towards the unions.

Now big business and its cheer squad in the national dailies want the restored Coalition government to give the IR pendulum another shove back in the direction to the employers. Isn't this the way the political game is played?

It is. But McGill questions whether continuing to play that way is the best way to get where we want to go. The advocates of yet another round of industrial relations "reform" justified it mainly by arguing the need for faster improvement in the productivity of labour.

That's something all sides can agree is a desirable objective. But McGill shoots down some wishful thinking on the topic. "Productivity growth is a complex process and usually described in simplistic terms," he says. "It can never be assumed and is only evident after the event.

"There is little evidence to support claims that particular changes in industrial relations legislation will boost national labour productivity."

It's the substance of the employment relationship, not its legal form, which determines whether people are engaged and productive, he says. Productive workplaces are not the outcome of legislation, but of the quality of leadership and culture at the workplace.

Surely there must be a law against someone speaking such obvious sense.

McGill brings to mind another point. Much of the thinking behind "the end of entitlement" and the unpopular budget measures is about saying governments can't solve all your problems for you (just the opposite of the message all politicians spread during election campaigns). It's not possible and, in any case, it's not healthy for people to be so dependent on the authorities.

True enough. But if that's what the government is telling everyone from the young unemployed to uni students to age pensioners, why is it allowing big business to imagine its industrial relations problems should - or even could - be solved by the government changing the law?

Actually, my guess is most of business isn't silly enough to think that. The push is probably coming from lobbyists trying to justify their fee, journos trying to sell newspapers and a relative handful of belligerent employers facing equally belligerent unions and hoping the government will give them some new stick to beat over the heads of their opponents.

Another point of McGill's: if we want better industrial relations leading to greater productivity improvement and the main way for employers to bring this about lies in the workplace, maybe a better way to encourage them to focus on the domestic challenge is to give them a period of legislative stability rather than more changes in the rules of the game.

Most successful managers understand that getting along with people - winning their regard, respect, support, trust, loyalty and co-operation - works better than getting heavy and legalistic. That's how you get better industrial relations - by, as McGill says, putting more emphasis on the relations and less on the industrial.

Managers like to be kept in the loop. Guess what? So do workers. Smart managers keep their staff well informed about the company's performance and the challenges it faces, and give early warnings - even to the union - about any need for nasties like redundancies. They never risk a breakdown in relations by telling workers things they subsequently discover to be untrue.

You engender co-operation by treating people well, consulting them, giving them a degree of autonomy, rewarding loyalty and sharing the business's proceeds fairly between shareholders, managers and staff. Workers accept a hierarchical pay structure, but you don't cause envy and disaffection by rewarding some equals more than others.

And if you don't like outside union officials coming into your workplace, you keep your workers so happy they never need to call them in.

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How economists changed their tune on minimum wages

When the Fair Work Commission announced a 3 per cent increase in the national minimum wage to more than $640 a week - or almost $16.90 an hour - from last week, employers hinted it would lead to fewer people getting jobs and maybe some people losing theirs.

And to many who've studied economics - even many professional economists - that seems likely. If the government is pushing the minimum wage above the level that would be set by the market - the "market-clearing wage" - then employers will be less willing to employ people at that rate.

That's because market forces set the market rate at an unskilled worker's "marginal product" - the value to the employer of the worker's labour.

Almost common sense, really. Except that such a conclusion is based on a host of assumptions, many of which rarely hold in the real world. And over the past 20 years, academic economists have done many empirical studies showing that's not how minimum wages work in practice. They've also developed more sophisticated theories that better fit the empirical facts. It's all explained in the June issue of the ACTU's Economic Bulletin.

As a result, there's been a big swing in academic thinking on the question of the minimum wage. Last year, researchers at the University of Chicago asked a panel of economists from top US universities whether they agreed with the statement that "the distortionary costs of raising the federal minimum wage to $US9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy".

Fully 62 per cent agreed and 16 per cent disagreed, leaving 22 per cent uncertain.

Earlier this year, more than 600 US economists - including seven Nobel laureates - signed an open letter to Congress advocating a $US10.10 minimum wage. They said that, because of important developments in the academic literature, "the weight of evidence now [shows] that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers".

The first such study, published by David Card and Alan Krueger in 1994, compared fast food employment in New Jersey and Pennsylvania after one state raised its minimum wage and the other didn't. They did not find a significant effect on employment.

Since then, many similar US "natural experiments" have been studied and have reached similar findings. In Britain, the Low Pay Commission has commissioned more than 130 pieces of research, with the great majority finding that minimum wages boost workers' pay but don't harm employment.

There's been less research in Australia, but one study by economists at the Australian National University, Alison Booth and Pamela Katic, suggests that the facts in Australia seem to fit the "dynamic monopsony" model of wage-fixing.

Under the simple textbook, "perfect competition" model of the market for labour, individual firms face a horizontal supply curve: each firm is so small that its demand for labour has no effect on the price of labour. It can buy as much labour as it needs at an unchanged price.

In the dynamic monopsony model, however, each firm faces an upward-sloping labour supply curve. This is because more realistic assumptions recognise the existence of "imperfections" or, more specifically, "frictions".

Such as? Workers may not have perfect information about all the alternative jobs they could take and this could make them cautious about moving. Searching for a job may involve costs in time or money. Workers and jobs may be mismatched geographically, so changing jobs may involve greater transport costs. Workers - being humans rather than inanimate commodities - may not have identical preferences about the jobs available.

In other words, there are practical reasons why it takes a lot for a worker to want to leave their job.

These frictions, or "transaction costs", are assumed away in the simple model. But their existence can result in employers having market power, which they can take advantage of to pay workers less than the value of what they produce (their marginal product).
Economists call such power "monopsony" power. Just as a monopolist is a single seller, so a monopsonist is a single buyer. But don't take that word too literally. An employer with monopsony power doesn't need to be a monopolist in the market for its product (the "product" market), nor the sole buyer of labour in the region or the industry.
"A single employer in a market with many employers can have monopsonistic power if workers bear costs of job search," the article continues. In other words, it possesses a degree of monopsony power.

The point is, if a firm is facing an upward-sloping labour supply curve and wants to hire more workers, it may need to pay a higher wage than it is paying its existing workers. So, if it goes ahead with hiring, it will need to increase the wage rates of its existing workers.

And this means the firm's profit-maximising level of employment and wages will both be lower than they would be under perfect competition.

In such a model, if the minimum wage rate is set at or below the marginal product of labour, this won't cause employment to fall and may cause it to rise. Monopsonistic models don't have an unambiguous prediction for the employment effect of a minimum wage.

A paper by Bhaskar, Manning and To, published in the Journal of Economic Perspectives in 2002, concluded that "a minimum wage set moderately above the market wage may have a positive effect or a negative effect on employment, but the size of this effect will generally be small".

It will be interesting to see how long it takes those many Australian economists who don't specialise in studying the labour market to catch up with this change in their profession's thinking.

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Drawing a line between the market and the social

The hard part of economics, politics and public policy is deciding where to draw the line. It's as easy as pie to take a position at one extreme or the other. To buy the whole Liberal or Labor package - which, after a change of government, will often involve supporting things you opposed six months ago. To oppose virtually all government regulation or to think more regulation is never enough. Doing it this way always feels good - so neat and tidy.

But though it's easy and neat, it's not satisfactory. It's pretending the world is either black or white when in fact it's a quite unsatisfying shade of grey. To say I agree with the Libs on this and that, but with Labor on that and the other. To accept that some regulation is good, but too much is bad. It takes more effort, leaves you under attack from both sides, and it's messy.

It involves doing your own thinking, which is hard work. I've been thinking lately that, while I want very much to live in a market economy, I definitely don't want to live in a market society.

In a market economy, you and I are pretty much free to make our own decisions about what we'll consume, what occupation we choose and where we'll work - all within the limits of what's available, of course - while the great majority of decisions about the goods and services - and jobs - we're offered are made by private businesses.

You and I are motivated by the desire to get the most satisfying deal we can - to buy what appeals to us and not buy what doesn't - while businesses big and small are motivated by a desire to make profits by successfully catering to our wants (which aren't necessarily our needs).

Their desire to make more profit than they did last year is what drives our economy on, making it ever bigger and creating more jobs, but also contributing to its continuously changing structure.

Fine. But it's not that simple. Anyone who didn't know before the global financial crisis must surely know now that if you let businesses do whatever they want in their search for greater profits, the system will run off the rails and cause horrific injuries.

So we do have to ensure profit-obsessed businesses work within government-imposed guardrails designed to protect them and us from their greedy excesses.

We also need to understand that, if we left it to profit-seeking business people - and their public-policy consultants, economists - they'd gradually turn every aspect of our lives into a marketplace, with everything commercialised. Everything changed into a profit-making opportunity.

Where there was some legal barrier preventing the market from spilling over into some part of our lives, businesses would pressure governments to remove it in the name of "reform". And because, in this hyper-materialist era, business is on top - and the unions are pariahs, subject to regular besmirching royal commissions - the politicians are usually keen to give business what it demands.

This is why I've been thinking I want to live in a market economy, but not a market society. I like the commercial to be commercial, but I don't want the non-commercial made commercial just because business people imagine it would increase their profits (and the economists' model tells them it would be more "efficient").

An example is penalty rates. Until relatively recently in our history, weekends and public holidays were social institutions largely outside the market economy. They were essentially commerce-free zones, where as few people as possible worked and we were free to socialise with our kids, other family and friends.

Fools that we were, we thought we worked five days a week so we could relax and enjoy the other two together.
Weekends were kept largely commerce-free by two legal institutions: restrictions on trading hours and industrial award provisions that sought to discourage employers from instructing staff to work at "unsociable" hours by requiring them to pay a penalty, which rose according to the degree of unsociability.

Most restrictions on trading hours were removed in the 1980s and '90s in the cause of "micro-economic reform". And now employers have renewed their attack on penalty payments, portraying them as some kind of hangover from the dark ages of socialism, which are preventing businesses creating more jobs (note they never mention profits).

Thus are we being pressured to shift the line separating the commercial from the non-commercial, the economic from the social. Already that line is blurred and the temptation to remove the last legal barrier is great.

It's tempting because, in this more materialist, less religious age, almost all of us like the idea of being able to shop and patronise commercial sport and entertainment on the weekend. Naturally, we'll take the kids and meet our friends there.

Trouble is, what we want is for us to be able to shop and be entertained, but not be required to work ourselves. We'd like to be part of the upper class that doesn't have to work, served by a lower class that can't afford not to.

When you turn a social institution over to market forces, those with money do well and those without don't. We'd raised our material standard of living, but do it by lowering our quality of life.

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How to save money and wreck productivity

I've just had a great idea for raising the productivity of Australia's knowledge workers: try treating them with greater consideration so as to improve their concentration.

Simple hard-headed economics tells us that the scarcer the skills of workers, the more you have to pay for their services and the better you have to make their working conditions.

It's only those workers with few skills and who can be easily and cheaply replaced that you can get away with treating badly.

But many modern managers seem to regard these simple truths as no longer applicable. Businesses may be becoming ever more reliant on their knowledge workers and their ability to do their work well - perhaps to counter the effect of work intensification as head counts are reduced - but why not skimp on their working conditions?

Open-plan offices have been becoming more prevalent for decades, but these days it's not just a matter of replacing a warren of private offices with a cubicle farm. Why not get rid of the dividers and the modicum of privacy they provide - purely to encourage collaboration and break down silos, you understand - and move to "hot-desking" - providing fewer desks than the number of people you employ?

Even more progressive is the move to the "virtual office", where workers are issued with their own mobile phone, a laptop and a locker, but denied a particular desk. You want them moving from desk to desk each day, even morning to afternoon.

To ensure they don't break the rules and bags a particular desk, you impose a "clean-desk policy" where cleaners are instructed to toss away anything they find on desks overnight.

They may be knowledge workers but they're not likely to need books or papers for reference, are they? That's what Google is for.

I'm sure the reduced office space required has yielded savings, but I suspect it's a false economy when you take account of the effect on workers' productivity. Indeed, there is growing evidence the costs of these policies exceed the benefits.

Diane Hoskins, of Gensler, a big US office design firm, has been researching the question using surveys of more than 90,000 people from 155 companies across 10 industries.

Her people found that knowledge work consists of four modes: focus (individual work involving concentration and attention devoted to a particular task), collaboration (working with another person or group to achieve a goal), learning (acquiring knowledge of a subject or skill through education or experience) and socialising (interactions that create trust, common bonds and values, collective identity and productive relationships).

They found that the most significant factor in workplace effectiveness is not collaboration - the stated justification for most of the office changes - but individual focus work. Whoever would have thought being able to concentrate on your work could be so important?

They also found that focus is the thing the new-style offices make hardest. "Co-worker interruptions, auditory and visual distractions all combine to make focus work the modern office's most compromised work mode," she found. Who could have known?

The four work modes are highly interconnected, the researchers found, with focus as the primary component and the key predictor of all other effectiveness.So office arrangements that sacrifice individual focus in pursuit of collaboration result in decreased effectiveness for both.

Other research by Gensler finds that workers who can focus effectively are 57 per cent more able to collaborate, 88 per cent more able to learn and 42 per cent more able to socialise in their workplace than their peers who are unable to focus.

Justine Humphry, of Sydney University, says clean-desk policies are used as a way to prevent employees from "nesting": settling in one place for too long and giving it their personal stamp. This is intended to yield cost savings and productivity gains by reducing overall floor space and facilitating collaboration among staff, thereby breaking down the silos and barriers of the standard cubicle office.

Her research finds that workers continue to go about personalising and nesting in their work environments, undermining the design of a mobile and flexible office. "Studies have highlighted identity expression and professional status as key reasons for personalisation at work," she says.

"But in my ... research conducted on professional knowledge workers, it was found that personalising or nesting is also performed for practical reasons ... to enhance wellbeing, to create opportunities for privacy or collaboration, to facilitate social interaction and to save time."

It couldn't be that penny-pinching and fads in office design are part of the explanation for our less than sterling productivity performance since the 1990s, could it?

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Psst. Don't tell anyone about poverty

It's remarkable that, despite all the effort and expense the government goes to in measuring gross domestic product, it doesn't run to the modest extra expense of measuring poverty. But this being so, it's hardly remarkable the media and the public pay far more attention to the gyrations of GDP than to the extent of poverty.

Why the lack of official interest in such a basic measure of how we're doing as a nation? Because, in an egalitarian country such as ours, poverty isn't much of a problem?

Err, no. In the mid-2000s, Australia's rate of poverty was the fourth highest among 18 developed economies. Surely the reason couldn't be that our record is so bad that the government would prefer us not to think about it? Hmmm.

The more I think about it, the more I want to know what there is to know about poverty in Australia.
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And, when some of our big charities - Anglicare, St Vincent de Paul and the Salvos - feel it worth expending some of their precious funds to commission a report on the subject, as they did this week, I'm inclined to take notice. Who knows when next the problem will be drawn to our attention?

As you've seen from the headlines, the report finds that more than 2 million Australians - one person in eight - is living in poverty. This poverty rate of almost 13 per cent has changed a bit but not a lot over the past decade. It's not shooting up, but neither is it falling.

What exactly is meant by ''living in poverty''? How is it measured?

There is more to being poor than just an absence of money. Another dimension is how isolated you are from the support of other people. But this measure - calculated from official surveys by the social policy research centre at the University of NSW - is a purely monetary one.

The next point is that poverty is measured differently in rich countries from poor countries.

In the developing world they measure ''absolute poverty'' - whether you're so poor you're at risk of death from malnutrition.

In rich countries few people, no matter how poor, are starving. So we measure ''relative poverty'' - how many people or households have incomes well below what's typical in our community. And how low is ''well below''? Usually, that's a case of drawing an arbitrary line, and drawing it so low there isn't much room for argument.

This study sets the poverty line at a level commonly used in comparisons between the rich countries. It ranks the disposable (after-tax) incomes of all households from highest to lowest, then draws the line at 50 per cent of the median (dead-middle) income.

The study finds almost 13 per cent of households fall below the line. Hold that thought.

The main way people avoid poverty is by having a job and earning income from it. So you'd expect that, unless people were on particularly low wages, or could find only part-time work, or had a lot of others depending on them, working households would avoid poverty.

The main way governments seek to avoid poverty in the community is by paying a range of social security benefits to those people who, for one reason or another, are unable to work.

Those too old to work get the age pension; those too sick get the sickness benefit; those physically or mentally unable to work get the disability support pension; those too busy minding children get the single parenting payment; those too busy caring for a relative get the carer payment. And those who just can't find a job get the dole.

The federal minimum wage - increased each year by Fair Work Australia - is comfortably above the poverty line which, in 2010, was $358 a week for single adults.

And, most people with children to support get the relatively generous family tax benefit.

So why do 13 per cent of people fall below the poverty line? The biggest single reason is that the levels of the various social benefits fall below the line. Way below in the case of the dole; a little below in the case of the single parenting payment and the age pension.

It follows that, unless they can supplement their payment with income from savings or a little part-time work, people living on social security payments are at great risk of poverty. Overall, 37 per cent of people on social payments live below the line. But the proportions vary widely according to the type of payment: 14 per cent of those on the age pension, 42 per cent of those on the disability pension, 45 per cent of those on the parenting payment and, get this, 52 per cent of those on the dole. Not surprising then, that people on social payments account for almost two-thirds of those in poverty.

The next most important factor explaining why people fall below the line is the high cost of housing.

In particular, the gap between the costs of owning and renting. It's a safe bet the majority of people in poverty are renters.

It may surprise you that the retired account for only about 15 per cent of those below the line. That's because so many own their homes outright.

When you're measuring relative poverty, it follows as a matter of arithmetic that the only way to reduce the proportion of people falling below the line is for their incomes to increase at a faster rate than incomes generally.

Julia Gillard could reduce poverty at a single (expensive) stroke: a decent, one-off increase in the indefensibly low rate of the dole.

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The tricky truth about the jobs figures

If you want to know what's happening to employment, there's the hard way and the easy way to find out. But, in any case, can you believe the official figures?

Economists, the markets and the media prefer to do it the hard way, using the "thrills and spills" method. The "seasonally adjusted" figures we got from the Bureau of Statistics this week showed total employment across Australia rose 14,000 last month.

But the previous month it fell 28,000. So, did the economy take off in July having collapsed in June? Maybe, but employment grew 28,000 in May, following growth of 13,000 in April. So, is the economy going up and down like a yo-yo?

Maybe. Last month the unemployment rate fell to 5.2 per cent from 5.3 per cent the previous month. But that was up from 5.1 per cent in May, which was itself up from 5.0 per cent in April. Then again, April was down from 5.2 per cent in March.

Confused? Precisely. The hard way gives you thrills and spills from one month to the next, which makes it hard to work out what's really happening.

The easy way to do it is to take the bureau's advice and look instead at it its "trend" figures. These are the seasonally adjusted figures smoothed out to remove statistical "noise" - unexplained variability that probably doesn't prove anything.

Guess what? The trend figures make it easy to do what we want to do: identify the trend. Is employment going up, down or sideways?

They show that, over the first seven months of this year, employment has been growing at an average rate of 10,000 jobs a month. Is that a lot or a little? Well, it's been sufficient to hold the rate of unemployment virtually unchanged at 5.2 per cent. (Remember, since the labour force keeps growing, we have to create jobs just to hold unemployment steady.)

Is an unemployment rate of 5.2 per cent good or bad? Well, most economists would tell you it's about as good as it gets. They regard the rate of full employment as being about 5 per cent or a little lower.

But here's where the doubts arise in many people's minds. I get more emails from readers querying the reliability of the job figures than any other subject.

"One can't help gain the impression that the definition of employment is being gradually liberalised for political purposes, i.e. to make the figures look more impressive," says one. "An individual is now assessed as being 'employed' if they work just one hour each week," says another.

Many people have a deeply held belief that the way we measure employment and unemployment has been tampered with by governments in recent times to make things appear better than they are.

When unemployment fell to much better levels under the Howard government, this notion used to pop up in the minds of Labor voters. Now Labor's in power it pops up in the minds of Liberal voters.

I don't know where this notion came from, but it's factually wrong. It didn't happen. No government of any colour has changed the way employment and unemployment are measured in the past 30 years. I wrote this when Howard was in power and I'm writing it again now.

One reason the pollies haven't fiddled the figures is that the Bureau of Statistics, which enjoys a high degree of independence of the elected government, would never let them. Had any pollie ever tried to twist the bureau's arm, you'd remember the monumental row this would have created.

No, the definitions the bureau uses are set by international statistical convention. And the convention hasn't changed significantly in many decades. No one has changed the rules.

So, does that mean we can take the official figures as gospel truth? Sorry, life ain't that simple. There's a saying in Canberra: when you're trying to explain something and you face a choice between a stuff-up and a conspiracy, go for the stuff-up every time.

The trouble with the official figures is not that the definition of unemployment has been changed, but that it's unrealistically narrow and always has been. It's true a person is classed as being employed if they work just one hour each week.

Of course, very few people who do work do so for as little as an hour or three. Nor is it correct to imagine everyone working part-time would prefer to have a full-time job. Some would; many - particularly full-time students, the semi-retired and parents looking after young children - wouldn't.

So the real question is: how many part-time workers would prefer to be working more hours than they do? The answer in May this year was 890,000. Note, however, that other figures suggest only a bit over half of those people wanted full-time jobs. The rest (roughly 400,000) were people working part-time who just wanted a few more hours a week.

The 890,000 "under-employed" workers account for 7.4 per cent of the labour force. Add to them the 625,000 workers officially defined as unemployed (the ones giving an unemployment rate of 5.2 per cent) and you get a "labour force underutilisation rate" of 12.6 per cent.

How do I know that? I read it in the same bureau publication (which you can find on its website) that told me this week the official unemployment rate in July was 5.2 per cent. The bureau calculates underemployment every three months, but publishes the figure each month.

I think that, whereas the official unemployment figure understates the true size of the problem, the underutilisation figure overstates it (because part-timers who'd like to work a few more hours a week don't have a big problem). That's why my rule of thumb has long been that to get a more realistic idea of the extent of unemployment you should take the official figure and double it.

But if you're trying to get at the truth (as opposed to trying to prove the political party you hate is doing a terrible job), remember two points. First, if you double today's unemployment rate you should double all the earlier rates you compare it with.

Second, remember the trajectory of the higher figure should move pretty much in line with that of the lower figure. So if the official unemployment figure is stable, it's reasonable to assume the more realistic figure is too.

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Take a break and we'll all be happy

Psychologists have a form of treatment for unhappy people called PAT: pleasant activity training.

It's quite simple: you make a list of the things you like doing, then do them more often. It's not as silly as it sounds. We've learnt our brains have one system that controls wanting and one that controls liking. The wanting system tends to dominate the liking system, so we often end up doing less of what we like than we'd like to.

I suspect that's true of taking holidays. A survey conducted by Professor Barbara Pocock of the University of South Australia, as part of the Australian Work and Life Index, found 57 per cent of full-time employees would prefer an extra two weeks' paid annual leave to a pay rise of 4 per cent.

So it seems we like taking holidays (and it sounds like a good idea to me). And yet there's a wealth of evidence that many of us don't take the leave we've already got. A survey conducted regularly by Roy Morgan shows that only about 70 per cent of Australians aged 14 or older intend to take at least one holiday over the next 12 months.

Another survey conducted for Reuters by a global market research company, Ipsos, found that only 47 per cent of Australians expected to use all their annual leave. This was the lowest proportion for any country bar the Japanese, on 33 per cent. By contrast, 89 per cent of the French, 77 per cent of the Brits, 75 per cent of the Germans and even 57 per cent of the Americans expect to take all their annual leave.

Australia's governments have required employers to provide their workers with paid annual leave since 1941. In 1973 it was increased to four weeks. At the time many people thought this extravagant, but it's about average. The French get six weeks, while the Finns, Norwegians and Swedes get five.

Pocock's survey shows 60 per cent of Australian employees stockpile at least some of their annual leave. And according to calculations by Roy Morgan, the stockpile has reached 117 million days.

But if people like annual leave, why don't they take it all? According to Pocock's survey, 31 per cent of full-time employees say they're too busy at work and 13 per cent say they couldn't get time off that suited them. Nine per cent say they prefer to work.

And 41 per cent say they're saving their leave for a future holiday - though I'm not sure I believe it. If it were true - if people were merely delaying their holiday-taking - unused leave wouldn't have piled up the way it has.

It may be that some young people want to combine a few years' leave for an extended overseas trip, but I think "saving for later" is just something you say when you don't get around to taking it all.

I guess it's true that, consciously or unconsciously, some employers don't encourage their workers to take their leave, especially key employees.

But is all this a problem? Why turn unused leave into another crisis? Well, a lot of employers think it is a problem, including one quite close to me. If an employee takes all her leave during the year, the business suffers an expense of 52 weeks' wages on her behalf. But if she works all year without taking leave, the expense rises to 56 weeks' wages, with the extra four weeks of untaken leave owing to her adding to the firm's liabilities. (What's more, the firm doesn't get a tax deduction until the leave's actually taken.)

In theory, insisting that everyone take their leave during the year means the firm has to employ more people. In practice, it means we all have to work a bit harder when we're not on leave to cover for those of us who are. Whistle-blowing economists call this "work intensification" - but it comes from employer penny-pinching, not from the leave itself.

Another group that sees untaken leave as a great problem is Tourism Australia, the federal government's tourism marketing body. Last year the minister, Mar'n Fer'son, launched a campaign called No Leave No Life to encourage us to take our leave and spend it in Australia, complete with commercial TV show.

Tourism Australia can think of many reasons why it's good to take your leave (and for employers to offer a "leave-friendly workplace"). Achieving work-life balance, we're told, comes with improved physical and mental well-being.

Taking your leave helps you avoid the stress of exhaustion and burnout. You get greater job satisfaction when you approach your task in a refreshed state. Taking leave helps you "rediscover your friends, your family and most importantly yourself".

The figures show we're taking more, shorter breaks rather than blowing the lot in one go. Maybe this explains why we have trouble making sure we've taken it all. There's some evidence that taking more short breaks is more re-creational (though I like to make sure of it by taking short breaks through the year and a big break at the end of it). Tourism Australia says there are so many great experiences to be had we should "take the opportunity to visit some more of Australia and gain some lasting memories as well as some great stories to share with others".

It may be advertising copy, but it does have evidence behind it. Psychologists have shown that one reason we get more satisfaction from buying experiences rather than things is the memories and stories we're left with.

Recent research also shows that much of the pleasure we gain from holidays is in thinking about them before we take them. But please don't think that's what I've been doing in this column. And if you're working through, please don't think I'm trying to make you guilty or envious. But I'm off.

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