Tag Archives: #economy

The Jobs and Skills Summit

Posted on by
Reply

Last week’s Jobs and Skills Summit hosted by the Federal Government in Canberra was clearly designed to be a statement of intent by Prime Minister Anthony Albanese and his Labor administration. Part policy endorsement, part policy road map, the Summit was hailed (by the Prime Minister at least) for reaching agreement on “36 immediate initiatives”. By all accounts, it was a jolly affair and everyone in the Government sounded very pleased with themselves. The reality is that despite some significant pronouncements, most of them lack detail, many of them relate to existing initiatives, a number of the “36 agreements” were largely concluded and/or telegraphed ahead of the Summit – and of course, the one item that got most attention was the most divisive: the renewed prospect of multi-employer collective bargaining.

Number of Australian companies by employment size, 2018-2022 (Source: ABS)

There were some contentious views about the small business association’s pre-Summit MoU with the ACTU. Some peak industry bodies and other commentators felt that COSBOA had “sold out” in apparently agreeing to sector-wide negotiations on pay and conditions. However, this does not appear to be the case – COSBOA is merely seeking better co-operation and consultation on areas of mutual interest, and is not endorsing any form of enforced unionisation or compulsory sector bargaining. There have been suggestions that sector-wide collective bargaining will result in higher wages, but without more detail, and pending greater clarity on the “Better Off Overall Test”, this will simply add friction to the current debate about wage and employment growth.

If we do return to a previous form of Industrial Relations policy, it’s interesting to look at the latest ABS data on Australian businesses by employment size (table above). I think it’s worth noting the number of working people in Australia who are employed by SMEs. Large employers are actually small in number, so if multi-employer collective bargaining does come into effect, it could mean tens of thousands of businesses will be involved, and many probably for the first time. On the other hand, in an industry like construction, which is both highly unionised and covered by significant industry awards, many workers are either self-employed or they are employed by independent sub-contractors.

Representation at the summit was reasonably well-balanced, between Unions (including Industry Superfunds), Business (individual companies and industry associations), the NFP and Community sectors, Academia, Think Tanks, and of course Politics. The absence of the Leader of the Federal Opposition meant that his voter base was effectively disenfranchised, although his Deputy (and Leader of the National Party) did attend. Go figure.

Much was said about “streamlining” and “updating” parts of the Industrial Relations regime. Like Australia’s tax laws, the system of Modern Awards as overseen by the Fair Work Commission feels unwieldy, unnecessarily complex, over-bureaucratic, at times vague, and often archaic bordering on arcane. There are currently over 140 different awards in place – some of them relate to an individual company, some to a particular trade or profession, and some cover a whole industry. Interpretation is often in the eye of the beholder as to whether or not it applies to a particular employer and/or employee – here is an extract from one award:

“NOTE: Where there is no classification for a particular employee in this award it is possible that the employer and that employee are covered by an industry modern award or a modern award with occupational coverage.” (Emphasis added.)

I should add that one reason given by the Labor Government for removing the prohibition on sector-wide collective bargaining is because the process for employers to request an exemption from the relevant Minister is “too cumbersome”. I don’t see how this is so given that much of the IR system is overly bureaucratic. Surely the reason for this administrative process is to avoid collusion and other cartel-like activities that would otherwise fall foul of competition law and anti-trust provisions.

The Summit had some notable things to say about gender equality and pay parity, (“Legislate same job, same pay”), training, immigration and child care; but some proposals sound vague without defined objectives (“Boost quantum technology research and education”); draconian if they inhibit workplace flexibility, especially in seasonal industries (“Limit the use of fixed-term contracts”); or too aspirational without more detail such as specific goals and measurable targets (“Leverage greater private capital into national priority areas, including housing and clean energy”). We know that Labor ministers have been vocal in their dislike of the so-called “gig economy” (a “cancer” on the economy, and “I’d like to regulate the sh*t out of it”), but perhaps they need to do more to understand why some workers actually prefer it, and what benefits it brings in terms of workplace flexibility, especially in start-ups and emerging sectors, many of which are SMEs from where much of our longer-term innovation and employment opportunities actually come.

One item that didn’t receive as much attention was the “Digital Apprenticeships Scheme”, which (subject to details…) would likely have the combined support of the Tech Council of Australia and the ACTU. Certainly, despite a vibrant and innovative IT sector, and some notable high-tech and high-end manufacturing businesses in Australia, we lag behind in STEM education, and lack basic digital literacy skills in the wider population. (Hence the need for adjustments to the skilled migration scheme?) A friend of mine who runs a small manufacturing business in Melbourne recently hired an Office Assistant. The successful candidate claimed to be proficient in standard productivity tools such as Word and Excel. In fact, they didn’t know how to COPY-PASTE, nor how to use the SUM-ALL function, which are both very basic routines. They thought they could “wing it” by watching a YouTube video…

Finally, if there is one note of caution or concern about the Summit, it is the niggling thought that this was more of a talk-fest, and that any new ideas to have emerged were either covered by existing programmes and “policy settings”, or were already in train. Going through the list of Outcomes, I counted at least three dozen separate initiatives (Plans, Schemes, Agreements, Reports, Statements, Codes, Programs, Compacts, Task Forces, Working Groups or Funds) many of which already exist, or were part of Labor’s election promises, or have been proposed prior to the Summit. (And that list excludes Federal Ministries and Government Departments.) Sounds a lot like “Talks about Talks”, with “new” money already allocated and spoken for (hence Labor’s push back on some of the implied costs of the Summit proposals). At worst, this “wish list” represents a huge amount of expensive and bureaucratic overlay, whereas we need agile and flexible economic, education and employment measures.

Next week: Finding a Voice

Mopping up after the LNP

Posted on by
Reply

The incoming Labor government in Australia is currently enjoying a post-election honeymoon period. And while the new Prime Minister has spent about as much time overseas as he has been at home, there is sense that domestically, something has changed under Mr Albanase.

First, the strident, discordant and caustic tone of federal politics is subtly being dialled down, even if much of the same partisan rhetoric remains. Second, it has been suggested that Mr Albanese is seeking to evoke the spirit of Bob Hawke rather than looking for inspiration from either of his immediate ALP predecessors. Both Kevin Rudd and Julia Gillard were technocrats (rather than being natural politicians) and neither of them enjoyed a solid or stable power base within their own party (hence, they were both rolled while in office). Third, there does not appear to be any radical departure from the previous LNP administration, apart from a commitment to an indigenous voice in Parliament, a plan to establish a federal anti-corruption commission, and a greater focus on renewable energy.

Of course, the new administration faces a number of challenges in the budget deficit and in key areas of economic activity, most of which they have inherited from the outgoing LNP government. Federal largesse (in the form of industry subsidies, public grants, welfare payments and pandemic handouts) is under pressure. The era of “cheap money” is coming to end as we witness higher inflation, lower unemployment, skills shortages, and a very mixed set of economic results. Interest rates are on the way up to try and prevent parts of the economy overheating, and are designed to reduce both borrowing and retail spending. But there is a risk that higher interest rates will result in a decline in house prices and an increase in mortgage stress; and reduced discretionary consumer spending may dent employee expectations of wage growth. Despite the low level of unemployment, there can be no reasonable hope of higher wages without an accompanying increase in productivity. Perhaps the issue is that too many people have fewer hours of employment than they want or need, while those already in full-time employment seek to maximise the amount of work they have. Or productivity gains are difficult to achieve in sectors where wages are the biggest input cost, or where operating margins are already very thin, or where investment in technology has been lacking.

Despite the increase in domestic travel and tourism during and since the height of the pandemic in 2019-21, we should remember that domestic borders were also closed for extended periods. As a result, local tourism was hit hard, and even as things started to open up again, the hospitality industry struggled to find staff or was unable to operate economically due to capacity limits – and a lot of small operators haven’t come back.

I would expect to see bankruptcy numbers to rise – especially among sole-proprietors and SMEs (the latter of whom, in aggregate, account for the bulk of employment by headcount). This is always a lag economic indicator, given the time it takes for insolvencies and liquidations to work through the system. Despite the overall increase in the number of business in 2020-21 (see table below), 93.0% of businesses had turnover of less than $2 million, and 28.7% of businesses had turnover of less than $50,000. There was a 12.5% increase in businesses with turnover of less than $50,000, and only a 0.5% increase in businesses with turnover of $5 million to $10 million and $10 million or more. Given that 81.7% of exiting businesses had turnover of less than $200,000, there is a likelihood that more businesses will go under. This period is going to be especially challenging for sole traders and SME owners who typically mortgage their principal home to fund their business. The next ABS business entry/exit report in August will be very interesting.

Past stimulus packages have been spent on household goods (computers, mobile phones, HDTVs, etc.) that aren’t manufactured in Australia; or put towards the mortgage; or saved for a rainy day – and it’s highly likely a similar pattern emerged with the recent pandemic-related measures. All of which means their net effect on the domestic economy and the balance of payments was probably negligible. Sure, during the pandemic some consumer spending was diverted from things like overseas travel towards domestic purchases, but recent data suggests consumers are cancelling their internet streaming services and curbing their on-line shopping (in part because they are no longer working from home).

During the federal election campaign, one of the few areas of economic “policy” that both ALP and LNP ventured was the promise of financial incentives for first-time home buyers. The idea being, I suppose, helping people onto the property ladder enables them to establish long-term household wealth, while taking some pressure off the rental market. Although there has been a softening in city house prices, price increases in some regional areas have more than compensated for those recent declines (thanks to an urban exodus from cities like Melbourne and Sydney). If you’ve just paid at the top of those regional markets, and now face interest rate hikes (as well as coming off introductory fixed mortgage rates), I’m sure this will bring a new layer of mortgage stress.

Finally, it’s still not clear where the wage growth will come from (apart from a lift in the minimum wage?). Businesses (especially SMEs) that struggled during lock-down won’t easily be able to afford pay rises, and the skills shortages are in many areas where there is a lack of local talent, so increased skilled immigration quotas may actually depress salaries. Something of a vicious circle.

Next week: Literary triggers

New Labor?

Posted on by
Reply

At the time of writing, ballot papers in the recent Australian Federal Election are still being counted. Although it is clear that the Australian Labor Party (ALP) has secured more seats in the House of Representatives than any other party, and its leader, Anthony Albanese has already been sworn in as the new Prime Minister, the ALP is yet to establish an overall Parliamentary majority – although it is highly likely they will.

While the final results are still to be tallied, it’s fair to say that this Election has been like no other, and the ALP will need to find a new style of Government, given the following facts:

  • Albanese is only the fourth Labor leader since WWII to lead the ALP to Government from Opposition – given the fixed three-year terms of Australian Parliaments, this is an achievement in itself;
  • The ALP secured less than 33% of the national primary vote (compared to the outgoing LNP Government’s 36%); this means nearly one-third of first preference votes were divided between the Greens, Independents, and other minor parties, and in theory breaks the two-party stranglehold on Federal politics;
  • The two-party preferred tally shows a remarkable similarity to the Brexit Vote: ALP 51.7% vs LNP 48.3% (Brexit: Leave 51.9% vs Remain 48.1%) – which might suggest a less than an overwhelming mandate for the ALP;
  • Candidates for the so-called “Teal Independents” secured more new seats than perhaps even they expected, and will form the largest group on the expanded cross-bench;
  • The Greens won three new seats, all in Queensland, which is surprising given the party’s stand on the mining, coal and gas industries;
  • Although Katter’s Australian Party retained its solitary member in the House of Representatives, neither of the other Queensland-based, right-wing parties (One Nation and the United Australia Party) picked up any lower house seats.

These election results have also highlighted (even exacerbated?) the differences that exist between regional, metropolitan, and suburban areas (both within each State and nationally) that represent significant fault lines across the Federal electorate.

Even if the ALP manages to secure a majority in the House of Representatives, the incoming Prime Minister has acknowledged the need to engage more with the cross-bench than previous administrations – in particular on climate policy and the establishment of a Federal independent commission against corruption. (And in the Senate, the ALP will likely be reliant upon the Greens to pass legislation.)

On climate policy, the main debate is on achieving lower targets for carbon emissions, how to do it, how soon, and at what cost. The biggest challenge will be on transitioning the mining, coal and gas industries (especially in Queensland and Western Australia), and on tackling the heavy polluters (in particular, energy generation, construction and agriculture). Given that both Queensland and Western Australia are under Labor Governments, and that these industries are heavily unionized compared to most other sectors of the economy, perhaps the Prime Minister will find it comparatively easy to sell his Government’s policies – but bringing the rest of the population with him will be key, and there needs to be a clearer path to decarbonizing the economy, including incentives for change.

Regarding a Federal anti-corruption body, the challenge will be to draw up practical and consistent terms of reference (especially given that such bodies already exist in some form or other at State level). For example, in addition to elected representatives and civil servants, should a new Commission have oversight of political parties, charities, unions, non-for-profits, industry associations, professional sporting codes, non-government bodies and anyone else that receives any sort of public funding? And what about whistle-blower protections and the public’s right to submit a complaint or other matter for investigation? How will it deal with freedom of information requests that appear to be denied on political grounds, or manage the transaction of investigations that may involve multiple parties? And should such a body have oversight of truth in political advertising or deliberate misinformation campaigns by those running for public office?

A glaring omission from the Federal election campaign was any meaningful debate on the need for structural economic reforms. Many of the published policies were heavy on how much funding would be allocated to favoured industries and pet projects, but they were very light on evaluating expected outcomes or measuring the quality of results. The only financial topics to get regularly aired were wage growth, inflation, interest rates, and incentives for first-time home buyers – all of which may be important, but they are largely “more of the same” that we have seen for the past 20 years of tax-based tinkering. Not since the introduction of GST (sales tax) in 2000 have we seen any significant policy implementation, and certainly nothing like the major economic reforms introduced by the Hawke/Keating administration. To be fair to the Greens, they did advocate new taxes to fund some of their carbon-related policies (including nationalising part of the renewable energy sector) but I don’t recall seeing a specific cost analysis or balance sheet on how they would achieve their goals. There are also tensions emerging between the need to bolster wage growth (off the back of improved productivity, which hopefully includes removing archaic restrictive practices and encouraging further competition?) and the need to address growing skills shortage (to be partly offset by increased immigration, without risking wage deflation?). Any discussion of the economy must also recognise the realities of the changing work environment, including new technology, remote working, casual employment and the need to encourage innovation and sustain the small business and start-up ecosystem.

Finally, if the Prime Minister is going to be successful in selling his vision of “New Labor” (my term) then he will need to:

  • ensure that the ALP does not again disintegrate into factional party warfare and rolling incumbent leaders that plagued the previous Labor administration (and which was adopted with equal gusto by the outgoing Coalition);
  • steer a renewed path to economic modernisation begun by his predecessors in the 1980s and 1990s;
  • embrace new technology and change the way public sector IT procurement is conducted;
  • acknowledge that the Government (featuring, as ever, so many career politicians who lack direct experience of working in industry or running commercial businesses) doesn’t know all the answers – but they know how and where to find them;

And while it’s not the Prime Minister’s job to actually “hold the hose”, he does need to make sure those who do are competent to do so, and that he and his Government will hold themselves, their appointees and their representatives directly accountable to the electorate.

Next week: Renzo Piano & the Centro Botín

 

 

Where is wage growth going to come from?

Posted on by
Reply

How good is the Aussie economy? On the back of the stable outlook on our AAA sovereign credit rating, last week’s employment data showed a better-than-expected post-COVID recovery in terms of the headline unemployment rate and overall workforce participation. This has led to speculation of a potential uplift in wages, due to labour shortages amplified by the current halt on immigration (thanks to closed borders).

But where will this expected wage growth actually come from?

According to ABS data for February 2021, the top 5 industries by number of people employed are: Health Care; Retail Trade; Professional, Scientific and Technical; Construction; and Education. (See above chart.)

Now, contrast this with three other relevant data points: 1) the number of Australian companies by size; 2) the annual change in employment growth/reduction by industry; and 3) the national GDP contribution by industry.

First, there are nearly 2.5m registered business entities, according to ABS data. Over 1.5m of these are designated as “Non-employing” – including sole traders, self-employed, independent contractors or freelances. Over 850 thousand establishments employ fewer than 200 people. Fewer than 5,000 businesses employ more than 200 people. Although there was an overall growth of 2% in the number of registered businesses, the largest increase was in the “sole trader” category, while the largest decreases were among medium-sized companies, and large enterprises. (See table below – the next ABS data is due in August.)

Second, the largest employment growth by industry sector in 2019-20 came from logistics and healthcare – no doubt in large part to the impact of COVID. Primary industries and mining both registered decreases.

Third, the main contributors to output (GDP) are Health and Education (13%), Mining (11%), Finance (9%), Construction (8%) and Manufacturing (6%) – based on a recent RBA Snapshot. But the data is always subject to further examination and clarification – for example, while construction employs over 1.1m people, many of these are engaged as independent tradies or through sub-contractors, and in spite of the huge number of major infrastructure projects (just look at Victoria’s Big Build and all the cranes in Melborne CBD), there was only negligible growth in overall employment within the sector. And while mining is a major contributor to GDP, it does not employ huge numbers of people (it’s actually on a par with the arts…), yet the fewer than 9,000 people who are employed as mining engineers are in the top 10 occupations by salary (according to ATO data analysed by the ABC.)

Some other factors to consider as we ask, “Where will wage growth come from?”:

  • While most people are employed by SME’s, these companies are probably under the greatest strain when it comes to overheads and inputs, as they have relatively high fixed costs, and can ill-afford higher wages in the current trading conditions.
  • On July 1, the Superannuation Guarantee is due to increase from 9.5% to 10% – some commentators suggest employers (especially SMEs) may have to reduce or offset wages to pay for the scheduled increase.
  • We have an apparent choice between an asset-led recovery (inflated house prices – but risks leaving people “asset rich and cash poor” when interest rates go up ); a consumption-led recovery (reliant on higher wages so people feel comfortable to spend money); or an investment-led recovery (businesses need to invest in new equipment and projects to boost productivity, and not just bring forward planned expenditure thanks to tax incentives).
  • The sectors where we need more people (health care, aged care, child care and education) are still among the lowest paid on a per capita basis.
  • What is happening to boost manufacturing, or aren’t we interested in making things anymore?
  • Our IT and technical skills shortages have been exacerbated by the absence of overseas students and graduates – there is anecdotal evidence of wage and hiring pressures in this sector, one which is probably more important to our future economy and sustainability than mining coal or building more roads.
  • One leading economist reckons that household incomes have increased by 30% over the past 10 years. If wages have been stagnant, where has this growth come from? Is it because of tax cuts, low interest rates, quantitative easing, real estate prices (or their crypto holdings)? And do we actually feel any wealthier as a result?

Finally, will inflation and/or interest rates undermine any potential increase in wages?

Next week: Is Federation still working?