Unemployment, Working Time And The Australian Labour Market

ACTU President, Jennie George speaks on Jobs and the budget, 1997 Living wage and the role of the Reserve Bank, Working time reform and the ACTU’s response to all of the above issues.

1. Introduction

Thank you for your invitation to this timely conference about Australia’s number one economic and social problem – unemployment. It is symbolic that the conference is in South Australia – a state with its fair share of employment problems but a state that has had a strong tradition of innovative solutions to social and economic problems.

I think it is important that historically South Australia has not believed in leaving all our problems to the forces of the free market. This is the state that first created the arbitration system, first gave women the vote, built up innovative economic policies under Tom Playford, and socially progressive policies under Don Dunstan. This is not a place where the level-playing field philosophy of the Productivity Commission remains unchallenged. This is a place where people think more carefully about complex problems – and this conference is an example of that environment.

I wish to tackle three themes today. Firstly, the Howard Governments ‘invisible’ employment strategy, secondly, the Living Wage Case and the role of the Reserve Bank in wages and employment issues, and finally, the important issue of the distribution of working time.

2. Jobs And The Budget

The Treasurer Peter Costello brought down the second budget of the Howard Government last month. It was clear that all that mattered in the budget was that the bottom line pleased the financial markets and that Peter Costello could be seen to have “filled in the black hole”. In fact most of the damage, in terms of expenditure cuts, had been done in the first budget which, in turn, slowed the economy down. The change in the bottom line was due to the revenue increase from asset sales – such as Telstra, Federal Airports, and National Rail.

The budget bottom line may have pleased the financial markets but it is not an end in itself. It is not the true test of any budget. The budget should provide vision and a national strategy to solve the problems of the Australian community. In my view the number one problem facing the Australian community is unemployment. The budget shows that the Howard Government has in fact admitted defeat on unemployment. Its economic growth forecast from the Treasury of 3.75% is insufficient to make significant inroads into unemployment.

Further, it has not proposed any industry policies or labour market initiatives to arrest the unemployment problem. Insufficient growth, insufficient policies. This comes in the wake of the scrapping of trade and industry programs and the Working Nation program in the first Costello budget which had adverse effects on the economy and led to criticism even from the Coalition’s own allies in the business community. It is clear that much needs to be done on employment and job creation, particularly so in regional Australia.

There are often simple solutions offered on the issue of unemployment. One so called solution is the call for wage reductions and labour market” deregulation”. This solution was offered recently by the Reserve Bank Governor, Mr MacFarlane and many “dry” economic commentators. This was a major issue in the Living Wage case which I now wish to comment on.

3. The Living Wage And The Role Of The Reserve Bank

The Living Wage decision was of course a disappointment – especially to lower paid workers and their families. The Commission, with the exception of Vice President Ross, failed to grasp the social implications of inequality in a ‘two-tiered’ labour market. If workers on award rates continue to see their living standards decline, and fall further behind those on EBAs (and even further behind those on executive salaries) then I think that Australia’s social cohesion will be threatened. The AIRC majority decision failed to adequately address the needs of the low paid and has allowed inequality in the labour market to continue.

An unfortunate consequence of the Living Wage Case was the uninvited interference from the Reserve Bank Governor in the case. In my view the AIRC was unduly influenced by RBA threats of a monetary policy reaction if the ACTU claim was granted (see the decision Safety Net Review – Wages, decision Print P1997, p.18).

Unfortunately the RBA sees itself as the “wages police” in the post Accord world and uses monetary policy threats whenever there is an opportunity for workers to get wage increases.

Even though the AIRC could have granted more than the $10 (even on the analysis of Bankers Trust) and remained within the RBA wages ‘comfort zone’, the AIRC chose not to do so.

The RBA followed up their Living Wage Case intervention with an attack on the Transport Workers Union award application. A recent RBA argument is to say that US-style labour market deregulation is necessary to reduce unemployment. Governor MacFarlane’s recent comments to the House of Representatives Standing Committee on Financial Institutions and Public Administration reflect this. He says:

“I do think there has been a tendency, particularly for the European countries, and I think in some respects we are a bit more like Europe in this than we are like the United States, to have an institutional framework which promotes job security essentially. The first priority is job security and to impose lots of conditions and minimum wage conditions and other conditions and usually provides reasonably accessible sickness and unemployment benefits and usually involves a high degree of trade union involvement and decision making. I am just describing a sort of a classic European type economy, and that sort of economy usually also tends to have centralised decision making on wages, which we had which we have moved away from under both governments. So rigid sorts of arrangements rather than flexibility are the sort of things that tend to characterise that sort of economy. At the other extreme, the US type you have highly a deregulated system.

That has some disadvantages and people are often conscious of the disadvantages that go with a highly deregulated system, but the evidence does seem to be there that the deregulated systems do produce better results in terms of lower unemployment.”

[Governor MacFarlane’s evidence, FIP A31, Thursday 8 May, 1997]

The Governor’s comments reflect the views of several right wing economic commentators. They say it is simply a matter of getting rid of awards, the IRC etc. and have a (low) minimum wage and all our unemployment will “disappear”.

The ACTU rejects this labour market deregulation approach to unemployment because it has been shown to be flawed according to some of the economic analysis. Minimum wage laws and other labour market “regulations” do not have the adverse effects that some critics claim.

For example, in the Living Wage Case the evidence of eminent labour economists Professor John Nevile of UNSW and Professor Bob Gregory of ANU was noted on the subject.

On minimum wage laws, Professor Nevile surveyed the international statistical evidence and noted that:

“….at least within the range of difference studied, high minimum wage rates have little or no effect on the employment of unskilled workers.”

[quoted in the decision, Print P1997, p.148]

On the question of the Australian labour market being more “deregulated” along US lines, Professor Gregory compared the two country’s respective labour market institutions and concluded that “it seems unlikely that greater relative wage flexibility will significantly reduce Australia’s unemployment problem”; and that “restoration of full employment will lie in a direction other than reducing the wages of the low paid.” (Print P1997, p.149)

Significantly, the Reserve Banks own economic research showed that Australia’s labour market was a high performer compared to other countries. RBA research says:

“Our cross-country analysis of relative wage data suggests that the Australian labour market may have been relatively more flexible over the 1970s and 1980s than popular perception holds. Insofar as cross-country comparisons of wage flexibility (as measured by wage dispersion across ten sectors) can be made, we observe that Australian wage flexibility was on the scale of that in the United States – a country which is considered to have a flexible labour market.”

[RBA, RDP Discussion Paper, Coelli, Fahrer and Lindsay, cited in ACTU Submission to Living Wage, Section, p.5]

In short, it is clear that unemployment will not be solved by attacking wages, unions, awards and collective agreements.

4. Working Time Reform

Another solution offered to unemployment is the idea of “job sharing”. Whilst this could be an attractive option for certain workers in white collar industries, the international evidence shows it is no solution to high national unemployment levels. Sydney University’s ACIRRT has noted that the employment effects of work sharing initiatives have been modest “…usually generating or maintaining jobs for fewer than 0.5% of the labour force.” [Brotherhood/ACIRRT Report, p.1].

However, the issue of job sharing does raise the more broader issue of working time. The distribution of working time and working time reform is one of the key priorities of the union movement and any policy dealing with employment and equity must deal with working time.

The report by the Brotherhood of St Laurence and ACIRRT, presented in the context of the Living Wage Case, provided some important facts about working time arrangements in the contemporary Australian labour market. It is clear that the labour market has changed quite dramatically in the last 20 to 30 years and there are now a diversity of working time arrangements in Australia. The full-time, 38-40 hour week of 9 to 5 Monday to Friday working days is no longer ‘typical’ of how Australian’s work. Some of the labour market trends in the Brotherhood/ACIRRT report bear this out.

The trends show that:

Male, full-time, permanent work is declining….whilst female, part-time and casual work is growing.

[SEE CHARTS 1 AND 2]

Australia is experiencing one of the highest levels of part-time and casual work in the OECD – indeed the high level of precarious employment faced by many workers in Australia (in terms of casualisation and temporary work) is not shared by the majority of industrialised countries.

[SEE TABLES 1& 2 AND CHART 3]

Many Australians are working too many (unpaid) hours….whilst others are not getting enough work.

[SEE CHARTS 4 AND 5]

An increasing number of part-time and casual workers are wanting more work whilst existing full-time employees are working excessive hours.

[SEE CHART 6]

There is an increase in workplace stress due to excessive hours in terms of work intensification, heavier workloads, and a difficulty, particularly for women workers in balancing work and family responsibilities.

The main issue is how hours of work can be distributed more equally between those in work working excessive hours, those seeking more hours, and those who are without any paid employment.

Some have argued that if we took the hours worked by full-time workers (current average 42.2 hours per week) and reduced it to 38, then 26 million hours (approximately) could be made available, which is equivalent to 689,084 full-time jobs – almost 85% of our unemployment pool. (See Bob McMullan’s speech to John Curtin Memorial Breakfast, p.7].

Unfortunately it is not as simple as that. All workers are different so it is not possible to do a straight hours/people swap. Much of the overtime is in trades and managerial areas. The long term unemployed may not necessarily have the skills required.

We must remember too that many workers work extra hours for regular income. The Brotherhood/ACIRRT Study showed that trades, plant and machine operators are occupations that rely heavily on overtime. [SEE TABLE 3]. We must be aware of differences across industry and occupations as well as the different preferences from employees about working time (by age, gender, income and industry).

For example, a recent ACIRRT/Newspoll survey (1996) found that 27% of workers would like to work fewer hours. However, employee preference differed depending on age, income and occupation.

22% of blue collar workers wished to work fewer hours compared to 35% of managerial/professional workers – (blue collar workers are more likely to rely on paid overtime);

those on larger incomes overall (eg. over $50,000) preferred to work fewer hours.

The ACTU intends to pursue this issue further through membership surveys conducted by individual unions. It is important that this issue be driven by workplace representatives in terms of the specific needs and circumstances of their particular workplace. There is no one overall magical solution.

Unions will be conducting membership surveys in the lead up to the 1997 Congress on:

• current working time arrangements;

• the effects of working time arrangements on income and employment security;

• employee preferences.

This approach recognises the needs of different workers in different industries and workplaces.

The ACTU is also concerned about the ‘flexibility’ agenda. It should not mean, as it too often does, ‘flexibility’ for the employer alone. The ACTU wants to ensure that flexible working arrangements can be provided without:

• loss of income and conditions of employment;
• jeopardising workers’ ability to balance work and family responsibilities;
• causing increased health and safety hazards and undue stress.

The ACTU sees that “safeguards” for part-time work determined by the IRC in the Personal Carer’s Leave Test Case should be adopted as a minimum.

The limitations applied by s.89A in the current Act in respect of part-time work also need to be carefully examined. There should be scope for inclusion of protections to ensure that there is consistency of income, and job security for part-time workers and casuals.

The Workplace Relations Act limits the ability of the AIRC to provide these protections for part-time workers in terms of minimum and maximum hours per week, stable hours, regular starting and finishing times and reasonable notification of changes to rosters. There is the danger that part-time work will become ‘quasi-casual’ and that all the benefits important to workers who wish to be permanent part-time rather than casual will be eroded. This will adversely affect women workers who make up the majority of those workers who have a preference for part-time work.

Unions will also be focussing on regulating part-time and casual employment through enterprise agreements. Guidelines will be developed for negotiating enterprise agreements, based on the outcome of membership surveys, specific to particular industries.

In terms of policy solutions, a number of options based on overseas and Australian experience are worth further consideration. These include:

Premium for precarious employment: There may be scope to apply a monetary premium to compensate for the financial insecurity associated with precarious employment. The focus would be on improving income security through the provision of regular and consistent hours of work. Any monetary premium would need to be carefully examined so as to avoid inequitable outcomes.

Annualised salaries: In considering annualised salaries, unions need to explore the relationship between working time arrangements and income, and weigh up the advantages and disadvantages of annualised salaries. Annualised salaries should not be a precursor to the loss of wages and conditions.

The adoption of 48/52 schemes, to average payments over an entire year. This has been applied in some state public sector workplaces. The employee is paid for 48 weeks averaged over the whole year. This allows them to ‘purchase’ an additional four weeks annual leave so a total of eight weeks annual leave is taken per year.

Reductions in standard working hours: Research shows that attempts to reduce standard working hours have not had a significant impact on unemployment. The international evidence on Germany, France and Belgium for example shows this has not been effective in reducing national unemployment. President Mitterand reduced the standard working week in France from 40 to 35 hours with very minimal impact on France’s unemployment. Belgium, Germany and Holland also attempted shorter hours initiatives. In Holland’s case it was accompanied by wage cuts. In the case of German manufacturing industry there was scope in a highly skilled industry with a mainly full-time workforce with high productivity levels for shorter hours. I.G. Metall maintains that in manufacturing the reduced hours initiative did have an impact on job creation and retention. However, this is industry-specific and may not be appropriate elsewhere.

[See Table 4 and ACIRRT/Brotherhood of St Laurence paper, p.55-65]

Overtime restrictions or caps on maximum hours (weekly, monthly or annually) could be considered, however, given the heavy reliance on paid overtime in some industries, the specific needs of workers must be taken into account.

New leave options could be considered by unions. For example, career breaks are a form of unpaid leave which can contribute to quality of life. However, the effect of such schemes on employment generation needs to be further considered. For example, in education a teacher taking a years sabbatical may allow a newly trained teacher to get some experience. This option will only generate jobs if a replacement person is given a job (assuming they have the appropriate skills).

Retirement options: The relationship between retirement, social security, superannuation and taxation should be examined in respect of the income security and retirement options of older workers. Part-time work instead of retirement could be an option if the social security/retirement income measures are conducive and if the opportunity for trainees or young employees are taken up.

5. ACTU’s Response

Any strategies considered in relation to working time arrangements must be based on the needs of workers and industry. However, I add a warning: appropriate economic and industry policies are the main instruments needed to promote employment. Working time initiatives will not work in the absence of a growing economy and a willingness by employers to invest and create jobs. There must be higher levels of economic growth and continued investment if working time measures are to have some impact. The ACTU does not support purely ‘supply-side’ solutions where workers make sacrifices but employers do not invest or create employment opportunities, and governments absolve themselves of responsibility.

Further, the ACTU believes there are some positive measures that can be undertaken by governments, unions and industry to promote employment.

In brief, we would advocate an employment promotion package that includes:

1. Active Industry Policy Measures: Australia’s industry policy should reflect the realities of world competition and Australian industry, not some textbook economic model. Unilaterally disarming our tariffs while the rest of the world keeps up its trade barriers is not the answer. A sector-based industry policy based on world class, highly skilled, high quality, innovative industries will assist employment and international competitiveness and in turn reduce Australia’s balance of payments constraint.

2. A Regional Development Strategy to boost jobs and infrastructure in Australia’s regional labour markets.

3. Active labour market programs such as traineeships. An estimated 90,000 traineeships have been instituted since the creation of NETTFORCE in 1994. It is estimated that 90% of those who complete traineeships go on to paid employment (usually with the same employer). This compares favourably with the 10,000 places in the ‘Work for the Dole’ pilot projects, none of which lead on to assured jobs.

4. An assessment of the role of the public sector in job creation. There is a place for the public sector in areas of social infrastructure (aged care etc.) and related industry policies such as government purchasing.

5. Integration between education and training in the labour market. A well education, highly skilled labour force is important to Australia’s international competitiveness. We should continue our development of education and training to continue Australia’s investment in ‘human capital’.

These measures are just part of a package, which together with appropriate macroeconomic policies based on growth and working time reform should go some way to addressing Australia’s unemployment problems.

The Howard Governments “hands off” approach and their belief in the virtues of the market forces are increasingly seen by the community as totally inadequate responses, especially in the areas of job creation and reducing unemployment.

In recent research reported in the Sydney Morning Herald on 7th June 1997, ANOP’s Rod Cameron points to “a major sleeping issue that is about to break through and become a dominant new theme in Australian community and public life : namely industry policy.”

His research confined initially to a wide cross section of people of varying ages and occupations in Sydney and Melbourne identified five triggers giving rise to this growing concern.

The “seemingly intractable” problem of unemployment and people’s “genuine fears” of job security.

BHP’s planned closure of its Newcastle Steelworks and the accompanying “it is inevitable, nothing can be done” imagery of the Howard Governments response. Perhaps no single announcement by a company in recent years has had a greater unsettling impact on ordinary Australians.

The absence of jobs for apprentices when they finish their time and what is seen as the general decline in the manufacturing industry.

A nostalgia for in Australia that was seen as making things. “Combined with a worry about an over reliance on imported products, this is leading to an ever emerging popular consensus that “enough is enough” when it comes to tariff cuts.”

The growing absence of Australian made goods and produce. “That concern is heightened every time an icon of Australian manufacturing is bought by a foreign-owned company. And when even governments join the sell out by privatising basic utilities like power and water into the hands of non-Australians, then confusion really grows.”

Cameron concludes that “these individual triggers are combining to create a state of mind in Australia that is far from relaxed and comfortable. Instead there is an insecure and vulnerable society in which there is:

• a genuine concern about the future of the country;

• a real fear of the permanence of growing youth unemployment;

• an emerging frustration that government cannot see the sense of supporting and encouraging Australian industry.

“Australians are demanding that their leaders produce a plan – a plan for industry – that shows them how jobs will be created where they want them.”

This is the real challenge for the Howard Government.

Conclusion

In conclusion, can I summarise the key themes of my address:

First, much more needs to be done on the employment front – the Federal Governments’ do nothing/let the market work policy is not providing the leadership and results that this country needs and deserves.

Second, the Reserve Bank’s approach of attacking wages and promoting labour market ‘deregulation’ is shown by a number of economists in the economic literature to be a flawed approach. Further, it will create inequities which will jeopardise Australia’s hard fought-for social cohesion and sense of fairness.

Finally, any approach to employment policy must include working time issues – the fairer distribution of working time is a priority issue for the union movement in Australia.

I wish your Conference well and look forward to its positive and concrete outcomes.

References:

ACIRRT (1996), “Reforming Working Time: Alternatives to Unemployment, Casualisation and Excessive Hours”, ACIRRT/Brotherhood of St Laurence, July.

ACTU (1996), Living Wage Submissions, ACTU, Melbourne.

ACTU (1997), Discussion Paper on Working Time, D No. 39/1997, ACTU, Melbourne.

AIRC (1997), Safety Net Review – Wages, April 1997 [Print P1997].

Coelli, Fahrer and Lindsay (1994), “Wage Dispersion and Labour Market Institutions – A

Cross-Country Study”, RDP9404, Reserve Bank of Australia, Sydney.

Harcourt T (1997), “The Economics of the Living Wage”, ACTU D No. 84/1996

(forthcoming, Australian Economic Review).

House of Representatives (1997) – Evidence of Standing Committee on Financial Institutions and Public Administration, I.J. MacFarlane, Governor of the Reserve Bank of Australia, Sydney, 8 May.

Jennie George, President, ACTU. Speech to the 4th National Conference on Unemployment. University Of South Australia, Adelaide. 18 June, 1997.