{"id":6833,"date":"2009-12-22T16:42:29","date_gmt":"2009-12-22T06:42:29","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=6833"},"modified":"2009-12-22T16:42:29","modified_gmt":"2009-12-22T06:42:29","slug":"another-conservative-front-opening-up-minimum-wages","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=6833","title":{"rendered":"Another conservative front opening up – minimum wages"},"content":{"rendered":"

\t\t\t\tToday I have been reflecting on minimum wages and employment. As the Australian economy slides slowly along the bottom (close to zero growth), the conservative forces are mobilising to attack the changes that the current federal government made to the industrial relations laws when they won the last election. Ex-liberal party hack (advisor) and now Director of the conservative Sydney Institute and regular Sydney Morning Herald columnist Gerard Henderson is one person who is leading the charge. While the first of the changes will not come into effect until next month, employers who have revelled in the massive redistribution of national income that the deregulation the labour market delivered to them are already enraged and looking to commentators such as Henderson for succour. The problem is that there is no argument they can make that is defensible. This will become a new battlefront for unions who seek to defend the interests of the most disadvantaged workers in the land.
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\nIn his SMH article today – Labor’s good intentions fail to guarantee jobs for youth<\/a> – Henderson claims that the retrenchment of the pernicious Work Choices laws (pernicious is my word not his) is undermining employment prospects.<\/p>\n

He asserts that:<\/p>\n

\nThe fact Australia has one of the strongest economies in the OECD today is primarily due to the economic reforms undertaken over the past quarter-century by the governments led by Labor’s Bob Hawke and Paul Keating and the Coalition’s John Howard. The deregulation of Australia’s once highly regulated industrial relations system was a central part of this reform process … Kevin Rudd and his Minister for Workplace Relations, Julia Gillard, have been busy in the past two years re-regulating the Australian labour market. This procedure will be finalised in January when the Rudd Government’s Fair Work Act comes into effect.<\/p>\n

This will at least take Australia’s industrial relations system back to March 1996, when the Howard government was elected.\n<\/p><\/blockquote>\n

The assertion that the Australian economy avoided the worst of the recession because it privatised, aggressively deregulated the labour market, cut real wages, introduced onerous welfare-to-work provisions, and ran budget surpluses for a decade or so is now often-repeated by all sides of politics in Australia.<\/p>\n

My view is that it is an unfounded assertion that is not borne out by the data.<\/p>\n

Consider my blog yesterday – Lesson for today: the public sector saved us<\/a> – where I show using Australian Bureau of Statistics data that the private labour market shrunk dramatically and the loss in total employment between June 2008 and June 2009 was all down to the major increase in public sector employment.<\/p>\n

I also used Treasury estimates to show that if the discretionary component of the fiscal intervention had not have been delivered then we would have had at least 3 quarters of “official” recession (measured in terms of GDP losses).<\/p>\n

The secret of the relatively better (but still appalling) performance of the Australian economy in this downturn lies in the timing (early); the magnitude (several percent of GDP) and the composition (geared at directly boosting aggregate demand) of the fiscal intervention. Without it we would have looked fairly bleak.<\/p>\n

Henderson then starts to take us to his main point – circuitously:<\/p>\n

\nThe evidence suggests that in contemporary Australia, the well-educated and well-off can look after themselves. Certainly, the global financial crisis has caused some hardship for all socio-economic levels of Australian society.<\/p>\n

Yet this downturn – unemployment has increased in the past two years by nearly 50 per cent, from about 4 per cent to nearly 6 per cent – has hit hardest among “blue-collar” workers, especially those employed in manufacturing and construction.<\/p>\n

In most economic downturns or recessions, the young are most disadvantaged since they find it difficult to obtain employment. Those with the least educational qualifications are usually the worst off. Their plight is frequently overlooked by journalists, who tend to be young but well-educated.\n<\/p><\/blockquote>\n

I agree with some of this description. Manufacturing employment in particular has been significantly cut losing 90 thousand jobs or nearly 8.3 per cent of its total employment since the downturn began in February 2008. However, this has been the common theme in previous recessions.<\/p>\n

Henderson is however wrong in his statement about construction. It actually gained employment in the period since February 2008, which in part, is courtesy of the impact of the fiscal expansion on infrastructure development.<\/p>\n

He is correct to say that the young and the low-skilled are dealt the worst blow in any downturn and are the last to really benefit from recovery. That is one of the reasons I advocate a Job Guarantee<\/a> to ensure there are always jobs available for the least advantaged workers in the labour market.<\/p>\n

Henderson then reported on an interview on the ABC Lateline’s Friday Forum<\/a> broadcast on December 11, 2009.<\/p>\n

The exact interchange Henderson mentions went as follows (Presenter is Leigh Sales, Mark Arbib is the Minister for Employment Participation and Scott Morrison is the Opposition’s spokesman on Immigration):<\/p>\n

\nLEIGH SALES: OK. Now we’ve had – there’s been a lot going on this week and I wanna whip us throw a heap of things really quickly, so let’s move on. Unemployment: Mark Arbib, this week we saw the third consecutive gain in jobs in Australia. How much longer can Labor argue that the stimulus doesn’t need to be recalibrated given that it’s based on Treasury forecasts that haven’t been realised?<\/p>\n

MARK ARBIB: Well, look, we welcome the drop in unemployment. But you gotta remember though there’s still 650,000 Australians that are outta work and there are probably 100,000 of them, even more, that are under-employed – people who were looking for more work, more hours, but can’t get it.<\/p>\n

LEIGH SALES: But the results are coming in that are better than what you anticipated when you set up the stimulus package.<\/p>\n

MARK ARBIB: Sure, but on the ground, when you go out to communities, and I’ve just got back from Cairns where unemployment is over 11 per cent; a month ago it was 14 per cent. We had a job expo up there. 400 jobs on offer. 5,000 came through the door. And I was talking to people who are distressed. Like we talk about unemployment, but we don’t talk about the effect it has on people. They are distressed. And there’s gonna be a lot of people, Leigh – it’s not just there; in south-west Sydney at the moment, 47 per cent of teenagers are unemployed. We need to act and we need to keep stimulating the economy with these infrastructure projects, keep people employed.<\/p>\n

LEIGH SALES: Scott Morrison, there is no doubt that Australia has weathered the global financial crisis better than almost any other country in the world, probably better than any other in the country in the world. Will the Coalition give Labor credit for its management of the situation?\n<\/p><\/blockquote>\n

Henderson’s claims that that Arbib’s comment that “47 per cent of teenagers are unemployed” in a certain area of Sydney:<\/p>\n

\n… should have ignited astonishment. But Sales ignored the point and then suggested to Liberal Party frontbencher Scott Morrison that the Coalition should give Labor credit for its management of the economy. It was as if Arbib had not mentioned the 47 per cent figure.\n<\/p><\/blockquote>\n

I agree with him. Leigh Sales should have hammered him on this point and the regional disparities in labour market outcomes generally. Please read my blog – Maybe the unemployment rate has peaked<\/a> – for more discussion on the regional issue.<\/p>\n

It is also clear that the way the current government has disregarded the teenagers during this recession is a national disgrace and represents the true intergenerational burden that will emerge from the downturn in economic activity.<\/p>\n

The conservatives like to think the public debt increase will punish future generations. That claim of-course only belongs in the mythology of the ignorant. However, the true disadvantage lies in denying teenagers the opportunity to work if they do not wish to stay at school.<\/p>\n

The following table is derived from ABS Labour Force data<\/a> and shows the growth in employment (full-time, part-time, and total); unemployment and the labour force (per cent) and the percentage point change in the unemployment rate and the participation rate for the various age cohorts.<\/p>\n

The selected periods are from February 2008 to November 2009 (the low-point unemployment month to the latest period) and from January 2009 to November 2009 (the period most affected by the fiscal stimulus).<\/p>\n

The Table shows that the employment loss over the entire period of the downturn to date for teenagers has been 6.9 per cent compared to a modest rise in overall employment. Teenagers are losing full-time jobs at a faster rate than any other cohort and not enjoying the same growth in part-time employment as other groups.<\/p>\n

The rise in the unemployment rate to date has been 1.7 per cent overall but for teenagers it has been 4.8 per cent. The impact of underemployment (not shown) has been very severe on the teenagers.<\/p>\n

The reality is there are not enough jobs or hours of worked being created and when the labour market is rationed like that the employers use screening mechanisms to shuffle the jobless (and underemployment) queue. They use formal education, experience and other traits to ration the excess supply of labour.<\/p>\n

\"Australia_age_changes_Nov_2009_Table\"<\/a><\/p>\n

<\/div>\n

Henderson then – finally – gets to his main issue. He says:<\/p>\n

\nBefore Sales diverted the conversation, Arbib suggested the only way to overcome high teenage unemployment was to “keep stimulating the economy with these infrastructure projects”. But this overlooks the fact most of the stimulus package has already been allocated. Also, the Rudd Government has already spent a significant amount of money in providing incentives for employers to hire apprentices.<\/p>\n

Arbib’s concern about the high level of unemployment in Cairns and the large number of unemployed youth in south-west Sydney was genuine. But he failed to consider – and was not asked to consider – whether Labor’s re-regulation of the labour market may have contributed to the problem.\n<\/p><\/blockquote>\n

So you see the point. Henderson hates what he calls the “industrial relations club” which is characterised by labour laws that are administered through the unique wage tribunals we have in Australia and prevent the worst ravages of the competitive system.<\/p>\n

It is true that “the stimulus package has already been allocated” and that the Federal government has “spent a significant amount of money in providing incentives for employers to hire apprentices”.<\/p>\n

But Henderson’s argument is a non-argument. All he is telling us is that the amount and composition of the stimulus have been inadequate to reduce the rising joblessness in the face of the largest world downturn in 80 odd years.<\/p>\n

In yesterday’s blog – Lesson for today: the public sector saved us<\/a> – I showed how important public job creation has been in attenuating the rise in unemployment. Over the year to June 2009, private employment crashed (82 thousand jobs lost in net terms) while public employment growth was 3 per cent overall (adding 56 thousand net jobs).<\/p>\n

It is clear that the Federal government could have added more jobs via a direct job creation strategy and targetted them at the youth. This would have significantly reduced their disadvantage.<\/p>\n

The loss of jobs has nothing to do with the “re-regulation of the labour market” because the main provisions of that legislative change have not even taken effect (see below).<\/p>\n

Mass unemployment arises from a lack of effective aggregate demand. Cutting wages in the face of a collapse of aggregate demand just makes the situation worse. Cutting specific age-related wages in the face of a collapse of demand will not have any impact on overall levels of employment but may at the margin shuffle the jobless queue – so the teenagers get employed on below-poverty line wages and the 20-24 year old group lose their jobs.<\/p>\n

When there is a job ration operating wage cuts make the situation worse.<\/p>\n

Henderson introduces the OECD Report Jobs for Youth: Australia<\/a> which was released in April 2009. You can see a Summary<\/a> of the report.<\/p>\n

The main thrust of the Report was a review of the “transition of young Australians from school to work” and emphasised the need to improve educational attainment among the youth. As a legacy of the decade or more of conservative government and the neo-liberal policies of previous Labor governments, all obsessed with trying to run budget surpluses (by cutting its contribution to educational spending) Australia has:<\/p>\n