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Jobs and a Living Wage, by Jim Stanford

A new conjuncture makes real change possible at the coming federal election

Published: 2 May 2019

Australians tend to bring a fair bit of swagger to international comparisons of economic performance. After all, Australia has experienced twenty-eight consecutive years of economic growth without a recession—a record for industrial countries. We are the ‘lucky country’, with one of the highest material living standards in the world, a wealth of natural resources, and a ‘no worries’ ability to withstand global economic shocks.

This common belief that Australia’s economy is somehow inherently superior has shaped our political discourse as well. First of all, the seeming success of Australia’s economy over the past generation is commonly attributed to the hard-headed ‘reforms’ implemented in the 1980s and 1990s. By liberalising trade and capital flows, deregulating old-fashioned labour structures, and privatising bloated state-owned bodies—so the argument goes—the stage was set for a generation of steady, recession-free progress, with the economic record since reinforcing the bipartisan consensus around those main neoliberal tenets of economic policy. When cracks do appear in the edifice of Australian economic superiority, the most common response is simply to advocate still-further ‘reforms’, a euphemism for more business-friendly measures (like tax cuts, deregulation and privatisation).

There are many obvious reasons to challenge this view that Australia’s economy is extraordinary—and that market-centric policy reforms were essential to that success. Strong GDP growth was driven largely by very rapid population growth (now consisting mostly of immigration). And, adjusted for population, Australia’s economic performance over that long recession-free period barely matched the OECD average. So even by that most crude and misleading measure of ‘progress’—GDP per capita—Australia’s economy has been ho-hum, not stellar.

But of course, lifting GDP per capita is hardly the point of economic activity. Bettering human well-being, in a context of environmental and social sustainability, is the true metric of success. And by that score, Australia’s economic legacy is even more dubious. GDP growth was heavily resource dependent, driven by enormous investments in extraction and export of mostly unprocessed minerals. This created many risks, both environmental and economic. Australia is now the worst carbon polluter (in per-capita terms) of any industrial country (and seemingly incapable of doing anything about it), and more vulnerable than ever to inevitable fluctuations in commodity prices. Our national innovation record, always poor by OECD standards, has flagged further, reflected in declining research and development spending, patents and high-tech investment.

And in terms of distributing the fruits of economic growth, Australia’s star has fallen quickly. We once claimed to be the ‘land of the fair go’, but Australia now demonstrates worse-than-average inequality, and it’s getting worse. Poverty and exclusion are especially rife among Indigenous communities, in many regional areas, and among many new immigrants.

So the smug confidence (even arrogance) that Australian policy-makers typically express regarding the state of our economy was always questionable. But now, as the country approaches a pivotal election, it seems other-worldly. Because the main engines of that twenty-eight-year-long expansion, unbalanced and unsustainable as it always was, have clearly run out of fuel. The resource boom has run smack into the reality of weaker commodity prices, global oversupply, and the inevitable long-term shift away from fossil fuels. The property bubble, which managed to sustain overall spending and job creation for a few years after the resource downturn, has also begun to implode. Enormous debt levels, new restrictions on leveraged property lending, and growing fear among speculators have sparked what will likely be the biggest downturn in property prices in history. And despite years of pro-business reforms in regulation, taxes and labour laws, business investment is not recovering at all from the post-2012 resource bust.

In short, Australia’s economy is clearly entering a very rough patch. GDP growth (again, never the goal of economic policy, but the most-watched metric) slowed dramatically in the second half of 2018, posting the slowest six-month increment in a dozen years. Australia’s record-breaking run of recession-free expansion could already be ending, just as the federal election campaign gears up. Of course, that won’t stop Coalition leaders from boasting about their economic credentials, and warning voters that any change in government will jeopardise Australia’s unique economic success. Considering the fragile state in which they are leaving the economy after six tumultuous years in office, that’s an amazingly hypocritical line of attack, but it will be echoed obligingly by the commercial media and business leaders.

A million ain’t what it used to be

Pride of place in the Coalition’s economic boasts has been given to Australia’s recent record of job creation. Recall that before winning the keys to The Lodge in 2013, then opposition leader Tony Abbott famously promised that a Coalition government would create one million new jobs in five years. That pledge, made at a time when Australia’s resource-driven boom was already petering out, was important to his subsequent election. And in fact, Abbott’s pledge has been fulfilled: total employment in Australia increased by 1.1 million positions between 2013 and 2018 (using annual average data).

Prime Minister Scott Morrison, trying to amplify the positive glow of this achievement, then doubled down with an even bigger pledge. If, against the odds, his government is returned to office, he promises an even larger number of new jobs in the next five years. He also warned darkly that electing a Labor government would spark a recession (one that, by many indications, may have already started).

Despite these triumphalist claims, however, Australia’s job market actually epitomises the contrast between rhetoric about the Coalition’s ‘economic competence’ and the harsh reality faced by millions of Australians. Because, in reality, Australia’s employment performance since 2013 has been relatively weak by historical standards. Let us interrogate the million-job ‘achievement’ more closely.

First, it is not actually unusual to create one million new jobs over a five-year period: the Coalition’s 2013–18 achievement marked the tenth time in Australia’s history that over one million net new jobs were created in five years. The first was exactly thirty years ago (1983–88), when Australia’s labour market was barely half the size it is now.

You don’t need a PhD in statistics to comprehend that the absolute number of jobs must be considered relative to the number of people who need work. Australia’s working-age population (defined by the ABS as anyone over fifteen) is over twenty million strong. Moreover, as noted above, it is growing more quickly than in almost any other industrial country—now dependent primarily on immigration, since fertility in the native-born population is inadequate to replace itself.

Creating one million new jobs over five years is no achievement, therefore, when Australia’s working-age population grew by more than 1.5 million over the same period. In fact, Australia’s labour market must create more than one million jobs every five years, just to keep up with ongoing population growth and maintain the current proportion of the working-age population in work.

Rather than counting up an absolute number of new jobs, it obviously makes more sense to focus on the rate of growth of employment. By that standard, job creation over the past five years was actually relatively weak: 1.88 per cent per year from 2013 to 2018. That was slower than the average over the past sixty years (despite an acceleration in population growth), and one of the slowest rates of job creation for any non-recession period since the Second World War.

Part-time nation

The Coalition’s jobs claims are even less impressive when we consider the types of jobs created. In particular, almost half the new jobs created between 2013 and 2018 were part time, and hence the share of part-time work in total employment grew notably. For Coalition politicians, these part-time jobs have been convenient: after all, they transformed a given amount of hours of work into a larger absolute number of jobs (simply because available work was divided into a larger number of smaller ‘parcels’).

But the labour market’s reliance on part-time work came at the cost of reduced income and heightened insecurity for those doing it. Most part-timers are casual employees, with no paid sick leave, paid holidays or other normal entitlements. Part-time jobs pay much worse: average incomes for part-time workers were just $670 per week in 2018, compared to $1700 per week for full-timers. And around 30 per cent of part-time workers are underemployed: that is, they want more work but can’t get enough hours. Over one million Australians, the most ever, now work more than one job, most commonly piecing together two or more part-time positions to try to make ends meet. Even that is challenging, since many employers refuse to create regular rosters, and require workers to be available for work whether they are needed or not.

Part-time work now accounts for almost one in three jobs. Australia ranks third among all industrial nations in its reliance on part-time work (behind only the Netherlands and Switzerland). The rapid growth of part-time work is undermining overall incomes and job stability for Australian workers. But it certainly helped to boost the Coalition’s job-creation numbers! Indeed, without the increase in the share of part-time employment, the number of new jobs created since 2013 would have fallen well below Tony Abbott’s promised one million.

If we measure total hours of work, rather than jobs, then the amount of ‘work’ performed in the economy grew more slowly under the Coalition than the number of jobs: up just 1.59 per cent per year since 2013. That is slower than the rate of growth of the working-age population over the same period. So the amount of work available, on average, for each working-age Australian actually declined over the period of the Coalition’s term in office.

Inadequate quantity, declining quality

So it is clear that the quantity of work available in Australia’s labour market in recent years has been inadequate to meet the employment needs of a rapidly growing population. As a result, the general underutilisation of Australian labour got worse in the last five years. Underutilisation is a broader concept than formally measured unemployment. After all, the official unemployment rate is only around 5 per cent, which the Treasury Department and the Reserve Bank still, bizarrely, consider ‘full employment’. True underutilisation also includes underemployment (people working some hours, but who want and need more work), non-participation (people who have little faith that they will find work and hence don’t bother actively looking—a decision that excludes them from labour-force data) and other forms of hidden unemployment. The ABS’s measure of underutilisation has averaged more than 14 per cent since the Coalition came back to power—the worst since the recession-wracked 1990s.

With too many workers competing for too few jobs, it is therefore not surprising that the quality of work has deteriorated markedly on the Coalition’s watch. By several indicators, jobs are less secure, offer fewer hours, and benefit from fewer contractual protections than was the case five years ago. Hence, even Australians who found work are experiencing harsher working conditions and greater precarity.

Table 1 summarises the deterioration in several indicators of job quality between 2013 and 2018. A greater share of jobs are part time, and more are casual (lacking paid leave and other entitlements). With the rise of outsourcing and the ‘gig’ economy, self-employment has shifted more towards part-time roles, which are especially insecure and poorly paid.

Table 1: Indicators of deteriorating job quality

2013

2018

Part-Time Work

30.2%

31.7%

Casual Work1

23.7%

25.0%

Part-Time Self-Employment

5.1%

5.5%

Employed Covered by EBA2

22.0%

15.0%3

Source: Author’s calculations from ABS Catalogue 6202.0, Table 1; ABS Catalogue 6291.0.55.003, Data Cube EQ04; Catalogue 6333.0, Table 2.3; Dept. of Jobs and Small Business, ‘Trends in Federal Enterprise Bargaining’.

1. As share total employees (excluding self-employed).

2. Federally regulated only.

3. First three quarters.

Especially worrisome is the rapid decline in collective-bargaining coverage. This mostly reflects the disappearance of collective bargaining from most private-sector workplaces: the number of private-sector workers covered by an enterprise agreement has plunged by one-third since 2013, with 700,000 fewer private-sector employees protected by collectively bargained wages and conditions (compounded by the growth in overall employment). This rapid decline reflects the aggressive efforts of employers to terminate employment agreements (EAs), the large number of EAs not being renewed, and the virtual disappearance of new agreement making.

Historic stagnation in wages

Given the shortage of work, the deteriorating quality of jobs and the lack of bargaining power for most workers, it should not be surprising that wages in Australia have endured their worst period in generations under Coalition rule. Since 2013 wages have been growing only about 2 per cent per year, the slowest sustained rate of wage growth since the end of the Second World War. That’s barely enough to keep up with inflation, and implies overall stagnation in real wages (relative to consumer prices). For many workers, real living standards have declined.

The stagnation of real wages has occurred despite ongoing improvements in labour productivity, which has continued to progress, by around 1 per cent per year. In theory, higher labour productivity is supposed to translate into higher real wages. In practice, workers need bargaining power in order to maintain their share of that bigger economic pie. Unions and collective bargaining play a much smaller role than in previous decades; minimum wages have declined relative to overall average wage levels, and in far too many cases are not even enforced; and the Awards system, which once served to lift wages for virtually all workers, is now just a safety net for the poorest paid.

With productivity growing but real wages going nowhere, labour compensation has declined notably as a share of total GDP; in other words, workers are receiving a smaller and smaller share of the total economic pie they produce (Figure 1). Total labour compensation (including wages, salaries and superannuation contributions) amounted to less than 47 per cent of total GDP in 2017 and again in 2018. That is the lowest since the ABS began gathering quarterly GDP data in the late 1950s.

Figure 1: Labour compensation as share of GDP

Source: Author’s calculations from ABS Catalogue 5206.0, Table 7.

The decline in relative and absolute compensation of workers is utterly inconsistent with the Coalition’s claim that Australia’s job market is red-hot. If labour demand were genuinely strong, workers would be able to demand better wages, and more secure conditions, from their employers. That this is not happening attests to the profound underutilisation and deep insecurity that typifies Australia’s labour market today.

An opportunity to change course

A historic conjuncture of economic and political forces has created an opportunity for significant and lasting change in the fundamental framework of labour-market policy in Australia. On the economic side, the traditional drivers of Australia’s resource-dependent expansion are faltering, and there’s little reason to believe that this weakness is cyclical or self-correcting. The neoliberal consensus, which has governed most Australian policy-making for a generation, is weaker than it has ever been. This creates an opening to propose a different vision of more balanced, more managed and more inclusive economic progress, rather than continued reliance on business-led, extraction-centred extensive growth.

On the political side, meanwhile, the fading of the ‘middle-class dream’, now out of reach for millions of Australians, is fuelling a growing frustration and alienation that will have deep political consequences. Stagnant pay packets, record consumer debt (now equal to 200 per cent of household disposable income) and pervasive precarity in employment conditions have sapped the faith of many Australians that they indeed have a fair go in economic life.

That frustration can emerge in various ways, some of them destructive: the xenophobia and racism expressed in some parts of Australian society, fanned by opportunistic politicians, is one very dangerous expression. And this underlying frustration certainly does not fit comfortably into the usual horse race between the two major parties; smaller parties are capturing a growing share of political support (with consequent complicating impacts on political governance), and many frustrated Australians are turning off politics altogether. In this fluid, charged environment the effort by Australian unions and anti-poverty advocates to mobilise support for a progressive vision of economic equality and security—exemplified by the ACTU’s ‘Change the Rules’ campaign—holds considerable promise for channelling worker anger in a positive direction.

In sum, economic debates during the coming federal election will be more dynamic, and more fraught with progressive potential, than any other in a generation. The Labor Party is advancing a program that clearly breaks with neoliberal conventional wisdom in many areas, including tax policy, climate policy and industrial policy. The Greens, in some areas, go further—and the general fragmentation of political allegiances in Australian politics creates progressive opportunities, as well as risks.

In the realm of the labour market and industrial relations, the stage has been set for an especially significant change in direction. Because of the failure of neoliberal policy to deliver shared prosperity, rising living standards and a ‘fair go’, there is a clear material basis for rising worker anger. Progressive politicians and social movements have a real opportunity to channel that energy into a vision of renewed labour-market interventionism and inclusive progress. Far-reaching proposals to revitalise collective bargaining, lift the minimum wage (to a ‘living-wage’ level), crack down on labour hire and dodgy contracting, and promote pay equity were dominating policy debates even before the writ was dropped. Bill Shorten predicted that the 2019 election would be a ‘referendum on wages’. And with this conjuncture of economic and political forces, he could be right.

At any rate, the Coalition’s standard election rhetoric that they are the ‘best economic managers’, and electing any other party would jeopardise Australia’s unique economic success, has never sounded more hollow. That’s ultimately because fewer and fewer Australians experience current economic conditions as ‘successful’ in any regard. There hasn’t been nearly enough new work to absorb the number of Australians wanting and needing it. The falling quality and compensation of work imposes real hardship on millions of households, who struggle to make ends meet amid inadequate and insecure hours and working conditions. Worst of all for the Coalition, it’s clear that things will get worse, and fast, without an urgent change in direction.

Empty slogans about who are the ‘best economic managers’ will have less resonance, therefore, in this election than any in a long time. Australians have a unique opportunity to debate real policies to create more work, lift the quality of work, and share the proceeds of our economy in an inclusive and sustainable way. Let’s hope they take it.

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