Then there was the unexpected jump in numbers. Net overseas migration for the 2022–23 financial year hit a record 510,000 people, more than 25 per cent above the 400,000 anticipated in the May budget and more than double the October 2022 forecast of 235,000. Not only are more people arriving but fewer are leaving, especially students; the catch-up after Covid means many international students are still in the early stages of their courses and won’t return home for two or three more years.

Combined with the shenanigans of sacked former home affairs secretary Mike Pezzullo, these developments have made it easy for the opposition to conjure up an image of out-of-control migration and link this to housing shortages and other pressing issues. Immigration isn’t the cause of a housing crisis decades in the making, but the surge in arrivals does make a tight rental market even worse.

Arrival numbers would have been no lower under a Coalition government and Australia’s population would be higher if not for Covid. But facts count for little in an overheated debate. Migration is now Labor’s problem and it would be easy to construe the release of its new strategy as an attempt to wrest back the initiative on this fraught topic.

But the strategy is no knee-jerk response. It is the product of months of work, building on an expert panel’s finding that the migration program is “broken” and a report by former Victorian police commissioner Christine Nixon confirming widespread abuse of Australia’s visa system.

The strategy adds detail to the government’s early responses to those two reviews and affirms its commitment to keeping both unions and business onside. It shows a government aspiring to wholesale reform rather than bolting yet more fixes onto an already unwieldly, overloaded and outdated migration machine.

In its existing form, the system satisfies no one. Employers and migrants complain about high costs, slow processing and uncertain outcomes, while the public questions the scale and integrity of the program. In their joint foreword to the strategy, the responsible ministers, Clare O’Neil and Andrew Giles, recognise the need to restore migration’s “social license.”

The strategy articulates four policy objectives, and while they are not ranked, the tone and content of the strategy indicate a descending order of priority. Migration, it says, should first, raise living standards; second, ensure a fair go in the workplace; third, build stronger communities; and fourth, strengthen international relationships.

To achieve the primary aim of higher living standards the government wants to refine migration to boost productivity, counter the perceived impacts of an ageing population, fill skills gaps and expand exports.

One step is to reform the points test, which scores and ranks applicants for permanent skilled migration according to their age, qualifications, experience and English language proficiency. A discussion paper will canvass options that are likely to give greater weight to the skills and qualifications of an applicant’s partner and downgrade factors that are “poor predictors” of labour market success, such as studying in a regional area and fluency in a community language. The aim is to reward skill over “perseverance” so that international student graduates working in their professional fields have a faster route to settlement while graduates stuck in lower-level jobs are screened out and leave Australia.

Another measure introduces a “skills in demand” visa to replace the “temporary skills shortage” visa. This is more than a name change. The government had already lifted the threshold wage for temporary skilled migrants from $53,900 to $70,000 to ensure that these visas are not used to recruit cheap labour. (The threshold, frozen since 2013, will now be indexed annually.) New rules allow temporary migrants to switch employers and sectors more easily, which should improve productivity as these workers move to jobs where their skills are more highly valued.

Labour market testing will be simplified, employers can pay sponsorship fees periodically instead of up front, and visas will be issued more swiftly, with the government committing to a median processing time of just seven days for applicants in the top “specialist skills pathway.” This applies to workers earning at least $135,000, who will no longer have to match one of the occupations in demand identified by Jobs and Skills Australia (though the category is closed to trade workers, machinery operators, drivers and labourers).

Workers paid between $70,000 and $135,000 are on the “core skills pathway” and must still have an occupation identified as being in shortage, with a promise that these lists will be updated more frequently to better reflect rapidly changing labour market needs. Both the core and specialist pathways will offer a route to permanent residency.

The details of a third “essential skills” pathway are yet to be worked out. This option will apply to lower-paid, hard-to-fill jobs with a focus on the care economy. The government says it will “further consult” on lower-wage migration next year, but any arrangements will be sector-specific, capped in size, closely regulated and designed to maintain the primacy of Australia’s relationship to the Pacific as “a guiding principle.”

The latter is a reference to objective four of the strategy — strengthening international relationships — and we can expect further development of PALM, the Pacific Australia Labour Mobility scheme, which has its genesis in a seasonal labour program for workers from Pacific island nations and Timor-Leste. Only 3000 Pacific islanders were working seasonally in Australia in 2016, but by October 2023 there were more than 38,000 PALM participants. The original scheme was broadened from horticulture to meat processing and other agricultural industries, and then extended to encompass tourism, hospitality, retail and care. It is mostly limited to regional and rural areas, but is no longer just seasonal, with workers granted visas for between one and four years.

But the scheme remains purely temporary, with no path to permanent residency. Pacific workers can bid for one of 3000 new Pacific Engagement Visas offered annually, but success is a matter of luck. Former top immigration official Abul Rizvi has highlighted a sharp rise in PALM workers applying for protection as refugees and attributes this to dissatisfaction with their treatment in Australia. He says the “silliness” of the Pacific visa lottery will just add to PALM workers’ frustrations and suggests the government should instead help them “develop higher level skills as a pathway to permanent residence, especially skills relevant to the regional communities in which they are currently working.”

Rizvi’s sensible suggestion points to an enduring dilemma of low-skilled migration. Once workers secure permanent residency they tend to quit poorly paid jobs in remote locations and move to better-paid positions in cities. Keeping migrants on temporary visas limits their labour market mobility and ensures they stay put, but it’s a recipe for disaffection and exploitation.

The structure of the PALM scheme runs counter to the second major policy objective in the new migration strategy, “ensuring a fair go in the workplace.” By allowing temporary skilled migrants to shift jobs more easily, the government has increased their power to challenge underpayment and resist unreasonable demands. Temporary skilled migrants who suffer abuse will have six months instead of two to find an alternative sponsor and be less reliant on any single employer to support their applications for permanent residence. The contrast with the purely temporary PALM scheme that ties workers to specific employers and regions is stark.

To tackle abuse, the government has introduced a bill to make it a criminal offence for employers to misuse visa programs to exploit temporary migrant workers. This recommendation by Allan Fels’s 2019 Migrant Workers’ Taskforce was ignored by the previous government.

The idea of a “fair go” also has a domestic element. The government wants to ensure that migrants don’t displace local workers or bring down their wages. Its primary move here is to tighten entry requirements for international students to ensure that their main intention is to study, not work. The strategy erroneously calls this closing “back doors and side doors” when, in reality, Australia opened the front door wide to support the growth of education for export; unsurprisingly, international students walked through in large numbers.

New barriers are being erected. International students must pass a higher English language test and prove they have significantly more savings. They will find it harder to switch from one course to another, especially if they appear to be going backwards — by, for example, swapping from a degree to a certificate-level course. The government will prioritise visa processing based on the “risk level” of educational institutions. Applications to study at top-tier universities will sail through while visas to attend private colleges languish in the bureaucratic pipeline.

The Australian Skills Quality Authority will also have extra funding to crack down on ghost colleges, those dodgy providers that are shopfronts for obtaining a visa with work rights.

Evidence of a more stringent approach is already apparent. In 2018–19, the last full year of Coalition government before Covid, only 13 per cent of student visa applications lodged outside Australia were rejected. In 2022–23 (the first full year of a Labor administration) 20 per cent were knocked back. The change was especially pronounced in offshore VET applications, where average rejection rates grew from 38 per cent under the Coalition to 46 per cent under Labor. The perception that Dutton was tougher on border control than his successor as home affairs minister doesn’t match reality.

Labor is also winding back generous post-study work visas, which the Morrison government made even more attractive in late 2021 to help international education “roar back” after Covid. Visas will be shorter: three years instead of four for a PhD and two years instead of three for coursework masters. The eligible age limit will be reduced from fifty to thirty-five years.

When the Gillard government introduced the 485 post-study work visa a decade ago, some of us warned that it would produce a large new cohort of “permanently temporary” graduates — migrants living and working in Australia for years without any prospect of settling. This has come to pass. Of the almost 200,000 temporary graduate visa holders in Australia, most are stuck in limbo. They struggle to find jobs in line with their qualifications and do low-skill work that will never enable them to amass the points needed to qualify as skilled migrants. It makes sense to rein the scheme in.

Over time, these measures could see international student and graduate numbers decline further than they would have, which may reduce the pool of casualised and precarious labour staffing kitchens and delivering meals. On the other hand, the government has reinstated restrictions on working hours lifted during the pandemic. Students can work a maximum of forty-eight hours each fortnight, up from forty hours pre-Covid. Some will need to work more “off the books” to make ends meet, making them vulnerable to ruthless employers.

The government will also evaluate another visa category rife with wage theft, poor working conditions and sexual harassment — working holiday visas — which have morphed from a cultural exchange program into a low-wage labour scheme, especially for agriculture. The scale of abuse has repeatedly been documented over the past decade, and it’s hard to see how the program can be rehabilitated short of scrapping the second and third visas backpackers can acquire if they complete three or six months of “specified work” in regional Australia. As with the PALM scheme, linking work and visas makes young travellers beholden to employers, often in remote towns and isolated workplaces. The PALM scheme is, at least, more closely regulated.

Improved conditions for student workers and backpackers would be a significant achievement and help to restore public faith in the migration program, even if we had to pay more for our food and collect our own takeaway. Whether the proposed measures can achieve this is an open question, but Labor is at least demonstrating a level of intent that was absent under the Coalition. In the words of former senior public servant Martin Parkinson, who chaired the expert review, the migration system has suffered “a decade of almost wilful neglect.”

The government hopes to meet the third objective of the migration strategy, “building stronger communities,” by shifting the emphasis from temporary to permanent migration and providing greater clarity about who can (or can’t) hope to settle here.

The commonsense implication is that permanent migration is more conducive to building “a cohesive multicultural society.” But the strategy is silent on family migration, apart from the strange formulation that the government will support “relationships with family abroad.” That doesn’t sound promising for overseas-born Australians who want to bring parents here to live with them. Parent migration could build stronger communities but clearly runs counter to the higher-priority goals of boosting productivity, filling skills shortages and slowing demographic ageing.

The conundrum of parent visas has been left to fester so long that the shocking blow-out in applications and waiting times means many parents are likely to die before they get a visa. This is causing distress and anxiety for tens of thousands of families.

One immediate option would be to suspend new applications pending a review of the system, just as Canada did in 2011. This would halt the growth in the waiting list and buy time to figure out what to do while working through the backlog. It is cruel to keep applications open and foster false hopes.

The migration strategy draws quite a clear outline of the government’s vision for skilled migration, even if there is lots of colouring in to do. When it comes to family migration, though, the page remains virtually blank, and the government is still “exploring” what visa settings are “appropriate.”

To support all four objectives, the migration strategy promises to make the system easier to navigate and administer. This entails, among other things, merging or closing some of the one hundred “visa products” to simplify offerings, as well as adding extra staff and upgrading IT systems.

The challenge will be to find a balance between the clear regulations and procedures needed to process a high volume of visas efficiently, on the one hand, and retaining enough flexibility to fit individual circumstances, especially in compassionate cases, on the other. Whenever the migration system re-gears, some people get chewed up, including many with compelling reasons to stay in Australia. Foreign parents of Australian-citizen children, for example, will often cycle through a series of temporary visas in a desperate bid to stay close to their sons or daughters. This will get harder as visa rules tighten. It would be ironic and disappointing if attempts to streamline migration mean even more decisions landing in the lap of the immigration minister in the form of last-ditch appeals for him to exercise discretion under various “god powers.”

The strategy is pitched as a bid to get migration working for the nation: “For workers. For businesses. For all Australians.” Noticeably absent from this top-line list is a desire to get migration working for migrants. The strategy (and the ministers’ language promoting it) tends to present migrants, especially student visa holders, as highly calculating and instrumental — as people who use “back doors and side doors” to milk the system for whatever they can get or even engage in outright rorts.

What gets forgotten is that circumstances and aspirations change, especially for young adults at a formative stage of life. Students may come to Australia with every intention of leaving when they complete their courses but then discover new freedoms and possibilities that were not previously available to them. Perhaps they can openly express their sexuality, their creativity or their politics for the first time. Perhaps they find a new vocation or meet the love of their life.

Yet the strategy essentially tells young temporary migrants: please come to Australia for a few years but don’t put down any roots, or even put out feelers, unless you are pursuing an occupation in demand and can help build Australia’s economy. Not only is this unrealistic, it also shows we might be the ones who are calculating and instrumental.

As long as we rely on international students to fund our higher education system and backpackers to pick our produce, temporary migration will continue at a high level. The least we can do is be honest with temporary visa holders about their limited prospects for building a life in Australia, and the new strategy points in that direction. Yet we should recognise that this might inflict an emotional and psychological toll.

In their foreword to the migration strategy, the immigration and home affairs ministers say they want to bring migration levels “back to normal.” It’s not clear what might constitute “normal” in 2024, but a better-targeted and more efficient system would certainly be an achievement, especially if it offers greater clarity and certainty, reins in workplace exploitation, and reduces the number of migrants who are rendered permanently temporary and stuck in a state of being not quite Australian. What it won’t do is resolve the practical and ethical challenges that arise when the number of migrants coming to Australia on temporary visas is so much greater than the number who can hope to settle here. •

The post Is migration heading “back to normal”? appeared first on Inside Story.

There is, however, one prediction that can be made, with almost perfect safety. For the foreseeable future, Australia’s political class will continue to worry about declining birth rates and “population ageing.”

Worries of this kind have been around since the late nineteenth century, when families first began exercising some control over the number of children they had. The panic over declining fertility was briefly interrupted by an unexpected baby boom after 1945, which coincided with an economic boom. But concerns about ageing resumed with increasing force from the 1980s, when the fact that baby boomers would one day retire started to enter budget calculations just as the prospects of continued strong growth were fading. Worse, unlike previous generations, the boomers showed a propensity to live well beyond the official pension age.

This resurgence in concern has coincided almost exactly with my own working life, and I have spent a fair bit of that time trying to debunk it. My attempts began before the first Intergenerational Report in 2002, and have continued, with very limited success, right up to last month’s release of the latest.

Criticising alarmism about fertility and ageing is something of a family tradition. In 1988, my mother Pat, a demographer, produced No Rising Generation: Women & Fertility in Late Nineteenth Century Australia, a study of the first panic about declining fertility. The title, a quotation from a typically gloomy pro-natal advocate, would work perfectly well as a summary of views being stated today.

Alarm is expressed most commonly in terms of the “old-age dependency ratio”: the ratio of people aged sixty-five and over, assumed to be dependent, and those between fifteen and sixty-four, who must therefore work to support them.

The ages built into the ratio reflected the economic realities of 1909 (at least for men), when the age pension was first introduced. Most men left school and entered the workforce at fifteen, possibly after a brief apprenticeship. Young and strong, they reached their peak earning power in their twenties. If they made it to the pension age of sixty-five they were worn out and, in many cases, incapable of working any longer. At that point, they could expect to live another ten years or so.

Women, meanwhile, were expected to leave paid employment when they married, as nearly all of them did. They then undertook the work of caring for children — an activity ignored by the dependency ratio and left out of calculations of national income. Reflecting their limited employment opportunities, women could (if single or widowed) receive the age pension at sixty.

Apart from some fluctuations, these patterns didn’t change much for the next fifty years or so. The birth rate fell sharply during the Great Depression but rebounded in the baby boom. Women entered the workforce in large numbers during the second world war but were pushed out again to make room for returned servicemen. And although reductions in premature deaths (especially infant mortality) produced a big increase in average life expectancy, prospective longevity barely changed for sixty-five-year-olds between 1900 and 1960.

After 1960, though, things changed radically at both ends of the age distribution. Leaving school at fifteen ceased to be a sensible (or even a feasible) option. By the late twentieth century nearly all young people finished high school and most went on to post-school education and training. Dependence on parents, and on publicly provided or subsidised education, continued to around twenty years of age.

At the other end of the age distribution, the number of healthy years someone could expect to live after sixty-five increased steadily. The abolition of official retirement ages meant people could choose to work until they were seventy or even older. Yet the trend of the late twentieth century — exacerbated when the 1990s recession consigned many older workers to apparent unemployability — was towards earlier retirement.

It was in this context that Coalition treasurer Peter Costello launched the first Intergenerational Report. Its predictions (or projections) were less important than the rhetorical purpose: to spread the message that reductions in public spending, and particularly in welfare payments, were urgently needed if unacceptable increases in taxation were to be avoided.

These claims were repeated in successive reports, reaching the height of absurdity under treasurer Joe Hockey, who warned that the 2015 report would make us “fall off our chairs” and raised the prospect of newborn Australians living to 150. (He forgot to mention that these future Methuselahs would not even reach pension age until the last decades of the twenty-first century.)

The alarmist tone of the Intergenerational Reports was based on the idea that old people will represent an unsustainable burden on both the health system and the retirement income system. But most of the policy changes necessary to fix retirement incomes were well under way by the time the first report came out.

First, income and assets tests for the age pension, largely abolished in the 1970s, had been reintroduced in the 1980s. Then, beginning in the early 1990s, defined benefit superannuation schemes were replaced by accumulation schemes that put the burden on workers to plan the retirement investments on which they would live.

The final step, beginning in the late 1990s, was a gradual increase in the age of eligibility for retirement incomes of all kinds. The pension age for women was increased to sixty-five. Further changes in 2009 began the process of increasing the pension age to sixty-seven, which has just been completed.

Ironically, the most important backward steps in this process were taken by Costello himself. His tax concessions for superannuation, of particular benefit to self-managed superannuation funds, have proved both unsustainable and politically hard to undo. It has taken fifteen years of effort by governments of both parties to wind them back. The absurdly generous franking credits system, against which Labor campaigned in 2019, now looks untouchable.

The resolution of the retirement income problem was finally acknowledged, with some justifiable partisan spin, in the 2023 report. As treasurer Jim Chalmers observed, “Our population is ageing but our spending on the age pension will fall — that’s the intergenerational genius of super. Super is delivering on its promise — providing a better retirement for more Australians and a better outcome for the budget over the next forty years.”

Despite this, the 2023 report sticks with the outdated dependency ratio, noting that the term “refers to the number of people aged sixty-five and over for every 100 people of traditional working age (fifteen to sixty-four).” The only concession to twenty-first-century reality is the word “traditional,” hinting that a document supposedly designed to prepare for the future is still using the mental categories of the past.

But if we use a more realistic age distribution, and take account of the fact that both young and old people are dependent, the apparent crisis vanishes. There are currently about two people aged under twenty or over seventy for every three people in between. This ratio will barely change between now and 2063.

And what about the old bugbear of health spending? Ever since the first Intergenerational Report, critics of the conventional wisdom have pointed out that the growth in health expenditure has been driven mainly by the new and better treatments that lead to longer and healthier lives. This is the reverse of the alarmist claim that an increase in longevity (the cause of which is left unstated) means longer periods of late-life illness and greater demand for medical services.

New medical technologies are part of the process of structural change inherent in modernity. In the first half of the twentieth century, manufacturing displaced agriculture as the central focus of economic activity, only to be displaced in its turn by services. Now change is occurring within the service sector, with information technology and artificial intelligence replacing some services and enhancing the importance of others.

Much of the growth in the service sector comes from human services like health and education, which governments are best placed to provide or at least fund. This will indeed require an increase in the share of national income going to government, and therefore an increase in tax rates. Rather than calling for alarm, the Intergenerational Report ought to be raising awareness of the need for these structural changes.

Like its predecessors, the latest Intergenerational Report will almost certainly fail to create the hoped-for sense of alarm among voters. But in two crucial respects it ought to be generating some alarm in the political class that produced it.

First, the report spells out the need for more tax revenue. Yet the major parties have a bipartisan commitment to cutting taxes for those with the greatest ability to pay. The stage three tax cuts, designed by Scott Morrison first as treasurer and then as prime minister, will put a hole in tax revenue that will take decades to fill. And Labor’s 2019 election defeat led it to abandon most proposals to close tax loopholes.

Our government ought to be even more alarmed about global heating. For the first time, this year’s Intergenerational Report at least attempts to estimate some of the monetary costs of the disaster towards which we are accelerating. But the government that commissioned it is doing little to improve the situation, and a great deal to make it worse.

Every day, it seems, we read of a new coalmine being approved or a new gas project receiving massive subsidies. And every day the results are evident around the world in catastrophic fires, devastating floods and the accelerating destruction of natural habitats.

We are, indeed, driving younger generations of Australians towards a poorer future. But this poverty won’t be caused by higher tax rates or the costs of aged care. Rather, our poisoned bequest will be the unliveable planet that is already in plain view. •

The post The ageing alarmists won’t let go appeared first on Inside Story.

It might sound like the minister wants to go back to the future, and revert to a twentieth-century model in which permanent settlement was the norm and temporary migration the exception. But O’Neil has no intention of returning to the past — and that would be impossible anyway for an Australia that depends on visa holders to pick our fruit, process our meat, deliver our takeaway, care for our sick and fund our universities.

What the minister wants to do is to build a simpler, more efficient and fairer migration system that simultaneously boosts productivity, fills pressing skills gaps in the labour market and delivers greater benefits to business. She envisages a streamlined visa system with pathways to permanent residence, and eventually citizenship, for temporary migrants who want to stay and whose skills are in high demand.

In the process, she hopes to end workplace abuse and release long-term visa holders from the limbo state of being “permanently temporary.” Australia, she says, needs “a skilled worker program, not a guest worker program.”

The aims are laudable, but balancing the competing interests won’t be easy.

To take one example, O’Neil promises simpler, faster pathways to permanent residence for international students who, after graduation, possess the qualifications and capabilities Australia needs. Yet she also wants to improve the integrity of international education by “tightening the requirements for international students studying in Australia” to ensure that students are here to study rather than work.

Stricter visa rules for international students would hit the bottom line of universities and vocational colleges, who have come to rely on those students’ fees to fund their operations. They would also reduce the supply of international students to stack supermarket shelves, serve in restaurants, staff late-night convenience stores and much else besides. These are low-paid jobs, and in an already tight labour market they won’t be easy to fill with local workers.

The government’s approach is predicated on an understanding that Australia is in an increasingly intense global competition for talent. We are facing off against other migration countries — Canada is often mentioned — in a race to attract the best and brightest to our shores.

Rather than the postwar impulse to “populate or perish,” the twenty-first-century challenge is to “skill up or sink.” A simplified visa system, clear routes to permanent residency, and a crackdown on workplace exploitation are presented as the keys to success.

The government has already taken three decisive and welcome steps. The first two tackle the limbo experienced by two groups of temporary visa holders. The third seeks to “skill up” temporary migration.

Step one, in February, was to begin the process of enabling refugees on temporary protection visas to become permanent residents, fulfilling an election promise and easing the distress for people who arrived in Australia by boat and have been living with uncertainty for a decade.

Then, just before Anzac Day, step two brought a straightforward pathway to citizenship for New Zealanders who live in Australia long-term. New Zealanders have long had the right to stay in Australia permanently. But the Howard government amended the definition of “Australian resident” in social security laws to block their access to most government services and payments.

New Zealanders who arrived after that 2001 change might “settle” and build lives here but they would remain on a special category visa and never become legally “resident.” While they could work and get Medicare, they were denied most other forms of public assistance. In hard times, for instance, they weren’t entitled to unemployment benefits or other income support.

Howard’s change also had flow-on effects in some states and territories. In some places, New Zealanders might be denied emergency housing or find that their children were not eligibility for disability services. When the National Disability Insurance Scheme was introduced, New Zealanders were required to pay the levy but weren’t eligible for support.

And the only way New Zealanders could become permanent residents was by applying for another visa, usually a skilled visa. That was impossible for many, and expensive for all, with the result that hundreds of thousands of New Zealanders were permanently marginal.

Long-term campaigners for a better deal for New Zealanders were surprised and elated by the Labor government’s new pathway to citizenship, which exceeded their expectations. It not only resolves a longstanding irritant in trans-Tasman relations by treating New Zealanders much more fairly but also enhances Australia’s democracy. Hundreds of thousands of long-term residents who were previously unrepresented in our political system can now join the electoral role, cast a vote and lobby their MPs as citizens.

Then came the third step, announced by Clare O’Neil in her address to the National Press Club: a sharp increase in the Temporary Skilled Migration Income Threshold, or TSMIT. This is the minimum income that an employer must pay if it wants to bring a migrant worker to Australia on a temporary skilled visa.

The Abbott government froze the TSMIT at $53,900 in July 2013. In the decade since then, it has not risen in line with inflation or wages and has fallen far below what most full-time workers earn. From 1 July this year, it will jump to $70,000.

The new threshold follows a recommendation by the Grattan Institute, which argued that the frozen TSMIT “allowed employers to sponsor a growing number of low-wage workers with fewer skills” and left them vulnerable to exploitation and abuse. Grattan says these low-paid workers also lacked the bargaining power to secure wage rises. In O’Neil’s words, it allowed a skilled worker program to become a guest worker program.

For many migrants and their employers, this change will make no difference. According to the most recent data, the average nominated base salary for temporary skilled workers is already above $100,000, and it’s even higher in sectors like finance, IT, healthcare, mining and construction. More likely to be affected are sectors like hospitality, retail and agriculture, where the average nominated salary for temporary migrant workers is much lower.

More than 1000 cooks are in Australia on temporary skilled visas, for example, and they are regularly included in the top fifteen professions nominated by employers. Yet Seek reports that the average wage for a cook is between $55,000 and $65,000. How commercial kitchens will fill these jobs after 1 July remains to be seen, but a sudden rush of Australians into this hard, low-paid work seems unlikely.

Lifting the Temporary Skilled Migration Income Threshold is the government’s first response to the review of the migration program by the former secretary of the prime minister’s department, Martin Parkinson, and migration experts Joanna Howe and John Azarias.

The government has also released the outline of a migration strategy indicating the direction it will take in responding more fully to the review.

Key initiatives include:

• A simplification of the welter of highly specific visa subclasses that create a “bureaucratic nightmare” for migrants, employers and government, and force a heavy reliance on the professional services of migration agents for even straightforward applications.

• A redesign of the points test, which tabulates factors such as age, English-language proficiency and qualifications to determine whether a skilled migrant is granted a permanent visa.

• A formal role in the migration system for the government’s arm’s-length advisory agency Jobs and Skills Australiato determine the extent and location of skills shortages. Drawing on advice from government, business and unions, this process will replace the cumbersome, complex and inflexible “skilled occupation lists” currently used to decide which occupations are eligible for visas. O’Neil says the aim is for Jobs and Skills Australia to integrate the migration system and the education and training system when it comes to meeting labour market needs.

• Better coordination between the Commonwealth and the states and territories on the impacts of migration and population growth (for example, demand for housing).

Labor’s renewed focus on Australia’s migration system is long overdue. With its obsessive focus on boats and border security, the previous government downgraded the role of migration in nation-building and social inclusion. And by profiling minority groups — remember the “African gangs” that made Victorians feel unsafe to go out at night — it undermined the ethos of Australia as a cohesive, multicultural society.

The Coalition allowed processing times to blow out, stranding hundreds of thousands of people on bridging visas for months and then years (a backlog the new government has been working hard to address). Despite consistent and mounting evidence of labour exploitation, the Coalition did next to nothing to address the workplace abuse of temporary visa holders. And when Covid-19 hit, prime minister Scott Morrison simply told them to go home.

Yet O’Neil’s claim that Australia’s skilled worker program “morphed into a guest worker program” while Peter Dutton was in charge of immigration is partisan hyperbole. The permanent shift towards temporary migration began long before Dutton’s reign and runs much deeper.

It was the Hawke government that began internationalising the education sector by allowing Australian universities to accept full-fee international students. By 1996, the immigration department was already granting more than 100,000 student visas each year and education was on the way to becoming a major export industry.

The first temporary skilled worker visa (the 457 visa) was an initiative of the Keating government, although it only came to fruition under John Howard. In 2005, when the agricultural sector was losing workers to the booming mining sector, Amanda Vanstone enticed backpackers to pick fruit by transforming the working holiday scheme from a predominantly “cultural” visa into a labour market program.

It was the Rudd government that trialled and then implemented the seasonal workers program for Pacific Islanders in 2009, and it was the Gillard government that established it as an ongoing program three years later. It was Gillard, too, who introduced the 485 post-study work visa that enabled international students to stay and work in Australia after graduation, though not necessarily in the field for which they had studied. Around 167,000 of these visa holders are in Australia at the moment, almost all of whom will end up spending at least five years here without necessarily qualifying for a visa as a skilled migrant.

The shift in emphasis from permanent to temporary migration is not the result of bureaucratic bungling by the previous government. It is a long-term trend in response to global economic change and demographic forces.

The government has signalled a pushback, at least when it comes to skilled workers. The greater emphasis on pathways to permanent residency is the right thing to do and will make Australia a more attractive destination for young, highly qualified professionals who can help build the nation’s economy and contribute in other ways to society.

Yet big questions remain, particularly about how the government will manage the demand for lower-skilled workers.

Take the example of health and aged care. “Our ageing population will demand more workers in health and aged care than our domestic population can supply,” O’Neil said yesterday. That’s true, though many of those jobs won’t be classified as skilled and attract salaries over $70,000.

O’Neil added that we need “to create proper, capped, safe, tripartite pathways for workers in key sectors, such as care.” But what this means is unclear. Will low-paid caring roles be reclassified as skilled and have a route to permanent residency?

If so, this would run counter to government programs like the Pacific Australia Labour Mobility scheme, which specifically targets the aged care sector as a potential employer. The PALM scheme recruits workers from Pacific Island nations and Timor-Leste to fill “unskilled, low-skilled and semi-skilled positions” but limits a migrant’s stay in Australia to a maximum of four years, with no prospect of settlement. It is a guest worker scheme by another name.

The same issues arise when it comes to filling lower-paid jobs in childcare, disability care, horticulture, meat processing, tourism and many other sectors.

If the government is determined not to have a class of guest workers, then the big question arising out of its reform of the migration system is how Australia fills those low-skilled gaps in the labour market. And how how does it do that without resorting to a system of temporary visas that offer no prospect of a transition to permanent residency and a shadow workforce of international students and other temporary visa holders “who bounce from visa to visa” and end up being permanently temporary.

Clare O’Neil says she wants a conversation about migration that is “direct and honest.” There are more difficult discussions to come. •

The post Skill up or sink appeared first on Inside Story.

Coalminers lived as vassals, housed in company towns, patrolled by company guards. They couldn’t leave the area without permission, and strangers couldn’t enter. They were paid by the ton for the coal they extracted, but no one was paid to make their workplace safe; this maintenance labour was derisively known to management as “dead work.” The mine owners habitually rigged the coal scales to favour their side of the ledger. All of this was illegal under Colorado law, but the state government turned a blind eye.

Violence was commonly used against the miners and their families; many were beaten by thugs working for the notorious Baldwin–Felts Detective Agency. In one famous case, a National Guard commander ordered a cavalry charge — sabres drawn — against a crowd of protesting miners’ wives because the women had dared to laugh when he fell off his horse.

When the United Mine Workers of America organised a strike for better pay and conditions at a mine owned by the Colorado Fuel and Iron Company, trouble soon came over the horizon. Twelve hundred miners and their families were evicted from the company town and moved to a makeshift union camp known as White City, where they lived in tents. Their new home was next to a railway depot called Ludlow.

On 20 April 1914, shooting broke out between the striking miners and the company militias. Three strike leaders were captured and shot dead. Seventeen women and children, including three infants, were killed when the militias set fire to the camp. For the next week, a civil war of violent skirmishes led to dozens more deaths on both sides. Peace was only restored when president Woodrow Wilson sent in the US army.

The man held most responsible for the disaster was John D. Rockefeller Jr, heir to the Standard Oil fortune, who part-owned the mine. The Ludlow Massacre is credited with cementing Rockefeller’s commitment to philanthropy, some say as an act of atonement. Until his death in 1960 he funded many and various good works. In 1922, for example, he financed the study of industrial relations in the economics department at Princeton University.

It’s a long way from Ludlow in 1914 to Princeton University’s Firestone Library in the 1980s. This is where the economists David Card and Alan Krueger first met and began to collaborate on labour economics, courtesy of Rockefeller’s original donation.

In 1994 the pair published a paper examining the widely held economic orthodoxy that an increase to the minimum wage led inevitably to higher unemployment. This was always a popular theory in business circles, probably because it accorded so neatly with the prejudices and interests of business owners. I’m sure it looked like common sense to J. D. Rockefeller Jnr. But it had never been studied in the wild.

In their paper, Card and Krueger pioneered the use of “natural experiments” to interrogate economic assumptions. New Jersey had raised its minimum wage in April 1992, but its next-door neighbour, Pennsylvania, hadn’t. This gave them a perfect opportunity to study and compare the real-world effects of giving the lowest-paid workers a little bit more. To do this they surveyed over 400 fast-food restaurants in both states.

And what did they find? They found that the restaurants in New Jersey, contrary to conventional wisdom, had taken on more workers. An economic shibboleth was toppled.

It turns out that lifting the minimum wage improves labour force participation among society’s poorest workers and increases their productivity as well. Business owners benefit from lower staff turnover and reduced training costs. The economy more broadly also benefits — from increased consumer demand — courtesy of having more workers, with more money, spending more.

Over the past twenty-five years Card and Krueger’s work has supplied the intellectual firepower for minimum wage campaigns across the United States and around the globe. In 2015, for example, Germany introduced a minimum hourly wage set at a uniform national level. Business — and some sections of the German media — warned of job losses in the hundreds of thousands. But a new study of the German experience has found that “the minimum wage significantly increased the wages of low-wage workers without lowering their employment prospects.” Rack up another win for Card and Krueger.

And then just a week ago came the ultimate accolade. Card was awarded the Nobel Prize for his work on the minimum wage. But not Krueger. Tragically, he died by his own hand in 2019 at just fifty-eight, and unfortunately a Nobel is never awarded posthumously. As Card told the New Republic, “He probably would have enjoyed getting the Nobel Prize more than me.”

It was once the orthodoxy to treat workers like serfs, despite the terrible costs — to individual lives, to society and to economic performance. And even now, despite the work of Card and Krueger, some people still believe it’s a good idea to pay as little as possible to low paid employees and tell them it’s for their own good. Perhaps this year’s Nobel Prize will finally lay that fallacy to rest. •

The post From the Ludlow Massacre to the Nobel Prize appeared first on Inside Story.

“There is no greater potential problem for the world than greenhouse-induced climate change — particularly for Australia and for our region,” she said at the time. Since then, the potential has turned to reality while governments have dithered and slithered to avoid serious action. And nowhere more so than in Australia.

Two and a half years ago, the Morrison government went to an election still refusing to contemplate the reality of inevitable changes in energy use. It was far too busy proposing subsidies for new coal-fired power stations, approving new coalmines and running a scare campaign against Labor for threatening the jobs of coalminers. There was no policy on transition: it was coal and gas forever.

As slippery as he was on these questions during the campaign, Bill Shorten did promise to create a Just Transition Authority — an independent body working with companies, employees, unions, local communities and state governments on economic diversification, pooled redundancy schemes, and labour adjustment packages for regions affected by the closure of coal-fired power stations. But he gave no further detail and no commitment to funding beyond establishing the authority. The Greens promised something similar but added that their Clean Energy Transition Fund would have a total of $1 billion to spend.

Two and a half years later, promises of new jobs are raining down on fossil fuel workers like confetti. Earlier this month the Business Council of Australia said that moving to net zero by 2050 will create 195,000 jobs by 2070. Then it went one or two steps further and joined the Australian Council of Trade Unions, the Australian Conservation Foundation and the World Wide Fund for Nature in promoting the prospect of 395,000 jobs by 2040 if we build export industries in clean hydrogen, batteries and other areas. Take your pick — that’s either one and a half or three times the estimated 133,000 jobs now in fossil fuels in Australia. Are there any further bids?

Workers are entitled to be sceptical. Before the last election, the BCA said Labor’s policy of a 45 per cent reduction in emissions by 2030 would “wreck” the economy. Now it is advocating the same policy and says this is the one and only true road to prosperity.

New industries will certainly create opportunities, but not automatically. The NSW government’s announcement of five renewable energy zones has attracted serious investment. The first to go ahead is in the central west of the state, where the government received bids from the private sector for twenty-seven gigawatts of electricity worth $38 billion — nine times the generating capacity planned by the government. Andrew “Twiggy” Forrest has the resources to make good his proposals for green hydrogen manufacture in Gladstone in Queensland and the Illawarra and Hunter in New South Wales, even if there is a long way to go to turn them, and the jobs that go with them, into reality.

The labour market is dynamic, with jobs constantly disappearing and being created. The monthly employment and unemployment figures hide much of this movement because they capture only the net result of the change. And the phasing out of fossil fuels will be gradual, spanning decades, albeit with bumps along the way.

The Australia Institute’s Jim Stanford points out that his estimate of 133,000 fossil fuel jobs represents only about 1 per cent of the Australian workforce, and that proportion is already declining. The largest component is the 52,000 jobs in coalmining, followed by 33,000 in that portion of electricity supplied by fossil fuels, 28,000 in oil and gas extraction, 12,000 in gas supply and 8000 in coal and petroleum refining. Half of these jobs are located in or near capital cities — in companies’ head offices, in technical and professional roles, and in manufacturing and distribution — rather than in rural Australia.

In any one year in recent times, the economy has created twice as many new jobs as exist in fossil fuel industries. But particular regions are disproportionately affected. In six communities in Queensland, four in New South Wales and one in Western Australia, around one in nine jobs are in fossil fuels. Even then, Stanford points out, a similar number of people in each of those communities work in healthcare and social services.

None of this guarantees a smooth or fair transition, of course. Few miners and employees of coal-fired generators can expect to finish their old jobs one day and turn up in renewable energy or other industries the next, let alone with comparable pay and conditions.

Luckily, we already have experience in handling these kind of disruptions. Despite the suddenness of the French owner’s decision to close Victoria’s Hazelwood coal-fired generator in 2017, a series of initiatives cushioned the blow. The Victorian government created a support package that helped workers move to other power stations in the region or obtain jobs in mine rehabilitation, and established the Latrobe Valley Authority to fund a series of development and job creation initiatives. The unemployment rate in the Latrobe Valley actually fell from 9 per cent before Hazelwood closed to 6.5 per cent three years later. This success came at a cost to government budgets: the state committed $690 million and the federal government $43 million.

Other positive examples, and on a much larger scale, come from overseas. Before it started its long-term decline, Germany’s Ruhr Valley employed almost 500,000 coalmining workers. In 2007 federal and state governments, unions, the coal company and community representatives reached agreement to end subsidies for coalmining by 2018 and gradually close the mines. No redundancies were forced, but retraining and redeployment were strongly supported. Governments built new universities and technical colleges, funded environmental restoration projects and encouraged new business clusters, technology parks and cultural precincts. Unemployment remains higher than in the rest of Germany but much lower than it might have been in the absence of the orderly phasing out of coalmining.

Germany’s experience stands in sharp contrast to Britain’s, where laissez-faire policies largely ruled. Former coal regions in England, Scotland and Wales are now among the most deprived, with higher unemployment, poorer health and 50 per cent more people claiming the disability living allowance than in the rest of the country.

The assurances of a long-term role for coal and gas offered to the National Party by emissions reduction minister Angus Taylor — industries he says have “a great future” — put Australia where Germany was in the 1980s, before it accepted the reality of coal’s decline and started seriously planning.

But nor are promises of new industries enough, economically or politically. The successful precedents suggest that major policy and financial commitments are required from governments. The question is whether a federal government inclined to a hands-off approach (other than during Covid emergencies) is willing to step up.

The ACTU argues that the orderly closure of coal-fired power stations must involve no forced redundancies; lengthy and enforceable notice periods, such as AGL’s five-year notice of the closure of the Liddell plant; retraining schemes; and government support for economic diversification via investment in new infrastructure, education facilities and other initiatives. The rehabilitation of power stations and associated mines can also be a significant source of employment.

Most important of all for displaced workers are good wages and working conditions, which often have not been available in renewable energy.

Lest the Morrison government baulk at implementing union recommendations, substantial common ground can be found on these issues. “To believe that the market will be the sole solution to Australia’s decarbonisation is foolhardy,” says the Blueprint Institute, a think tank established by Liberal moderates that characterises itself as generally pro-market.

Blueprint argues that adaptation authorities should be created in coalmining and power-generating areas as a means of empowering local communities. They would each receive an initial $20 million from the federal government and continuing funding through 5 per cent of coal royalties collected by the states. Based on 2019–20 figures, this would raise $259 million a year, including $175 million in Queensland.

Like the ACTU, Blueprint favours requiring companies to give lengthy notice of closures, together with detailed planning for future investment and employment. It proposes income insurance for the first six months of unemployment to give employees the economic freedom to find high-quality jobs. This would be a variation on the social insurance schemes widely used in Europe and other developed countries that guarantee employees a large proportion of their previous incomes if they lose their jobs.

Blueprint suggests topping up existing welfare benefits to 70 per cent of individuals’ former wages, capped at $35,000. As well, it proposes short-term wage subsidies to firms hiring displaced coal workers in regions seriously affected by closures, and voluntary early retirement packages for workers over sixty.

If the government isn’t prepared to make commitments on this scale, it will create an obvious opening for the opposition. Labor is holding much of its fire, with the aim of directing maximum attention to the government in the lead-up to the Glasgow COP26 gathering. So far it has promised a National Reconstruction Fund with $15 billion in capital to help fuel a private sector revival of manufacturing, including in regional areas and renewable energy. Shadow climate change minister Chris Bowen has announced a $10,000 subsidy for each of 10,000 apprenticeships for jobs in renewable energy industries and another $10 million for a new energy skills program.

Bowen is also pushing for approval of offshore wind farms, which operate on a much larger scale than those on land and can, he says, provide tens of thousands of jobs, including in areas where coal-fired generators will be phased out. He promises Labor will “have much more to do and much more to say” on climate change policy.

The 2015 Paris agreement required signatories, including Australia, not only to develop ambitious targets to decarbonise their economies but also to take into account the “imperatives of a just transition of the workforce and the creation of decent work and quality jobs.”

Some countries have taken this seriously. The European Union has established a Just Transition Mechanism that is using a combination of grants and loans to mobilise no less than an anticipated €65–75 billion (A$102–118 billion) on a range of measures, including funding jobs in new sectors and providing training and other help to investors and businesses.

From what we know, Scott Morrison will be going to Glasgow without meeting the Paris agreement’s requirements on either score. Such a move would hasten the removal of climate policy from the government’s hands. Companies and investors would continue to withdraw their support for fossil fuels and look elsewhere to invest in renewable opportunities. Major trading partners could be expected to act on their threats to tax our exports for their emissions component. And our economic transition would be much more painful and disruptive than it needs to be. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

The post Taking the pain out of the carbon transition appeared first on Inside Story.

There’s just one small problem with this hypothesis: it’s baseless. Countless studies have looked at the relationship between immigration and wages, and all have reached the same conclusion: that either there is no relationship between immigration and wages, or immigration increases wages rather than reduces them. This raises an awkward question: why are so many economists willing to abandon their own discipline’s research, not to mention their discipline’s mantra of evidence-based policymaking, by making this assertion?

Some economists argue that immigration and wages are related for the same reasons that one in three members of the public believe the same thing: it seems intuitive, is politically convenient, and aligns with the simple model in most people’s heads about how the labour market works. The model goes something like this. Wages are a price that, like any price, is determined by the competing forces of demand and supply. The demand for workers comes from businesses who want to hire people to work, and the supply of workers comes from the people who want to work for those businesses.

This simple model of the labour market would suggest that an increase in demand for workers (with supply unchanged) will push wages up. Conversely, if the supply of workers goes up (with demand unchanged), then wages will go down. Given that immigration increases the supply of workers, this simple model concludes that immigration will mean lower wages.

But is this true? What many economists seem to have forgotten is that developing a theoretical model is only the first step in a proper economic analysis. The next step is to interrogate the data to see if your model is correct. Luckily, countless studies have done just that.

The ANU’s Robert Breunig, Nathan Deutscher and Hang Thi To used immigrant supply changes in skill groups, defined by education and experience, to explore the impact of immigration on the labour market. Controlling for the impact of experience and education on labour market outcomes, they found almost no evidence that immigration harms the labour market outcomes of those born in Australia.

The results from a study by Daniel Crown, Alessandra Faggian and Jonathan Corcoran went further. They found that the skilled visa program in Australia actually increases the wages of those born in Australia, finding no evidence of negative effects on the wages of either high-skilled or low-skilled workers.

Modelling by the Committee for Economic Development of Australia using Australian Bureau of Statistics data confirmed these results. It found that temporary skilled migration has been an overwhelming net positive for the Australian economy, enabling skills shortages to be filled and contributing to the transfer of new knowledge and experience to workers born in Australia.

So, why is it that the simple labour market model in most people’s heads doesn’t stack up in reality? There’s a clue in the adjective: the model is simple. Very simple. Unsurprisingly, it turns out that the labour market in the real world is much more complex than the hypothetical market for widgets taught in high school economics.

Labour demand isn’t homogeneous, and workers aren’t commodities. Labour demand consists of millions of different businesses of different sizes in different industries in different sectors, all of them demanding different workers. Labour supply consists of millions of workers who are infinitely varied in their skills, their qualifications, their experience, their intelligence, their emotional intelligence and their personality, to say nothing of the sorts of jobs they are seeking.

A simple aggregated demand–supply model might work fine when thinking about the price of a commodity with zero product differentiation, but it struggles in markets with lots of product differentiation and complexity — and the labour market has plenty of both.

It gets worse. Even if this simple labour market model were useful for thinking about immigration, those who are using the model aren’t even applying it consistently. The argument that immigration pushes wages down by increasing labour supply only holds if labour demand remains unchanged. This is a bizarre assumption when it comes to immigration because immigrants don’t just add to labour supply, they also add to labour demand. Immigrants use their wages to buy goods and services and do so at the same rate as the broader population.

Immigrants are also more likely to start businesses than people born in Australia, meaning that immigrants increase labour demand both directly (by creating jobs) and indirectly (by increasing demand for goods and services, which stimulates employment).

There is similarly no evidence that immigrants are competing with young Australians for scarce jobs. If immigrants and young Australians were competing, we would expect to see wages declining in those jobs as a result of immigration. The evidence shows this is not the case.

The economists who blame immigrants for low wages seem to have forgotten one of the most basic tenets of macroeconomics: that my spending is your income and your spending is my income. They also forget that, in the long run, wages are determined by productivity — something that research shows is boosted by immigration not reduced by it. This is an unsurprising result. Australia’s skilled migration program brings in more skilled workers, raising the marginal productivity of labour and thus pushing up wages for everyone.

In sum, it’s little wonder these studies contradict the simple labour market model in most people’s heads: the model is flawed in its simplicity, immigration increases both the demand-side and the supply-side of the labour market, and immigration raises productivity — the long-run driver of wages — rather than reduces it. Blaming immigration for low wages may be intuitive or politically convenient, but it’s a baseless proposition. •

The post Does immigration mean lower wages? appeared first on Inside Story.

The passing of Biden’s legislation is the result of both his presidential election victory and the run-off elections in Georgia, which gave the Democrats fifty votes in the US Senate (with vice-president Kamala Harris holding the casting vote). The central issue in the Georgia elections was the choice between the relatively modest stimulus package passed by Congress in December 2020 and the much more ambitious proposals from the Democrats. In hip-pocket terms, the distinction was between the payments of US$600 per taxpayer from the Republicans and a total of US$2000 offered by the Democrats.

That wasn’t the only difference. The Republican legislation allocated nearly a third of funds to the Paycheck Protection Program, a version of Australia’s JobKeeper, but gave nothing to state and local governments. Because their tax revenues have been reduced by the pandemic, and because they have little or no capacity to run deficits, state and local governments in the United States have been forced to cut spending and employment. Biden’s package includes large-scale support for these levels of government.

The measures in the Rescue Plan are temporary and most are expected to cease as the economy recovers. But the package includes funding for policies the Democrats would like to make permanent, the most important of which are increases in the Earned Income Tax Credit and the Child Tax Credit, the two main measures that assist families with children. If sustained, these increases would reduce child poverty by an estimated 40 to 50 per cent.

Republicans’ opposition to the package may safely be dismissed as political posturing, given their eagerness to pass the Trump cuts. But some more credible commentators, most notably Larry Summers (who held senior economic positions in the Clinton and Obama administrations), have expressed concern about the scale of the stimulus.

These concerns have mostly focused on inflation and the growth of budget deficits and public debt. A more useful way to consider the problem (an approach sometimes referred to as functional finance) is to ask whether the resources available to the economy are sufficient to meet both the extra public expenditure in the stimulus package and the rise in consumption and private investment expenditure that follows.

For the moment, finding those resources isn’t a problem. The conditions created by the pandemic have reduced private consumption and investment expenditure. Households whose incomes have been unaffected by the pandemic have used the money saved by working from home and limiting holidays to pay down debt. Businesses have held off big investment decisions.

But once life returns to normal, and spare capacity in the economy is exhausted, households will want to start spending the liquid assets they have built up. Their increased demand will collide with permanently higher levels of public expenditure and renewed investment to produce a level of aggregate demand beyond the capacity of the economy to supply.

The outcome will create shortages, rationing and bottlenecks — which means none of these demands will be satisfied. Eventually, the shortages will produce higher prices and wages, and a renewed burst of inflation. But inflation is just a symptom of excess demand; it’s the shortages, and the problems they create, that are the real source of economic damage.

Once the economy recovers, the only way to meet the need for increased public expenditure, given the productive capacity of the economy, will be to reduce the spending power of private households through taxation. Given the highly unequal distribution of income in the United States, most of the reduction must be borne by those in the top 10 per cent of the income distribution and particularly those in the top 1 per cent. Since these groups were the biggest beneficiaries of the Trump tax cuts, the immediate response must be to repeal part or all of those tax cuts.

What about the public debt built up during the pandemic, and the further increases in debt implied in sustained budget deficits? In the short run, much of the debt has been monetised: the US Federal Reserve has bought around US$4 trillion in Treasury bonds since the pandemic began, and will be able to buy more to offset the increase in public debt associated with the latest stimulus. But the Reserve’s capacity to do this is limited by the public’s willingness to hold cash and zero-interest deposits rather than spend their wealth or invest it in higher-yielding assets. Once this willingness is exhausted, further monetary expansion will translate into higher expenditure and therefore run the economy into resource constraints.

To resolve the situation, the ratio of debt to GDP will need to be reduced during the expansion created by the stimulus package. Fortunately, low interest rates mean that will happen automatically, as long as tax revenue is sufficient to cover government “primary” expenditure (exclusive of debt).

But a faster reduction is probably desirable. The small policy adjustments (such as twenty-five basis points in central bank interest rates) that seemed to work in the couple of decades before the global financial crisis aren’t adequate for managing the unstable economy we can expect for the foreseeable future. The larger the stimulus we want government to provide in bad times, the bigger the surpluses it should run when private demand would otherwise be excessive.

All that is for the future. If Biden’s stimulus plan achieves its goals, it will be the clearest demonstration in many years of the central role of government — in the United States and countries like Australia — in stabilising the economy and delivering outcomes more sustainable and equitable than those of unregulated capitalism. Let’s hope it works. •

The post On economics, America has moved left appeared first on Inside Story.

Prime minister Bob Hawke and Keating, his treasurer and successor, won support for tough reforms — holding down wages and instead giving workers universal healthcare and superannuation, subjecting once-universal welfare benefits to income and asset tests — because Australians felt themselves to be economically vulnerable. Being a big agricultural exporter was no longer a ticket to wealth. The elites of left and right agreed: we had to reform, work harder, change our game.

Ross Garnaut was at the forefront of that reform surge. He was Hawke’s economic adviser, then Australian ambassador to China and, from a prestigious base at the Australian National University, an influential advocate for free trade and enmeshing Australia in the Asia-Pacific. His 1989 report advocating scrapping tariff protection for manufacturing to make other industries more globally competitive was crucial to the government’s decision to do just that, which saw 130,000 manufacturing jobs wiped out.

At the 1996 election, John Howard swept Keating away, pledging to make Australians “relaxed and comfortable.” He led one last big reform, the introduction of the GST, and that was it. Reform gave way to media management, giveaways to voters, culture wars designed to wedge opponents, and help for vested interests. In this century the only big economic reform worth the name came when the crossbenches forced the Gillard government to adopt a carbon price, which the Coalition then scrapped on coming to office.

Garnaut played a key role in that reform too, after Kevin Rudd (one of his junior diplomats in Beijing days) asked him to write a report weighing up Australia’s climate change options and Julia Gillard brought him into the final negotiations on how to make a carbon price work. But the return of the Coalition in 2013 saw him back on the outer, as any prospect of serious economic reform disappeared.

While Bill Shorten’s period as leader raised hopes that Labor in government could renew its zeal for reform, a government led by Anthony Albanese looks no more likely to take tough decisions than a Coalition one. Those who see urgent need for reforms seem to be talking to ourselves; those able to do anything about them are simply not interested.

Ross Garnaut is undeterred. His new book, Reset: Restoring Australia after the Pandemic Recession, is a wide-ranging almanac of reform proposals to give Australia a better future: on economic, social and environmental fronts. At times, he seems to be talking directly to the Morrison government, as if hoping that it has Australia’s long-term interests at heart, despite evidence to the contrary, and could be persuaded to embark on politically difficult reforms to secure them.

Appeals to revive the spirit of the Hawke–Keating government under this government frankly seem like a waste of breath. But it is the fate of reformers to debate reform options in their own minds and with those they respect, and Garnaut’s book is full of them, all focused on creating an Australia with full employment — as soon as possible — rising standards of living, sustainable finances, and world-leading new industries based on renewable energy.

Most of the media coverage of the book has focused on Garnaut’s proposals for macroeconomic reform: lifting the growth rate by reshaping and reducing taxes, and financing those changes by issuing new government bonds bought directly by the Reserve Bank. This would further increase the federal deficit, at least initially, and loosen monetary policy to levels comparable to other Western countries, leading indirectly to a lower Australian dollar, and a more competitive economy.

Restoring full employment by transforming our international competitiveness is one of the two key themes of the book. But the other is equally central: to achieve this will require business and government to rapidly develop Australia’s new international competitive advantage in renewable energy and the products dependent on it: the hydrogen economy, ammonia and fertilisers, metal refining, and downstream processing in products such as steel and aluminium.

The macroeconomic agenda is the logical place to start. And for an economist known as a voice of orthodoxy, Garnaut’s proposals show how far that orthodoxy has moved since 2008.

He cuts through the spin we hear about Australia’s economic performance in the past decade, in what Garnaut likes to call the “Dog Days.” As I too have argued, it was unimpressive, whether compared with our past experience or with our international peers. Unemployment stalled above 5 per cent, underemployment swelled, real wages stagnated as never before, and GDP growth rates looked okay only because they were inflated by high immigration.

Without a policy reset, Garnaut argues, that past is what Australia risks going back to as we emerge from this recession. He gives the government high marks for dropping its deficit fetish after Covid-19 struck, when it successfully pumped money into households and business to stimulate spending. But like other economists, he argues it switched its focus too quickly to reining in future deficits when the bigger job is to get people back to work.

He boldly, and rightly, assails the misuse by the Reserve Bank, Treasury and others of the concept of the NAIRU (the “non-accelerating inflation rate of unemployment”), an estimate of how low unemployment can fall without causing rising inflation. The NAIRU makes good theoretical sense but in reality is impossible to calculate accurately when no such events happen. In 2012 the US Federal Reserve estimated the limit for the United States was 5.5 per cent. Yet by 2019 unemployment was 3.5 per cent and inflation almost non-existent.

Except for Western Australia during the labour shortage of the first resources boom, wage growth has not driven up inflation in Australia since the 1980s. Treasury’s estimate of the NAIRU as 5 per cent, and the Reserve Bank’s estimate of “4-point-something” are equally phoney. As Garnaut says, “We simply don’t know, and we won’t know until unemployment falls to a level at which wages rise at an accelerating rate.” He suggests aiming for a 3.5 per cent unemployment rate, and then lower unless inflation is “accelerating dangerously out of the top of the Reserve Bank’s target range.”

To get to 3.5 per cent unemployment by 2025, he estimates that Australia needs to create 1.2 million new jobs in just four years. That is a huge task, considering the headwinds we face: “the huge legacy of public debt, a smaller capital stock per person (because of low business investment)… major losses in export industries… reduced productivity… the effects of climate change, an ageing population… [and] lower population and workforce growth.”

Garnaut makes a second bold but correct call: don’t return to high immigration levels. In the past decade or two, net overseas migration has averaged 1 per cent of the nation’s population every year, mostly from people coming (or staying on) here to work, and taking jobs that in the past went to school leavers or graduates, whether in service stations or in IT and the like.

I have written about this several times. Between 2008 and 2016, roughly three-quarters of all net growth in full-time jobs went to new migrants. Of the 474,000 full-time jobs added in that time, only 74,000 went to workers born in Australia, while 168,000 went to workers born on the Indian subcontinent. Treasury looked at a different set of years and found similar numbers.

“Immigration now lowers the incomes and employment prospects of low-income Australians,” Garnaut concludes. “Integration into a global labour market [has]… contributed to persistent unemployment, rising underemployment… stagnant real wages [and]… a historic shift in the distribution of income from wages to profits.” Temporary worker migration in reality is not focused on solving skill shortages, as promised, and migrant workers are frequently exploited, as Age journalist Adele Ferguson has shown.

Garnaut argues for halving the annual net immigration rate to 0.5 per cent: in round figures, 125,000 a year rather than 250,000. Of all his reform proposals, it is one of the most viable politically.

To create those 1.2 million jobs by 2025, both fiscal and monetary policy must be set unambiguously to expansion. The Reserve Bank, Garnaut says, needs to accelerate as hard as most other central banks in the West are doing to bring the dollar down and make Australian producers more competitive. (He notes that Australia might still be making cars had the Reserve understood the damage it was doing to our competitiveness by failing to halt the dollar’s rise during the resources boom. In the new age of electric vehicles, there is no one left here to make them.)

I would add one caution, however. We can’t ask the Reserve to correct the damage from bad government policies: only governments can do that, and none of our recent governments has wanted to. So low interest rates once again are igniting an explosion of tax-driven investment in rental property that will deprive growing numbers of Australians of the chance to own their own home, perhaps forever.

On budget policy, Garnaut empathises with the Coalition’s desire to start reducing the deficit to minimise the debt it will bequeath to future governments — but concludes that this is not the time for it. The government, like the Reserve, should still have its foot on the accelerator, not the brake, and he has two big ideas on how to go about it:

• The complex tax and welfare system should be simplified to (mostly) one flat tax rate and one big welfare payment. The payment would be what is variously called a universal basic income or negative income tax — Garnaut prefers to call it the Australian Income Security, or AIS — which would guarantee all Australian citizens (except those too rich to qualify) a tax-free payment of about $15,000 a year, topped up with further payments for those who are aged, disabled, unemployed or parents with dependent children.

Conversely, all income from the first dollar would be taxed at the rate of 37 per cent up to $180,000, and 45 per cent above that. The combination of the AIS and the tax would make this more egalitarian than it might appear. Garnaut argues that it would provide a stronger welfare net, provide greater incentive to work, simplify tax and welfare administration, and provide an immediate (but temporary) boost to demand.

• Business taxation would no longer be levied on profits, but on cashflow. This would make all investment spending immediately deductible against tax, providing a permanent incentive to higher investment. But interest payments and financing costs would no longer be deductible, except for banks and financial firms, and payments overseas for royalties, marketing and management fees would be deductible only if they were incurred directly in producing the firm’s output.

Conversely, however, companies with a negative cashflow would receive a cash credit, effectively paid for by other taxpayers. For those other taxpayers, that is a risky part of the design. A similar promise of a blank cheque for losses was one factor in the downfall of the Rudd government’s mining tax in 2010.

Garnaut argues that a cashflow tax would provide an incentive to investment, especially on risky projects. (BHP’s plan to build a fast rail line between Melbourne and Sydney in the early 1990s fell over when the Keating government declined to give it such tax treatment.) He also claims that removing deductions for interest payments and payments for imported intellectual property (often to a related company) would remove “the main opportunities for corporate tax avoidance and evasion.”

It’s an idea that’s been around a long time without any country adopting it. The Republicans in Washington flirted with a version of it a few years ago, but Donald Trump killed that idea.

• Garnaut also raises a third suggestion that is much easier to implement and could provide the right sort of stimulus: dump the convention that requires cost–benefit studies of infrastructure projects to use a discount rate of 7 per cent per annum above inflation to estimate the future value of projects in today’s dollars. At one time, that vaguely matched reality, but it was long ago. In an age of minimal interest rates, the convention is inaccurate, unscientific and harmful to good decision-making.

Frankly, it seems unlikely that any Australian government will implement either of Garnaut’s two big tax and welfare reforms in the near term. The Morrison government’s derisory cup-of-coffee-a-day increase to Newstart despite widespread bipartisan support for real reform shows its aversion to tackling the hard work of economic restructuring. Anthony Albanese seems to want people to like him, above all, and thus to avoid conflict — which unfortunately is an inevitable by-product of reform.

In Garnaut’s view, the Australian economy is facing so many headwinds that business as usual will not generate the jobs required to restore full employment. We need to try a new tack: to rephrase Ken Henry’s famous advice to the Rudd government: “Go hard, go early, go renewables.”

As he spelt out in his 2019 book Superpower: Australia’s Low-Carbon Opportunity, Garnaut sees Australia’s vast land mass and solar radiation as a resource that no other country can match in the dawning age of renewable energy. Just as our coal and gas resources gave us a huge competitive advantage until we began pricing them at global parity, we can produce solar and wind energy more cheaply and plentifully than any comparable country. This could become our leading export industry of the future, as coal exports diminish and gas exports flatline. In his words:

There is no comparable opportunity for profitable expansion of business investment in other trade-exposed industries. Getting carbon right becomes an integral part of getting economic policy right.

The transformation should begin on a large scale now… It is feasible now to replace most of Australia’s large imports of ammonia-based products (such as fertilisers). Building supply from new plants in rural and provincial Australia that rely on renewable energy and hydrogen — at prices competitive with high-emission alternatives — can happen in time to contribute to full employment in 2025.

Zero-emissions electricity at prices within the range required to keep established mainland aluminium smelters alive is possible now. By contrast, aluminium smelting at Gladstone, Newcastle and Portland would not survive through the 2020s with continuous coal-based power supply.

[With budget subsidies]… the first commercial-scale hydrogen-based iron-making plant can be built as part of the movement to full employment. Make a start on commercial-scale plants, and more business investment will follow.

In Garnaut’s view, the hydrogen economy is not for the distant future, it is something we should start creating now. British billionaire Sanjeev Gupta, with whom he has worked, last month launched a feasibility study for an industrial-scale hydrogen-fuelled steel plant at Dunkirk. Three separate consortia are progressing plans to build renewables-powered hydrogen plants in the Pilbara to supply domestic and Asian markets. He sees traditional coal and gas centres like Gladstone becoming centres of hydrogen production and metal refining using renewable energy.

Not all agree. The day Garnaut’s book was released, BlueScope’s chief executive, Mark Vassella, said it plans to use old technology to update its Port Kembla steelworks, warning that “green steel” might not become mainstream for another twenty years.

But many of Australia’s heavy industrial plants will not last that long. And as the laggard of the Western world in reducing greenhouse emissions from industry, Australia now faces the prospect of tariffs in Europe and North America to force it to speed up its transition.

Garnaut argues that green steel, green aluminium and green fertilisers will command premium prices in the renewable era. Australia should be a first mover in using its wind and solar resources to produce them.

He is practical, not religious, in his outlook. Unlike the green lobby, he sees gas playing a prominent role in Australia’s future, backed by carbon capture and storage in areas where that is geologically feasible. But renewables, not gas, are the main game — and our economic flagship of the future.

One subject that appears rarely in this book is China. When Garnaut has been one of Australia’s foremost experts on China for almost four decades, that is surprising, but also a sign that we live in dangerous times.

When he does touch on China, he is careful but clear-eyed. He advises Australian firms to look to develop other markets, especially in Southeast Asia, and warns that ultimately China will look for other sources of iron ore, and of so much else that it once bought from us.

The one passage in which he does address Sino-Australian relations directly is, in my opinion, worth thinking carefully about:

There does not seem to be any early prospect of the restrictions in Sino-Australian trade lifting to leave clear air. There are real issues of Australian security to be managed. There are real Chinese responses to Australian initiatives. Australia and China will respond from time to time in ways that are influenced by the shifting dynamics of US politics and international engagement.

What might be possible is a narrowing of restriction to the minimum necessary for meeting clearly defined and essential security interests, as analysis and the passing of time causes us to see them. This will make heavy demands on Australian knowledge and analysis. It will take subtle and intense diplomacy.

It will require Australians to adjust to the realities of living in a perilous world, in which peace and prosperity, and our effective sovereignty, depend on understanding the world as it is and not as we wish it to be.

This is a world that has been inhabited by other countries of modest size alongside great powers since the beginning of the nation state. It is a world that is understood from history by our Western Pacific neighbours South Korea, Vietnam and Thailand — and by the neighbours of great powers in Europe and Central and North America.

There is pain and wisdom in these words. •

The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.

The post Go hard, go early, go renewables appeared first on Inside Story.

The same is true for political systems. Competition between political parties is what drives alternative visions for the country. It’s what drives economic reform. But at the moment, sadly, there is too little competition between the major political parties when it comes to economic policy. And when there is competition, it’s often in the wrong direction.

Take fiscal policy. More than five people are unemployed for every vacant job in Australia. Basic economics suggests that now would be an unwise time to cut back government spending. And yet the government is planning one of the largest fiscal withdrawals in Australian history by ending JobKeeper, despite more than 1.5 million Australians still receiving the payment between October and December 2020 according to the latest figures.

The government’s thinking is straightforward, but risky. Based on a single quarter of data, it is placing a big bet that households and firms will unleash the billions of dollars they’ve saved during the pandemic and lockdowns.

The problem is that the first quarter of economic data after a downturn is always big and positive. It’s what happens after that (with less immigration, fewer tourists and less Chinese demand for our exports) that will reveal the strength of the recovery. Households and firms might prefer to save than spend, particularly if most of the saved money is held by rich people or if the premature withdrawal of JobKeeper is what kills off that spending in the first place. And even if households and firms do spend, it won’t be spread evenly.

Rather than offer an alternative to this cut in spending, Labor has endorsed it. Anthony Albanese has instructed his shadow cabinet to offset any new spending with cuts elsewhere. Implicitly, this means Labor has adopted a fiscal rule whereby it will match the aggregate spending of the government. If the government spends less, so will Labor.

Offsetting spending might make sense for recurrent spending, like the funds for a new social welfare program. But it makes little sense for one-off spending on infrastructure, for instance, which has productivity-boosting effects that easily offset the current, very low financial and economic cost of government borrowing.

We see the same race to the bottom on productivity-enhancing reform. It is now safe to conclude that the government isn’t going to use the Covid-19 crisis as an opportunity to introduce meaningful economic reforms. This is a tragedy. And when Labor’s Richard Marles was asked by David Speers on Insiders whether we should expect bold reform from Labor on tax, industrial relations, energy or the federation, the answer was not promising. “Australians want stability and security,” said Marles. “So, don’t expect too much reform from Labor?” asked Speers. “I think that’s where we’re at,” said Marles.

Trade is suffering the same fate. The government’s rhetorical commitment to boost domestic manufacturing and onshore supply chains is economically unwise and probably in breach of our international obligations, yet it appears to have been wholly adopted by Labor through its rhetoric on advanced manufacturing and needing to be a country that makes things. The question neither party has been willing to answer is: how do you plan to achieve this? Two tools are available — tariffs and subsidies — and both are equally bad ideas economically and legally.

The whole point of trade is it allows countries to specialise; it allows Australia to focus its scarce labour and capital resources to produce the things we are good at, that earn us a lot of money, and import the rest. By definition, “supporting” a preferred industry — whether through tariff or subsidy — means diverting resources away from industries in which we already have an international advantage towards industries in which we don’t.

Not only is this a great way to make Australia poorer, the mechanisms that achieve this outcome have brutal trade-offs: tariffs are a tax on your own citizens that hurt poor households the most, while subsidies are extremely expensive, wreak havoc and are eventually withdrawn anyway. Both are almost certainly illegal under our World Trade Organization obligations, undermining the very framework Australian businesses rely on to do business overseas. It’s a particularly unusual argument from Labor given that the bulk of Australia’s trade liberalisation, which has substantially increased living standards, took place under Labor governments.

Climate change is no different. The cheapest and most effective way to reduce carbon emissions is to establish a market price on carbon. While policies might change regularly on climate change, the economic reality does not. Yet the government has ruled out any policy that could be characterised as a tax, which presumably rules out any price mechanism whatsoever.

Again, Labor is under pressure internally to adopt whatever policy the government produces to avoid political heat, meaning that an expensive and ineffective response to climate change awaits, regardless of who wins the next election. Australia could use climate change policy strategically to bolster its relationships in Asia, repair its relationship with China and strengthen its relationship with newly elected US president Joe Biden. Australia’s lack of credibility on the topic undermines all three.

The notion that a lack of reform boosts confidence is entirely backwards. Consumer and business confidence is bolstered by well-designed, well-communicated economic reform. Politicians who promise a return to the pre-Covid economy appear to forget what the pre-Covid economy was like: low wages, declining investment, stagnant living standards, rising inequality and rising carbon emissions.

With less immigration, tourism and less demand from China, a promise to do nothing on economic reform, fiscal policy, trade and climate change means a promise to return to a worse version of the pre-Covid economy. The major political parties need to unleash their competitive spirits. Australia can do better. •

The post The sad decline of economic partisanship appeared first on Inside Story.

Workers in insecure employment were often the first to lose their jobs. Low-paid, precarious work has helped spread Covid-19, with poorly paid hotel security guards forced to work second jobs and other struggling workers finding it difficult to take time off even if they may have been exposed to the virus or have minor possible symptoms. All of this has served to highlight the prevalence of low-paid and precarious work in the Australian economy

Meanwhile, despite the government’s earlier promises of setting aside ideology and working cooperatively with unions, the ACTU argues that the Coalition’s proposed industrial relations legislation will actually increase insecure work and facilitate wage cuts.

It all seems fertile ground for a party that last defeated a sitting Coalition government at least partly by campaigning against John Howard’s WorkChoices legislation. Albanese no doubt hopes that a focus on industrial relations will also shore up his leadership and reduce dissension among Labor party members and MPs who claim Labor has been neglecting its working-class base. His focus will be on creating more better-paid, secure jobs while expanding access to employee entitlements and ensuring those entitlements are portable in insecure industries.

To this end, the Labor leader proposes a Hawke and Keating–style compact between business and labour, arguing that “the best governments in our history have understood the need for a compact between capital and labour to advance their mutual interests.” The argument aligns with Albanese’s view that Labor’s populist rhetoric against the “big end of town” was one of the reasons it lost the 2019 election. “The language used was terrible,” he argued at the time. “Unions and employers have a common interest. Successful businesses are a precondition for employing more workers.” As I argued before the election, widespread business opposition will hurt Labor if voters become concerned that private sector investment, and consequently jobs, will be at risk.

But Albanese faces a number of obstacles. To begin with, the Hawke-era consensus between business and unions rested on an Accord process that traded wage restraint, and increasingly real wage cuts, for a compensatory “social wage” in the form of increased government services and benefits. In other words, it was based on businesses paying lower wages than they otherwise would. The introduction of enterprise bargaining also saw reductions in workers’ conditions. No wonder many businesses were favourably disposed.

By contrast, Albanese will be attempting to develop a compact between business and labour based on higher wages and better conditions. Some far-sighted businesspeople, especially in highly profitable industries, may see the advantage that higher wages and more secure employment will have in increasing consumption. After all, the Reserve Bank has long argued that the fall in consumption due to wage stagnation is a significant problem for the Australian economy. But other sections of industry might not wish to increase the wages and conditions of their own workers in difficult economic times.

Despite Albanese’s criticisms, Bill Shorten also argued that wage increases would be a “win-win” for business, workers and the economy in general. But he still faced significant resistance from business. Predictably, Albanese’s IR plans have already elicited major business opposition. For its part, the government claims that Labor’s policy would cost business $20 billion, extinguishing many firms and jobs in the process.

Labor has a history of critiquing some sections of capital while supporting others. Prime minister Ben Chifley demonised the banks and prime minister Gough Whitlam the multinationals, but both supported Australian manufacturing. Albanese seems to be focusing on critiquing the gig economy while hoping to win over other businesses by supporting industries that offer better pay and more secure conditions and offering them preference in government contracts.

Even this could backfire. Rideshare drivers and food deliverers currently suffer the most obvious effects of “Uberisation,” but many other industries could introduce precarious app-based employment. Numerous tasks could also be competitively outsourced via platforms such as Airtasker, including to workers in lower-wage countries. And a range of industries already use the labour-hire measures that Labor is also targeting.

Albanese therefore faces two major challenges in turning Labor’s IR policies into a successful electoral strategy. First, he needs to convince business that this is another occasion on which social democracy needs to save capitalism from itself, as Kevin Rudd argued was the case during the global financial crisis. In this instance, neoliberal attacks on unions and workers, along with cuts to government benefits, have resulted in a crisis of consumption by reducing incomes and deepening inequality.

Second, Labor needs to convince workers that industrial relations reform is the best way to increase living standards. Labor attempted to do this during the 2019 election campaign, but many voters, unconvinced that Labor in government would be able to ensure higher incomes and jobs growth, opted for Morrison’s promises of lower taxes instead.

The ACTU’s Change the Rules campaign, which should have helped Labor win the election, also faced a dilemma. Some of the industrial relations rules in need of changing had been introduced not by the Coalition but by previous Labor governments. In other words, past Labor government policies have contributed to a lack of confidence in the ability of governments to improve wages and conditions. That — rather than climate change or so-called “identity politics” — was one of the major difficulties Labor faced at the 2019 election.

Whether Anthony Albanese can overcome these problems, or even save his own leadership, remains to be seen. In the meantime he hopes to make the next election “a battle for the things which matter most to Labor” and “a contest between two very different visions for the future of Australia.” In one sense he is undoubtedly correct. As a social democratic party, Labor has no choice but to try to tackle Australia’s rising inequality and the growth of precarious work. The issue is whether Labor will be able to turn that into a successful electoral strategy. •

The post Labor’s industrial relations gamble appeared first on Inside Story.

Casuals were unlikely to join a union, partly because of the higher potential chance of losing their job and partly because both their attachment to work and the financial stakes were lower. Without unions, their power declined even further, leaving a power imbalance that employers could take advantage of. Casuals were generally paid at a lower rate than their “permanent” equivalents, especially in low-paid occupations.

Companies also used casual employment as a low-wage pathway into permanent positions. In the mining industry, for example, companies used labour-hire workers alongside permanent employees, full-time, doing identical work. Although these “contractors” were paid substantially less than the mining companies’ own workers, they were rostered like any other employee. They knew, up to a year or more in advance, what time they would be working on which days. After a while, some of them were selected to be permanent employees.

In this way, casual employment — either through labour hire or directly with the mining company — became the only way most blue-collar workers could get a permanent job in the industry. Less fortunate “contractors” might work on mine sites for many years without becoming permanent.

Other industries varied in their use of long-term casuals. Universities, for example, used sessional teachers for five, ten or more years. Nationally, at any point in time, around 340,000 casuals had been with their employer for at least five years. Forty thousand had been with that employer for more than twenty years. Thousands of people, classed as casuals, deprived of leave, worked to the same patterns year after year.

So, casual employment was not especially about flexibility of work. Data from the Australian Bureau of Statistics showed that most casuals expected to be with their employer in a year’s time, and at least half worked the same hours week to week. Their working arrangements weren’t a response to any employer’s need to flexibly deploy labour over short periods in a variety of situations. They were cheap, stable, disposable and easily controlled.

Not that employers often did dispose of that labour. It was easier to hang on to it. But the option of reducing hours, or cutting off all work, gave the employer substantial power over these employees.

The one thing that united casuals was that they had no leave entitlements. They were better described as “leave-deprived employees.”

All that changed quite recently. One day, a leave-deprived employee in the mining industry took his former employer to court seeking compensation for unpaid leave. He won. In effect, the court said that the employee was not a genuine casual, and had to be paid for the leave he was owed. The company took the matter to appeal, and lost. Another leave-deprived employee took the company to court, and again the company lost.

This is the origin of the omnibus employment bill recently introduced into parliament by the federal government but unlikely to be voted on for several months. Employer organisations had a long wish list for industrial relations reform, but most of all they wanted to overturn these decisions. Another appeal is to be determined by the High Court, but the employer organisations don’t want to risk the outcome.

A key element in the omnibus bill would render that appeal irrelevant by enshrining employers’ right to define someone as casual. If they do that when the worker’s employment begins, and make clear there is no promise of continuing employment, then the employee is indisputably a casual. That’s the case even if continuing employment follows. The employee is without leave entitlements, and can have his or her hours cut, or cut out, on a whim.

But the bill does hold out the prospect of a better life. If, after a period of twelve months, employees want “permanent” status, they can ask for it, and the employer should grant their wish unless there are reasonable business grounds not to. Casual employees can at least take that question to court, if they have the money.

Some see this, or at least a variant of this, as the key to overcoming the chronic insecurity of casuals. Some want a stronger right for employees to convert from casual to permanent status after a defined period. They point to the fact that the bill’s provisions don’t adequately prioritise employee interests, and make appeals too expensive.

But there are problems with seeing the issue in this way.

First, the stronger the right, the stronger the incentive for employers to cut casuals’ hours, or sack them, before the designated date. This is, for example, what I saw happening in Korea. “Temporary” and “dispatched” workers (mostly women) had access to additional rights after twelve months’ employment, so employers would sack them after eleven months, or swap them between employers.

Second, and perhaps fearing this fate, some casuals may decide not to take their chances by asking to change status. The concept of “choice” can be problematic when it is constrained, especially for leave-deprived employees.

A third, probably bigger, matter is that many leave-deprived workers become financially dependent on the casual loading (if they get it). This 25 per cent premium on their ordinary pay is intended to compensate for their lack of entitlements or security. When you’re on a low income, that extra amount can make a big difference. This shouldn’t be ignored.

Other countries don’t allow employers to buy out of their obligation to provide annual leave, and nor should Australia. The challenge is to find a way to overcome that inequity while preserving the interests of this low-paid group.

A way forward would be to allow every employee access to paid annual leave and sick leave, regardless of their status and proportionate to the duration of their job. They would also have access to protection against unfair dismissal.

Employees who have no guarantee of minimum weekly hours would still be paid a loading. At present, the majority (71 per cent) of leave-deprived workers with variable hours have no guarantee of a minimum number of hours, but that proportion would fall if employers had to pay a loading for workers without the guarantee. Existing leave-deprived workers could be protected by a “grandfathering” clause, which would allow them to keep the current casual loading if that’s what they want.

In this way, the casual loading would shift from being a compensation for loss of entitlements and security to being a genuine compensation for unpredictable hours. It would be an unpredictability loading rather than a casual loading.

Over time, the casual loading would become less common and the unpredictability loading would take its place for those people who really are employed for short and irregular periods. Work would be more secure. And almost everybody would have a right to a paid annual holiday. •

The post How casual became predictable appeared first on Inside Story.

Garbage collection is one of the most dangerous jobs in America. Each year, around one in 2000 workers in the industry lose their lives. Standard economic theory tells us that a risk of this magnitude should be accompanied by substantially higher pay. But the median hourly wage for American garbage collectors is only US$17.40, which hardly seems sufficient to make up for a death rate comparable to serving in a war zone, not to mention the daily risk of other injuries.

In You’re Paid What You’re Worth: And Other Myths of the Modern Economy, sociologist Jake Rosenfeld outlines many of the injustices that underpin the American economy. In Oklahoma City, Walmart workers took up a canned goods collection to support people who couldn’t afford food. The beneficiaries? Fellow Walmart employees who weren’t able to make ends meet on the company’s meagre salaries. Across the United States, home-care workers subsisted on an average hourly wage of $10 an hour. Many couldn’t find full-time work, so they worked multiple shifts at different aged care homes. This precarious arrangement not only made life tough for workers, it also helped to spread Covid-19 among aged Americans when the pandemic struck.

It’s not as though American workers aren’t keeping up their end of the bargain. Rosenfeld cites research showing that truckers are almost twice as productive today as they were in the 1970s. Yet in some cities, their wages have fallen by a third in real terms. Deregulation, declining union power and the pressure on owner-drivers has made a dangerous job even riskier, yet their real take-home pay buys much less than it once did.

Even in manufacturing, often touted as the sector that guarantees stable employment and respectable earnings, the number of good jobs has diminished. When Tesla opened a production facility in Fremont, first-level workers earned US$17 to US$21. Rosenfeld presents evidence that chief executive Elon Musk discouraged unions while touting the fact that employees could enjoy free frozen yoghurt and high-speed rollercoaster travel around the factory.

Across industries and occupations, the past generation has been tough on American workers without post-school qualifications. As MIT researchers David Autor, David Mindell and Elisabeth Reynolds report in The Work of the Future, the real earnings of men with less than a university degree are now 10 to 20 per cent lower than in 1980, while men with a university qualification have seen earnings gains of 25 to 50 per cent. Productivity has continued to grow, but the gains have flowed to shareholders and executives rather than regular employees. A gap between productivity and earnings gains has opened up in many advanced nations, but it is twice as large in the United States as in Australia.

Other worrying trends have emerged. For much of the postwar era, American cities have served as an escalator to social mobility. Traditionally, moving from a regional area to a major city boosts the earnings of all workers, high-educated and less-educated alike. But this no longer holds true for less-educated workers. High-wage professionals get a pay bump from working in a large metropolis; workers without a university degree do not.

While trade has been criticised for hollowing out the labour market, technology has had significantly more impact. Autor, Mindell and Reynolds show that around 60 per cent of Americans work in jobs that did not exist in 1940, including occupations such as chat room hosts, sommeliers and drama therapists. Yet technological change tends to be skill-biased, meaning that less-educated workers are most at risk. The change will not be as dramatic as some have predicted — there are still few robots in small firms — but workers in routine jobs remain vulnerable to automation.

How might the United States improve the quality of work? Rosenfeld argues that no job is inherently bad, and cogently discusses how the quality of work can be lifted. Following the publication of The Jungle, Upton Sinclair’s 1906 novel about meatpackers, the sector became safer, more sanitary and better paid. Indeed, in the 1950s and 1960s meatpackers earned more than the average manufacturing worker. Similarly, unionised garbage collectors receive fair compensation and decent conditions. Bad jobs can be made good.

Rosenfeld also offers a series of sensible reforms that would help tweak the balance in favour of employees. Because pay secrecy tends to advantage the stronger party, its abolition would especially help women. Reining in the temporary help industry would provide more stability of employment. Aligning occupational licences with consumer safety would make over-protected industries less of a closed shop. Banning non-compete clauses would facilitate worker mobility and encourage innovation. Preventing firms from accruing too much market dominance would ensure that workers have more than one employment option in their local area.

At a deeper level, Milton Friedman’s theory of the primacy of shareholder value is coming under increasing challenge. During the 1990s, Coca-Cola chief executive Roberto Goizueta had a computer installed in a room adjacent to his office so he could track the company’s share price. Market analysts rebelled when firms paid their workers a living wage. Boards paid executives in share options, providing a lucrative incentive to focus on shareholders, and leading to a situation in which the chief executive of Starbucks earns as much in two hours as one of his baristas makes in a year.

No law of nature says companies must be run only for the benefit of the shareholders. In 2019 the US Business Roundtable, comprising 181 chief executives, issued a “Statement on the Purpose of a Corporation.” They pledged to lead their companies for the benefit of all stakeholders: customers, suppliers, communities, shareholders — and yes, employees.

The MIT report also emphasises the need to improve the quality of training. While online education has been patchy, Autor, Mindell and Reynolds point out that the pandemic has rapidly increased the investment of firms and educational institutions in improving it. They describe how IBM uses artificial intelligence to suggest to its employees which training modules they should undertake, and expects every worker to complete at least forty hours of training a year (the median IBM employee does fifty-two hours). They describe how “intermediary programs” can work effectively by building close relationships with employers and making sure educational providers are responding to what firms need.

Interestingly for an Australian audience, the MIT report is also critical of how US tax law shapes firms’ decision-making. “A series of tax law changes enacted over the last four decades has increasingly skewed the US tax code toward subsidising machinery purchases rather than investing in labor,” they write. “Tax policy offers firms an incentive to automate tasks that, absent the distortions of the tax code, they would accomplish with workers.” Far from advocating an expansion of accelerated depreciation tax breaks — as the Morrison government did in its 2020 budget — the MIT economists call for the complete elimination of accelerated depreciation, so as not to favour investment in machines over investment in workers.

Together, You’re Paid What You’re Worth and The Work of the Future offer the kinds of proposals that are likely to animate the thinking of the Biden administration: tilting the balance back towards organised labour, reimagining on-the-job training, encouraging corporations to serve the whole community, not just their shareholders. Right now, low-skilled Americans are paid an average of US$10 an hour, well below the US$17 earned by the average low-skilled Australian worker. Although it’s hard to know for sure what impact each measure might have, the net result of a package of progressive labour reforms would surely be to increase the family incomes of millions of working-class families.

But perhaps a single-minded focus on earnings ignores the crocodile in the corner. In Time for Things: Labor, Leisure, and the Rise of Mass Consumption, social theorist Stephen Rosenberg argues that the central omission from this kind of analysis is time. Why should the gains from higher productivity keep going into pay, at best, rather than leisure? Shouldn’t employment be a means to an end rather than an end in itself?

The nub of Rosenberg’s argument is encapsulated in two predictions made by economist John Maynard Keynes in the 1930s. Productivity growth, he predicted, would enable an eight-fold increase in real incomes over the coming century. And much of that would translate into shorter working hours, so the typical person might work around three hours a day, or fifteen hours a week.

Both Keynes’s forecasts turned out to be wrong, but in opposite directions. On economic growth, the indications are that he understated the gains, with incomes rising not by a factor of eight but by perhaps as much as a factor of seventeen. On working hours, he overstated the gains. Full-time employees are working about forty hours a week, much the same as full-time workers in 1940.

On the face of it, Keynes’s predictions were utterly reasonable. His growth projections assumed that the rate of growth he had witnessed since the late 1800s would continue. Thanks to innovation, education and urbanisation, though, economies grew even more rapidly than expected.

In terms of working hours, Keynes was also extrapolating from what he had seen. Average hours for full-time American workers fell from about sixty hours a week in 1900 to fifty hours a week in 1920. By 1940, the average was down to forty. American workers had gone from working six days a week, ten hours a day to five days a week, eight hours a day.

This didn’t happen because of the beneficence of company owners. It was a result of the campaigning of the union movement. In 1866, the General Congress of Labor met in Baltimore and resolved that “the first and great necessity of the present is to free the labor of this country from capitalist slavery in the passing of a law by which eight hours shall be the normal working day in the states of the American union.” Six years later, more than 100,000 New Yorkers went on strike to campaign for an eight-hour working day. By the end of the 1800s, it was said that almost all economists and social reformers favoured a reduction in working hours.

Such a movement certainly accords with economic theory. In first-year economics classes, we show students models in which leisure brings “utility” (also known as wellbeing or happiness), while work brings “disutility.” Raise someone’s wage, and you might reasonably expect them to work a little less. As Mark Twain once quipped, “If work were so pleasant, the rich would keep it for themselves.”

In this case, however, the joke was on Twain. A century after his death, high-wage workers were not pursuing leisure — they were chasing work. Plenty of people buy copies of Tim Ferriss’s book The 4-Hour Workweek, but few take its advice. Industrial campaigns shifted, too: since the end of the second world war, the focus of unions has been on higher pay rather than shorter working weeks or longer holidays.

Why was Keynes wrong? Rosenberg points out that it wasn’t as though a reduction in hours was impossible. Suppose that just a quarter of the productivity gains in the postwar period had been put into shorter hours rather than fatter profits and pay packets. The work week would be about half what it is today. Yet it didn’t happen. As Rosenberg observes, “the effort to limit hours at work, somewhat mysteriously, almost vanished in the second half of the century.”

Various theories might explain why. Perhaps what matters isn’t getting ahead, but getting ahead of the Joneses. If what counts is your earnings relative to other people, then it might be impossible to get off the treadmill. For example, the price of land is largely determined by the demand of others, so if you’re in a society where everyone else works forty hours a week and spends a quarter of their money on housing, then dropping back to fifteen hours a week might mean living in a shoebox.

Another possibility — not one raised by Rosenberg — is that work is addictive. Economist Daniel Hamermesh points out that when people work long hours, their friends become office friends, their jobs come to define their identities, and their leisure activities dwindle. In many occupations, the top jobs are only available to those who are willing to put in extremely long hours. It’s impossible to become an Olympic athlete, High Court justice or university vice-chancellor without sacrificing nights and weekends. Many more with the ambition to take on such roles will put in the hours yet not attain the goal.

Ultimately, however, Rosenberg settles on an intriguing explanation: that the reason workers stopped pushing to reduce working time is that products got better, and consumers began to demand more of them. The car, he argues, was the ultimate consumer commodity. In the 1920s, repayments on a car loan might have cost a quarter of an average person’s wage, but workers were obsessed by them. Within a generation, Rosenberg writes, American towns moved from a horse culture to a horsepower culture. He quotes one union organiser who claims that workers’ infatuation with cars made people less likely to join unions. The individual lure of the automobile, and the status it represented, provided a new benefit for working hard. “The automobile was thus well suited to serve as compensation for work, a counterbalance to the loss of freedom represented by having to sell labor for a wage.”

And so it went for other goods. Rosenberg devotes chapter after chapter to intriguing explanations of the many ways in which consumer products became tangibly better during the twentieth century. As brands emerged, companies had a reputational incentive to ensure that their products performed as well as they claimed. Companies began to offer warranties rather than simply selling them with a “buyer beware” warning. Governments stepped in to ensure that potentially harmful items were tested before they reached the market. Products were rated so that buyers could make an informed choice.

The “inexorable expansion of the industrial economy,” writes Rosenberg, was not merely due to business owners chasing profits but also to “ever-increasing consumer demand.” People stopped campaigning for shorter hours because they wanted to buy more stuff. And why did they want to buy more stuff? Because the stuff on offer was better than ever.

The move away from working-hours campaigns affected not just business, but unions too. Rosenberg observes “a stark contrast between the long tradition, stretching from the 1830s to the 1930s, of American labor fighting for a shorter working week and the postwar era of collective bargaining and productivity-based wage increases.” In the first era, workers wanted more leisure time; in the second era, they wanted more money. Radical reformers had once seen a fundamental unfairness in exchanging labour for money. Consumerism undercut this moral critique of the economic system.

Could this change today? In the realm of consumer products, the online economy may turn out to be easier on the hip pocket. The cost of an android-powered smartphone and a generous data plan is falling fast, while the number of entertaining things that can be done with such a phone continues to grow. A similar trend can be seen with cars and clothing. Yet housing costs continue to grow faster than wages, making it difficult for many people ever to envisage downshifting.

As a result, housing costs matter even more than we might have thought. In Australia, housing affordability has worsened badly over the past generation, with the price of a typical home rising from twice average incomes in the 1980s to around seven times today. The home ownership rate is at a six-decade low, and the decline has been especially marked for people of modest means. Generous tax concessions to landlords mean that housing has moved from being a consumption good to an investment good. As a result, a few people have multiple homes, and many have no home at all. Perhaps it’s no coincidence that a country like Germany has cheaper homes than Australia and its workers enjoy six weeks of annual leave.

This isn’t just individually unfair. If overpriced homes are preventing people from enjoying more leisure, then that has a social cost too. If working longer hours to pay the mortgage reduces the time I have available to watch television, then that’s just an individual cost. But if the effect of longer working hours is that I give up coaching the school soccer team, then it affects others. It’s harder to build a strong community when people are toiling long and unpredictable hours to pay down gargantuan mortgages.

As Jake Rosenfeld and the MIT economists have documented, there is a lot to dislike in the way the American labour market has operated over the past generation. Getting middle-income workers a fair share of their productivity gains, improving workplace safety, and making bad jobs good should all be important goals for a civilised society. No one should have to risk losing a finger just to earn a living. Together, such sensible reforms would reduce inequality in the United States, which has grown to levels that match the Great Gatsby era.

Stephen Rosenberg’s work brings a much-needed social dimension to our understanding of work and shows that another campaign is waiting in the wings. If workers can get a fair share of their output, and housing can be made more affordable, it should be possible to provide employees with more leisure time. There is no reason why union campaigns for shorter working days and more generous holidays should be consigned to the dustbin of history.

No constitutional provision would prevent the United States from moving from two weeks’ annual leave to four weeks. Similarly, no iron rule says it is impossible for Australia to follow the European example of providing six weeks annual leave to the typical worker. Indeed, at a time when Australian community life has frayed, increased leisure time might provide a way to build a more reconnected Australia. Prioritising family and community time might mean that we become a nation more of “we” than of “me”: a nation where we don’t just live to work, but work to live. •

The post Can we make work work? appeared first on Inside Story.

Victoria’s caseload — and hence its risk to other states — has fallen sharply; so how long will New South Wales and South Australia take to reopen to Victorians? And when will Queensland, Western Australia, Tasmania and the Northern Territory reopen to the rest of Australia?

Finally, when will we enter the long-awaited “travel bubble,” opening our borders to flights from other countries deemed Covid-safe, and their borders to quarantine-free travel from here? Will the New Zealand election on 17 October clear the way for negotiations to start reopening the skies?

Three government-imposed barriers — the lockdown of Melbourne, the closure of most interstate borders, and the ban on travel to and from Australia (with exceptions) — must be lifted before the economy is likely to come out of its deep recession, which has so far cut Australia’s output by 7.25 per cent and left almost two million Australians unemployed or underemployed.

Lifting the barriers will not be enough to bring about a full recovery. Consumers and investors are likely to remain cautious until a successful global vaccine rollout removes the virus as a key factor in the way we live, or until we learn a way to live with the virus. Whichever it is, that could still be a long way off.

And, on current plans, it could still be quite some time before life in Victoria returns to anything like normal. Despite its plunging caseload, Melbourne faces another four weeks of curfew and lockdown. And there is not a single country, other than remote islands, that meets the threshold set by the Andrews government for the next easing of restrictions — such as allowing Victorians to have more than one family visit them at home.

Start with the good news. Melbourne’s rolling fourteen-day average of new cases — which the Andrews government uses to set the benchmark for easing its lockdown and curfew — has already rolled well past official predictions. Indeed, it’s rolled out of the range it was meant to be in for the next tweak of restrictions.

Premier Daniel Andrews’s threshold for the next easing was a city-wide rolling fourteen-day average of between thirty and fifty new cases (as the modellers forecast) by 28 September. Melbourne reached that range twelve days early, on 16 September, and is now rolling out the other side, with an average of 25.1.

The premier has flagged that he will announce a further easing of restrictions “in certain areas” on Sunday — but immediately cautioned that “they have to be cautious steps, steady steps and all the steps we take have to be safe.” In other words, don’t get your hopes up.

(One area he is likely to free from the curfew and lockdown is the Mornington Peninsula. It is the only local government area in Melbourne with no active cases — and it has three marginal seats, and a bunch of hostile voters who say they’re not part of Melbourne and don’t need to be locked down.)

The caseload has fallen so sharply — using the weekly tally of new cases, by 97 per cent from its peak in early August — that the government has ample room to move. But Andrews has flagged that any moves will be only modest; he wants this success to be seen as confirming that the hardline strategy is the right one, and one that Victorians will go on supporting.

While those opposed to the lockdown are growing increasingly angry and frustrated, they are a minority — and for them, the plan Andrews set out on 6 September offers little hope. Melbourne’s lockdown and curfew are to continue until at least 26 October, with only minor modifications to start next Monday: principally allowing another 100,000 workers (about 3 per cent of the total) to go back to work, allowing some students back into school, and reopening childcare.

And before the city can take the next step — returning it to something like the restrictions that applied in June — the rolling average of new cases statewide will have to fall to less than five a day, with no more than five new cases that officials cannot link to a known outbreak.

That’s just over ten new cases per million people in a fortnight. Among developed countries, only Taiwan and New Zealand (just) meet that test; New South Wales would have failed it until this week. It is extreme.

Independent epidemiologists, including the government’s modeller, Professor Tony Blakely of Melbourne University, have challenged the need to set the threshold so low. The infection of just one five-person household would provide a day’s quota; one of them each day for a fortnight would mean the entire city has to stay locked down and in curfew.

If Melbourne were to meet that threshold by 26 October, the curfew would be lifted. People would be free to come and go from their homes, and the five kilometre limit on travel would be removed. But you would still be allowed to invite only members of one nominated family to your home; public gatherings outdoors would be limited to ten people. Weddings and religious ceremonies would also be limited to ten people, with twenty allowed at funerals.

Schools would slowly reopen. Shops would reopen. Restaurants could reopen, but only with predominantly outdoor seating. People must still work from home if they can. Outdoor sport could resume for kids, but only non-contact sport for adults. Accommodation in hotels and motels could reopen, with caps. Entertainment would be allowed at outdoor venues only. It would not be life as we know it in the rest of Australia.

Those rules already apply in regional Victoria, whose 1.5 million people now include just ten active coronavirus cases. All but seven council areas in regional Victoria now have no coronavirus at all, but their residents are still subject to these restrictions, and the fines that come with them.

The threshold for the next step, in Melbourne and regional Victoria alike, is really steep. Victorians won’t be allowed to have visitors from more than one household, or have weddings or services with more than ten people, until the entire state has had no new cases of coronavirus for a fortnight. Until that happens, the third-step restrictions will stay on indefinitely.

Apart from some Pacific islands that have dodged the virus entirely, no country in the world would clear that threshold. None. Even Taiwan, the gold medallist in suppressing the virus, reports several new cases a week. Cambodia claims to have had only two cases in the past month, and Laos one, but some have been unkind enough to question the accuracy of their data.

No mainland states would pass that test. In the past fortnight, even South Australia has reported three new cases, Western Australia nine, Queensland ten, and New South Wales seventy-one. New Zealand has reported thirty-five. Tasmania and the territories haven’t reported any, but they are far smaller than Victoria.

Daniel Andrews and his advisers claim they are not attempting to eliminate the virus from Victoria. In fact the thresholds they set for the final two steps both require that the virus has been eliminated, so that is clearly untrue.

Their real aim seems to be to repeat what New Zealand did in the first wave of the virus: with the country closed down, it had three weeks in May and June with no new cases. But since it reopened, New Zealand has had more than 300 new cases, leading its government to send Auckland back into lockdown for several weeks — a lockdown lifted only after prime minister Jacinda Ardern overruled her health officials to order the city back to work ahead of the 17 October election.

For it is a question of getting the right balance. If a country or state is losing its fight to control the virus, as Western Europe is right now, clearly lockdowns are the best way to bring it under control. But there are many costs to that, as New Zealand can testify, and as Victoria too is seeing.

New Zealand’s statistics agency Stats NZ reports that in the June quarter, while the official unemployment rate was just 4 per cent, Covid-19 restrictions meant that 8 per cent of employees were in fact working no hours at all, while a further 13 per cent were working reduced hours.

The country’s GDP shrank 13.4 per cent in the first half of 2020, almost double the 7.2 per cent fall in Australia. New Zealand’s version of JobKeeper is far more inclusive than Australia’s, so the pain was felt more in business and government than in households. But when demand shrinks so much, businesses fail, people lose their jobs, and the young are the biggest victims.

Victoria is now well down that path. It has a quarter of Australia’s population, but the Australian Bureau of Statistics reports that in the year to August, Victorians lost more paid hours of work than the rest of Australia combined. Victorians suffered almost half the nation’s job losses. And with JobKeeper and JobSeeker shrinking, each week in lockdown puts more pressure on firms and small businesses that are not earning enough money to survive.

The young are suffering the most. In a year, one in four full-time jobs for school leavers have disappeared. Some 105,000 Victorians aged fifteen to twenty-four are no longer in full-time education and have no job at all. We saw in the 1990s that prolonged recessions do permanent damage to the working lives of those who become long-term unemployed. That will happen again this time.

I puzzle over why this is such a low priority for the Andrews government, and for Victorians — particularly those who normally fight for progressive causes. It seems clear that to most of them, there is only one goal: to defeat the virus. And so they support the hard line of lockdowns, curfews and mass unemployment to ensure that it is defeated.

After conflicting polls two weeks ago, a deluge of recent polls has made that clear: from Essential, Newspoll, Roy Morgan, and (if less unexpected) Redbridge, run by Labor’s former deputy campaign director, Kos Samaras.

Together they show that, while the Andrews government’s support has been dented by its mistakes in handling the crisis, its lockdown policy enjoys solid support.

The one negative poll, by MediaReach for the state Liberals and leaked to the Herald-Sun, showed a double-digit landslide swing in four marginal seats to the Liberals. But I suspect we should file that in the same bin as the same pollster’s Northern Territory poll in late June for the Territory Alliance, which claimed the Alliance was evenly poised to win the territory’s August election. In fact it won just 13 per cent of the vote and one seat.

A Morgan poll two weeks ago reported that 70 per cent of Victorians supported the way Daniel Andrews has handled his job. The Australian on Tuesday reported that Newspoll found 61 per cent of Victorians think the premier has handled the epidemic well, and only 36 per cent think he has done it badly. The lockdown garnered slightly less support: 54 per cent of Victorians thought the restrictions “about right,” 6 per cent rated them “too lenient,” while 37 per cent judged them “too strict.”)

The Essential poll in the Guardian reported greater opposition: only 47 per cent of Victorians said their state government had responded well to Covid-19 — whereas in other states voters gave overwhelming support to their government’s response, ranging from 67 per cent in New South Wales to 84 per cent in Western Australia.

Only Morgan asked about voting intentions, and it found quite a swing. It reported that Labor’s support has slumped 6 per cent since the 2018 election — but that was an extraordinary high-water mark, so Labor still had 51.5 per cent of the two-party vote. Polling the regions is very difficult, but for what it’s worth, the poll implied a swing of 8 per cent against Labor in greater Melbourne but just 3 per cent in regional Victoria.

To me, the most telling responses in any poll came when Essential asked Victorians to agree or disagree with a series of statements about the crisis. Asked if “the restrictions affecting my area seem appropriate,” 60 per cent agreed and only 19 per cent disagreed. Just 32 per cent said the restrictions have had much impact on their own lifestyle. And 64 per cent thought the lockdown and curfew would be effective in stopping the spread of the virus.

It’s hard to disagree with that: the restrictions have clearly done the job asked of them. But the gains from reducing the daily average of new cases from 533 to fifteen are far greater than those from trying to reduce it from fifteen to zero, whereas the costs keep mounting at the same rate. At some point soon, the policy balance has to shift.

On border closures, the policy shift has begun, with almost daily announcements. South Australia has opened up to New South Wales and the ACT: only Victorians remain banned. Since the case rate in regional Victoria is now lower than in her own state, Gladys Berejiklian is considering whether to open borders to them. Even Annastacia Palaszczuk has joined in, allowing people from the ACT, Byron Bay and the NSW border region to come and enjoy Queensland.

All premiers except for Western Australia’s Mark McGowan have promised to open their borders by Christmas. WA voters seem to love keeping easterners out, and McGowan faces re-election next March. Queensland’s election is on 31 October; whoever wins, it’s assumed that its borders will open soon after that. The NT election is already out of the way. And well before Christmas on current trends, Victoria’s caseload will be low enough for there to be no reason to exclude it.

Interstate borders, at least in eastern and central Australia, should be open by the start of summer. International borders will take much longer to reopen — much longer.

Globally, the daily numbers of new cases are setting records, running at close to a million new cases every three days. Today’s numbers report 85,919 new cases in India, 43,995 in the United States, and an astonishing 16,096 in France — just before the French Open starts on Monday! Qantas chief Alan Joyce’s once-gloomy forecast that international travel won’t start returning to normal until mid 2021 now looks optimistic.

The idea of setting up a travel bubble among relatively Covid-free countries within our region ought to be a winner. While new case numbers are exploding in Indonesia (4634 yesterday), the Philippines (2180) and Nepal (1497), much of Asia is reporting little new activity. Last week, for example, the growth in the total caseload per million people was zero in China, Taiwan, Vietnam and Papua New Guinea, one in Japan, two in Australia, four in New Zealand and the Maldives, and five in Sri Lanka. Most of the South Pacific remains Covid-free. Why not open the doors to safe neighbours?

Unfortunately, there are lots of reasons why. It might happen with New Zealand, maybe the South Pacific, possibly even Japan. But there are obvious political problems for Australia in negotiating an opening with China in this environment. And if we don’t open up to China — or it refuses to open to us — we risk another Beijing tantrum if we open up to Taiwan.

In other countries, the data can’t be trusted — either because they are doing little testing or because they are hiding the true numbers, or both. Last week Myanmar abruptly bumped up its caseload per million people from forty-four to eighty-two.

And situations change rapidly. Five months ago I wrote about Singapore and South Korea as examples of how to keep the virus under control. Both are still among the best in the developed world, but measured by growth in new cases per capita, South Korea now exceeds Australia, and Singapore exceeds Victoria. Outbreaks can erupt quickly, or spill out of secret cupboards, turning what seemed like a good idea into a threat to our hard-won victory over the virus.

If we are lucky, the debate in 2021 will shift from how to reopen interstate borders to how to reopen international ones: at the very least, for returning Australians, wider family members, skilled workers, students — and Covid-free neighbours. Too much depends on it for the doors to remain shut as now. Test, trace and quarantine has to be our path to the future. •

The post Covid-19: where next? appeared first on Inside Story.

Last month’s survey asked participating economists whether they believed the legislated increases in compulsory superannuation contributions — set to climb from 9.5 per cent of wages to 12 per cent over the next five years — should proceed as planned, be deferred, or be abandoned.

If I’d been asked that question at almost any time since the increase was first proposed by the Rudd government in its response to the Henry review of Australia’s taxation system, I’d have said “yes,” unequivocally.

I’ve been a supporter of compulsory super since the Keating government legislated for the superannuation guarantee in 1992. I’ve never had any particular hang-ups about how the scheme gave unions a role in the management of superannuation savings that (in the eyes of some) is greater than warranted by their declining membership.

Apart from supporting the superannuation guarantee’s stated objectives of extending the benefits of superannuation (including very generous tax concessions) to a much larger proportion of Australians than those who had traditionally enjoyed them (mainly public sector employees and white-collar private sector employees), and reducing the proportion of retired Australians who were solely reliant on the age pension, I also supported the scheme’s expected contribution to lifting overall national savings.

For the first two decades or so of my career as an economist, the need to increase Australia’s national saving was seen as one of the most important policy challenges the nation faced.

Australia has long had a capital-intensive economy. Why? Because mining, an inherently capital-intensive activity, accounts for a much larger share of Australia’s GDP than that of other countries. This is because we have a relatively small population spread over a very large area and thus need to spend relatively more on transport infrastructure (another capital-intensive activity) than other countries. And because we have chosen to live in larger houses on larger blocks of land than people in most other countries, which means we spend more on housing and (hence) on urban infrastructure than most other countries.

In other words, investment has long been higher as a proportion of GDP in Australia than in most other “advanced” economies. And although we’ve also typically saved a greater proportion of GDP than many of those economies, we typically haven’t saved enough to fund all the investment we’ve wanted to undertake.

Hence, for most of our existence as an independent nation, we have needed to “import” savings from overseas — by borrowing or accepting foreign equity investment — in order to make up the difference between what we want to invest and how much we’re willing to save.

The counterpart of that requirement for foreign savings has been the deficits we’ve typically run on the current account of our balance of payments, which reflect the fact that, more often than not, we have imported more goods and services than we have exported, and paid out more by way of interest and dividends to foreign investors than we have earned from our own investments overseas.

During the 1980s and 1990s, when the current account deficit averaged 4.2 per cent of GDP (up from an average of 1.6 per cent in the 1960s and 1970s), we funded it largely by borrowing from abroad, so that our net foreign debt increased from 6 per cent of GDP in 1981 to 40 per cent of GDP by June 2000. Between 1988–89 and 2009–10, almost 11 per cent of our export revenues were absorbed by interest payments on our foreign debt — including a peak of over 18 per cent in 1988–89.

In this environment, “increasing national saving” was a core objective of economic policy. It was the main reason Paul Keating, as treasurer in the Hawke government, gave for pursuing budget surpluses in the late 1980s. (Running budget surpluses meant that the public sector was adding to national saving rather than absorbing it.)

It was one of the main reasons why the Reserve Bank, with the endorsement (as was required in those days) of Keating as treasurer, pushed interest rates up to 17.5 per cent in the late 1980s, bringing on the “recession we had to have.” (It was only after the event that history was in effect rewritten to say that it had been all about “snapping the inflation stick.”) And after Vince FitzGerald’s report on national saving, commissioned by the Keating government, it became one of the main arguments for the superannuation guarantee.

Of course, since those days we’ve learned that countries can run larger current account deficits for longer periods than was thought possible back then. And more recently Australia hasn’t been running current account deficits at all: since the June quarter of 2019, we’ve been chalking up current account surpluses for the first time since 1974. Or, put differently, national saving has exceeded national investment for the first time in more than forty-five years.

So the “national saving” argument for increasing the superannuation contribution rate no longer applies. But that’s not the main reason why I answered the Conversation’s latest question in a way I wouldn’t have considered as recently as three years ago.

The main thing that changed my mind was a November 2018 report by John Daley and Brendan Coates of the Grattan Institute (where, I should mention, I worked between August 2009 and December 2011). In my opinion, Daley and Coates convincingly demonstrated that a superannuation contribution rate of 9.5 per cent was sufficient to guarantee the “average worker” a retirement income of more than 90 per cent of their working income — well above the OECD “benchmark” of 70 per cent.

They also showed, persuasively, that lifting the rate to 12 per cent would have two perverse effects. Many workers would face the prospect of having a higher income in retirement than they had while working; others, particularly lower-income workers, would see a net reduction in their overall retirement income because the higher income from higher superannuation savings would be more than offset by a reduction in the age pension to which they would otherwise have been entitled.

Brendan Coates, together with Grattan colleagues Matt Cowgill and Will Mackey, followed up that report in February this year with a working paper demonstrating that although superannuation guarantee contributions are formally paid by employers, at least 80 per cent of increases in compulsory contributions are passed on to workers in the form of lower wage rises than they would otherwise have obtained.

This is entirely consistent with the intentions of the founders of Australia’s compulsory superannuation system. When the ACTU, under the leadership of Bill Kelty, first pursued the idea of wider access to superannuation in the second half of the 1980s, it was partly meant as a “trade-off” for the wage increases the Hawke government was trying to restrain in order to prevent an acceleration in inflation. As Keating himself has since said, “the cost of superannuation was never borne by employers. It was absorbed into the overall wage cost… In other words, had employers not paid nine percentage points of wages, as superannuation contributions, they would have paid it in cash as wages.”

The Fair Work Commission explicitly took into account the last increase in the compulsory super rate, from 9 per cent to 9.25 per cent in 2013, when awarding a smaller increase in the national minimum wage “than it otherwise would have been in the absence of the super guarantee increase.”

In the years before the current pandemic, persistently slow wages growth had become a matter of increasing concern to policymakers. In a speech to a peak business group in June 2018, Reserve Bank governor Philip Lowe went so far as to say that “slow wages growth is diminishing our sense of shared prosperity” and, if it persisted, could “make needed economic reforms more difficult.”

And, of course, wages growth has slowed even more since the onset of Covid-19, and (as forecast in the government’s most recent Economic and Fiscal Update) it is expected to remain slow in the years ahead.

None of which is to deny that there are problems with Australia’s current superannuation system. In particular, it isn’t delivering for women, who retire with 47 per cent less superannuation, on average, than men. Given that the average woman lives five years longer than the average man, this means that women’s retirement income is far less likely to be “adequate” than men’s.

But no one has explained how increasing the super contribution rate to 12 per cent for everyone is going to deal with that problem.

And that’s why I answered the Conversation’s survey question about the currently legislated increase in the super guarantee contribution rate in the negative, and it’s why I expressed a relatively high degree of confidence in my response, something I don’t always do. •

The post Why I changed my mind about super appeared first on Inside Story.

The problem is that 80 per cent of MMT isn’t new, and the 20 per cent that is new (or, at least, different) isn’t plausible. Most of MMT is orthodox economics rebranded as a revolutionary new way of thinking, despite being anything but. The remaining 20 per cent, even if it could do half the things it claims, adds little; it is a solution in search of a problem.

To understand what MMT is, let’s start with the 80 per cent that isn’t new. For Kelton, the core propositions of MMT are that government budgets are fundamentally different from household budgets, that budget deficits are not necessarily bad, that governments should spend more when the economy is weak, and that governments should focus more on unemployment than budget deficits. She believes that the main constraint on government spending is inflation, that increasing the deficit need not make future generations poorer, and that governments can’t run out of money if they have their own central bank, their own currency and no foreign debt.

If that all sounds right and logical to you, that’s because it is. Most mainstream economists have been making these points for close to one hundred years. The only people who remain unconvinced are politicians — and the members of the public who vote for them.

What’s the problem with Kelton stating the obvious? The problem is that these findings are sold as innovative ideas from “MMT economists” that attack “orthodox economists.” More worryingly, the orthodox parts of MMT are then used to lend credibility to the bits that have none. MMT uses orthodox economics the way a drunk person uses sober people to get back into the pub: surround yourself with them in the hope that the untrained eye doesn’t spot you.

This brings us to the bits of MMT that are different but not plausible. They go something like this. Normally when the federal government spends money, it either increases taxes, cuts spending elsewhere, or borrows money from the public by selling bonds. MMT argues for a fourth option. Instead of taxing, borrowing or offsetting spending, the government should rely on the Reserve Bank to print new money. This, the argument goes, allows the government to substantially increase spending by implementing an economy-wide job guarantee — where anyone who wants a job, gets a job — and then raising taxes, if need be, to control inflation.

This is where MMT comes unstuck. A job guarantee can’t guarantee a job for everyone. If the unemployment rate falls below NAIRU — the Non-Accelerating Inflation Rate of Unemployment (somewhere between 4 and 5 per cent in pre-Covid Australia) — inflation increases, hurting investment, reducing consumption and bringing unemployment back up to this natural rate.

Kelton accepts that, at some point, falling unemployment will hit its limits and any additional government spending will be inflationary. Given the triple-whammy effect of a big increase in government spending, an increased money supply and the abandoning of inflation-targeting by the Reserve Bank (since its job would simply be to finance Scott Morrison’s spending), it follows that MMT needs a good plan for how to manage inflation.

It doesn’t have one. Its solution is that the government (that is, the politicians Kelton spends most of her book deriding as economically illiterate) will need to increase taxes to cool off the economy. It strikes me as politically naive to think that politicians will jack up taxes to cool inflation. Kelton is right: politicians are not known for their long-term thinking or their macroeconomic prowess, and they are definitely not known for their willingness to quickly raise taxes. Worse still, reducing demand in the economy in this way would require higher taxes for the people who do most of the spending: poorer people and the middle class.

The devastating inflation that hit the countless countries that have financed government spending using the printing press underscores this problem. Kelton goes to great lengths to explain that they failed because their political leaders didn’t do MMT properly: they ignored the supply-side constraints of the economy, spending too much and then not increasing taxes fast enough. The problem is that MMT relies on those same politicians to control inflation. It’s unclear why Kelton has so much trust in the very politicians she describes as economically illiterate.

For the sake of argument, though, let’s assume that this new system works perfectly. A much bigger problem remains: MMT is a solution in search of a problem. To see why, consider two situations: where the economy is at full employment and where the economy is not at full employment.

If the economy is at full employment, any additional government spending will be inflationary and MMT has nothing to add. To reduce the number of jobless people during a period of full employment would require supply-side reforms to boost productivity — things like competition reform and capital and labour-market reforms. MMT does nothing to solve the myriad supply-side challenges facing the world. If anything, MMT would reduce productivity by having the government allocate labour and control wages through a job guarantee and the financial repression of keeping interest rates low.

Nor is MMT helpful if the economy isn’t at full employment, as is likely in the post-Covid world. A big increase in government spending, financed by the central bank, would boost growth, boost job creation, boost wages and get inflation back up to where we need it. These are all wonderful outcomes. The problem is that exactly the same results could be achieved through the existing framework.

They would be achieved if Scott Morrison promised to keep increasing government spending and issuing bonds until the economy reaches full employment. But wouldn’t this mean lots of debt to be repaid and lots of interest to be paid on that debt — things that could be avoided through MMT? No. If interest rates on government debt are at or near zero (which they are) and the government grows out of the debt rather than repays it (which it should), then the outcomes of MMT and the current framework are no different. As economist Olivier Blanchard has noted, issuing bonds (the current system) is the same thing as issuing money (MMT) when interest rates are effectively zero.

This is not to say there wouldn’t be crises in which the direct financing of government spending by the central bank would be a good idea. But those circumstances would be exactly that: a crisis. Adopting a crisis measure as a permanent macroeconomic framework is like a healthy person taking adrenaline every day — give it a try sometime.

If Kelton’s book convinces people and politicians of what orthodox economics has been teaching for decades, then it will have done an excellent job. But if it convinces people and politicians that MMT can offer things that the current system can’t, then it will only create more noise, more delays and more obstacles to solving the huge economic and social problems Australia faces. •

The post Modern Monetary Theory: a solution in search of a problem appeared first on Inside Story.

So, if the benefits of a job guarantee are so big, what’s the problem?

The most commonly cited problem is probably the least compelling: that a job guarantee would cost a lot of money. Estimates are often around $20 billion to $30 billion a year. These numbers are big, but misleading. After all, this money doesn’t vanish. It goes into goods, services and household savings. One person’s spending is another’s income.

More importantly, the cost of a job guarantee must be weighed against the social costs of inaction. And with the government’s real borrowing costs at or below zero, and no convincing reason to repay debt so long as GDP growth exceeds government bond yields, the cost argument is weaker than ever.

But a job guarantee has bigger problems — macroeconomic, operational, political and the existence of a more effective alternative — that make it a poor choice.

The macroeconomic problem is that a job guarantee can’t guarantee a job for everyone. Unemployment has a “natural rate,” estimated at between 4 and 5 per cent in pre-Covid Australia. If unemployment falls below this rate, inflation increases and interest rates rise, hurting investment and consumption and bringing unemployment back up to this natural rate.

Arguments that we can defy that kind of economic gravity are unconvincing, with big trade-offs. They usually rely, among other things, on having the government set or heavily influence wages, which would kill more jobs than it creates. The better approach is to get the natural rate of unemployment lower (which can only be done through productivity-enhancing reform) while stimulating demand. Governments could do both, but don’t.

A job guarantee faces more daunting operational challenges. The Australian Bureau of Statistics shows that the long-term unemployed often face complex and self-reinforcing challenges, ranging from insufficient skills and training to poor physical and mental health, limited social capital and higher rates of drug and alcohol abuse. The long-term unemployed need more than just a job.

Many of these things are caused by long-term unemployment as much as they are causes of it, but they are nevertheless hurdles to be cleared before the first interview. Advocates of a job guarantee recommend programs to boost education, training, health and job-readiness — programs that, again, should be implemented today outside of any job guarantee, but aren’t.

Then there’s the question of where the guaranteed jobs would come from. Most proposals advocate wage subsidies (encouraging private sector employment), direct government employment (such as community projects) or a combination of the two. Reviews of Paul Keating’s Job Compact show that the private sector rarely comes to the party; most people are employed directly by government.

Government is economically justified in employing people to supply public goods and services (infrastructure, defence, healthcare, education), but most of these jobs require long-term (not short-term) employees with specific skills. This means there is a limited pool of productive jobs the government can offer without either crowding out the private sector or creating big inefficient programs. That’s why economists preferred Julia Gillard’s price on carbon over Tony Abbott’s “green army.”

These operational questions just scratch the surface. Will unemployed people be forced to take a guaranteed job? Is the rest of the social safety net abolished? Are people and their families required to move interstate for work? What happens if people don’t leave the guaranteed job to take a private sector job even if the wage is higher? Can someone be fired from a guaranteed job? Do these jobs provide superannuation, leave and other entitlements? Is there a risk that the guarantee stops people searching for other jobs?

To be fair, none of these questions is new. Advocates of a job guarantee have answers for all of them. But their answers all involve (and rely on) the same thing: a huge, highly competent and highly coordinated bureaucracy that gives significant attention to detail, working in a flexible and patient system that can be tailored to the unique circumstances of Australia’s unemployed people.

This strikes me as a tall order. Governments are pretty good at one-size-fits-all. But when we want something more tailored and individualised, we usually leave it to markets, where the role of government is to shape incentives and top up incomes. It’s hard to think of examples where the government has successfully delivered tailored, individualised solutions to the public on a large scale. The government’s response to Covid-19 is a case in point.

This brings us to the political challenge. Advocates of a job guarantee are the first to acknowledge that it occupies a difficult space in politics. Many on the political left see it as work-for-the-dole on steroids: a right-wing, neoliberal conspiracy to undermine and destroy the safety net by stealth. Many on the political right see it as nothing more than rank socialism: a massive expansion of government and the abandonment of free markets.

Perhaps these attitudes will change. But the fact that neither side of politics is currently willing to champion an idea that has been around for generations suggests a job guarantee’s political feasibility is far from guaranteed.

But the biggest problem with a job guarantee is encapsulated in my favourite quote from The Simpsons: “We’ve tried nothing and we’re all out of ideas.” The same is true when it comes to Australia’s unemployment challenge.

Unemployment is rising rapidly and is likely to stay high for many years. What are we doing in response? The government has reduced the size of JobKeeper, reduced the size of JobSeeker and reduced other stimulatory spending. Structural reforms like tax reform, product market reform and labour market reform are nowhere to be seen. The Reserve Bank has stopped quantitative easing, ruled out doing more, and shrugged off the unconventional policies being deployed in other countries. The welfare safety net has been inadequate and poorly targeted for decades, with no serious attempts to fix it or tackle the complex challenges facing the long-term unemployed.

The notion that Australian governments have “tried everything” and must now turn to radical approaches like a job guarantee is unconvincing when our existing tools remain largely unused. Nobody doubts that these conventional policies — fiscal policy, monetary policy and structural reform of the tax and welfare system — if thoughtfully implemented, would reduce unemployment.

The unwillingness of governments to use these existing tools highlights the real problem: a lack of political will to fix a system that works for the majority. Perhaps Covid-19 is the political circuit-breaker we need. But the fact that an idea as old as a job guarantee still struggles to garner support suggests it is not up to the job. •

The post Is a job guarantee the answer? appeared first on Inside Story.

In developing the job guarantee proposal, Pearson has linked up with economist Bill Mitchell, a leading proponent of Modern Monetary Theory, or MMT. Mitchell argues that fiscal deficits are not inherently bad and that seeking to control inflation by maintaining a “buffer” of unemployed people (the current orthodoxy) is economically damaging. While the lively international debate about the feasibility of MMT is important, the job guarantee proposal doesn’t stand or fall according to how you view MMT.

Proponents argue that a universal job guarantee, set at the minimum wage, would have three important benefits. It would act as an “automatic stabiliser” (in Keynes’s terminology) by countering undue rises or falls in demand across the economy. It would forestall the significant economic and social costs of structural unemployment. And it would allow the central bank to focus squarely on managing inflation rather than having to attend to both inflation and employment targets.

In an opinion piece in the Weekend Australian, Pearson made plain what was driving his interest in this issue: “My people, consigned to welfare and structural exclusion from the real economy in the post-60s era of growing unemployment, have been victims of public policy choice for which there existed a better and more humane alternative.” He went on to outline his long campaign against passive welfare and its “bitter harvest”: “social problems, broken families, intergenerational poverty, lower life expectancy, egregious rates of out-of-home care for children, juvenile detention and adult incarceration.”

Although the necessary legislation would be national, the scheme would be administered through local government, Pearson wrote. He distinguished it from work for the dole — “It’s a full-time, minimum-wage job” — and stressed that the payment would replace unemployment benefits and end the churning of “hapless clients” through welfare-to-work programs.

Three weeks later, Pearson and Mitchell followed up with a two-pronged argument for their idea. First, focusing on the employment gap for Indigenous citizens, they cited a recent national cabinet pledge (not then public) to raise the Indigenous employment rate from 49 per cent to 60 per cent of working-age people by 2028. When it was finally announced on 29 July, the target was set at 62 per cent by 2031. With the mainstream rate currently 75 per cent, this new Close the Gap target concedes that four in ten Indigenous people will be without a job for the indefinite future.

Second, focusing on mainstream employment, they pointed to current estimates of 7.4 per cent unemployment and around 11.7 per cent underemployment. Figures recently published by Mitchell suggest that an annual $50 billion in government outlays could create 1.24 million jobs and bring employment down to 4 per cent. This fiscal stimulus would also have the flow-on effect of increasing private sector demand for labour, and its cost would come down as the private sector picked up.

Pearson and Mitchell point (persuasively, in my view) to the illogicality of the government’s recent decision to withdraw fiscal stimulus in the face of ongoing community shutdowns and rising unemployment.

Finally, they argue that separating Indigenous disadvantage from mainstream disadvantage is a poor policy choice:

[It] allows a pall of exceptionalism to be cast over the constantly depressing and outrageously out-of-step numbers that characterise Indigenous disadvantage. It’s as if the country — inured to the bad numbers — has come to accept that little can be done.

The country needs to address inequality and poverty as an Australian problem, not just an Indigenous problem.

So, how should we assess Pearson and Mitchell’s job guarantee plan?

The Australian’s editorial on 8 July 2020 provided an early critique. Headed “The Promise and Pitfalls of Modern Monetary Theory: Printing Money Doesn’t Reduce Deficits or Create Lasting Jobs,” the editorial takes aim at Pearson and Mitchell for overreach, the cost of administration, and the putative lack of fiscal self-control if “a populist National, a clueless Green, or a Labor class warrior” were they to control the Treasury benches.

“Pearson’s is a mammoth, brave proposal, one that would redefine the role of the state,” said the editorial, conceding that “In the midst of the greatest social and economic calamity in ninety years, there has to be more scope for imagination and ambition in our policy approach.”

Nevertheless, it saw a number of hurdles. The cost and administration of the scheme “would be vast,” work incentives would be skewed, some citizens wouldn’t want to work or train, and welfare would still be required for those who fall through the cracks. “While the policy edifice is failing Indigenous people, a neat solution is a chimera,” it summed up, concluding with the trite observation that:

we live in a complex, even messy world… How can you hope to manage the economy?… As an analytical tool the theory [MMT] has merit. But with printing money in the real world, there is a day of reckoning or just a long stagnation. Our income can never be guaranteed, so we need to earn and pay our way.

The value in this editorial is that it begins to set down the outlines of the case against the Pearson–Mitchell proposal — and it appears to be a collection of time-worn chestnuts synonymous with the slogan “private good, public bad.”

The Australian relies on the ideological trope that fiscal responsibility (austerity, in other words) must at all times be paramount in policy-making and administration — an idea already blown to smithereens by the pandemic. It also assumes that government’s role should be minimised and the concomitant red and green tape shredded — a view also blown out of the water by the exigencies of the pandemic. And its argument rests on a belief that complexity and messiness make for expensive policy and programs. Well, yes, but that reflects the world we live in. Markets and Adam Smith’s “invisible hand” are amazing mechanisms for allocating resources, but they require strong and independent regulatory oversight if they are to work in the public interest.

What is missing from the Australian’s critique is an acknowledgement of the devastating costs (both financial and intangible) of an unemployment rate in excess of 10 per cent — and much higher among young people — over a sustained period. A recent Productivity Commission working paper on the consequences of the global financial crisis reports that “workers aged twenty to thirty-four experienced nearly zero growth in real wage rates from 2008 to 2018, and workers aged fifteen to twenty-four experienced a large decline in full-time work and an increase in part-time work.” Imagine what the commission will report in 2030 about the consequences of the current crisis.

A second omission from the Australian’s response is any acknowledgement of past policies directed at full employment, including New Deal–era programs in the United States and Australia’s own 1945 White Paper on Full Employment, which underpinned the postwar boom. The white paper’s full employment focus continues to this day as one of the legislated core functions of the Reserve Bank.

The third major omission is any conception of a dynamic and evolving role for government not just as a provider of public goods but also as a manager of risk. A job guarantee can be viewed as an institutional mechanism to retain, strengthen and develop the nation’s human and intellectual capital. To take just one example, the laws governing limited liability corporations are a form of risk insurance for shareholders. As the American economist David Moss points out in When All Else Fails: Government as the Ultimate Risk Manager, it wasn’t initially obvious that such innovations were required or would work. Today, they underpin the financial markets that raise most of the world’s capital for investment. I don’t hear any calls for this “red tape” to be removed.

Ultimately, though, the problem with the Australian’s editorial is that it focuses on the costs of delivering a job guarantee but entirely ignores the costs of failing to deliver one. Yes, a job guarantee would have implications for other policies. But it should be included on policymakers’ list of potential priorities and assessed against all others.

Leaving employment policy to the private sector is a choice of policymakers and governments, and it has serious consequences for citizens who can’t find work. Conveniently for governments, employment levels are made to seem as if they are someone else’s responsibility. Notwithstanding the rhetoric of the government (and indeed the opposition), the current orthodoxy allows governments to avoid hard decisions about social priorities. It means they can dodge the question: is full employment a priority or not?

In other words, I am a strong supporter of the Pearson–Mitchell proposal. If implemented, it would expand social inclusion, alleviate financial disadvantage and undoubtedly have other positive spin-offs for individuals, while providing a considerable impetus to social and economic infrastructure in local and regional communities. It would also make a huge contribution to eliminating Indigenous disadvantage, although it is not a silver bullet in that regard.

Like any complex public policy proposal, the guarantee will present challenges. As with planning for postwar reconstruction in the 1940s, designing the scheme will throw up many issues, the administrative systems required will be complex, and unintended consequences will emerge, particularly in the implementation phase. Tension is inevitable between the Commonwealth, as the funder of the program, and the delivery agencies (currently proposed to be local governments) over modes of operation, allocation of labour resources, and lines of accountability and reporting. These are not insurmountable challenges, but they do point to the importance of maintaining a degree of flexibility in the overall architecture of the scheme.

Despite the substantial merits of this proposal, though, the likelihood of any Australian government implementing it over the next five years is close to zero. This is not down to any fault in the proposal; it reflects the quality, risk aversion and blinkered ideologies of our governments and public institutions.

Would any modifications to the proposal make it more attractive to government? While a key virtue of the Pearson–Mitchell proposal is that it is universal, it may be that a second-best option, more limited in scope, will have a better chance of being implemented. This wouldn’t preclude the eventual adoption of a universal scheme and would provide an opportunity to test what will inevitably be a challenging and complex reform.

The economic and social crisis arising from the pandemic certainly demands more than business as usual, and its impact is likely to persist well beyond the current political cycle. This suggests that a proposal focused on the current crisis — rather than an open-ended scheme — might be more politically palatable. With a ten-year horizon, for instance, the effectiveness of the policy could be assessed based on its tangible record in cushioning the economic impacts of the crisis.

Another possibility would be to introduce the job guarantee across remote Australia, replacing the current Community Development Program, which is widely acknowledged outside government circles to be less than effective and highly punitive in its implementation. The levels of unemployment and underemployment are far worse in remote and very remote Australia, and it is already clear that current policies are doing very little to turn that around.

Even this scaled-back version would meet political resistance, but the Commonwealth’s very modest Indigenous employment ambitions in the new Closing the Gap program — and the absence of any strategy to meet even those meagre targets — suggests the need to try something new. A mainstream job guarantee in remote Australia would automatically target a substantial proportion of the most disadvantaged Indigenous citizens in the nation.

However a job guarantee program is rolled out, the unique circumstances of remote Australia will require particular attention. Indigenous organisations would expect to co-design the program, and community-controlled organisations would expect accreditation as job providers. The decentralised demographics and legitimate cultural aspirations of the remote Indigenous population will also create challenges. The lack of resources for managing the extensive and growing Indigenous land estate will need to be a focus, and the guarantee must build on successful innovations like the “working on country” programs that fund over one hundred ranger groups across the nation.

In what is clearly shaping to be a once-in-a-century financial, health and social crisis, the job guarantee is an idea whose time has come. It would align squarely with both major parties’ claim that job creation is the key priority for government. It would provide stimulus over the next decade. It would build rather than waste our most precious national resource, the skills and intellectual capital of our citizens. It would provide a strategy to reject the idea that the nation’s prosperity requires the impoverishment of a significant proportion of our citizens, particularly our youth. And it would open up employment opportunities to structurally excluded Indigenous communities and citizens — a choice the nation has lacked the political will to reverse.

In the shadow of a potentially existential climate crisis, we need all hands on deck. The national interest requires that we use all the human resources available in economically, socially and environmentally productive ways. •

The post All hands on deck appeared first on Inside Story.

This sentiment often comes up when we talk about more trade between countries, more competition between firms, and fresh advances in technology. All three reduce prices, which benefits the poorest consumers in our communities the most. But at what cost? If it means fewer jobs for Australians, Australians don’t see lower prices as being of much value.

This is a false trade-off. Not only do trade, competition and technology reduce prices for consumers (which means greater purchasing power for everyone), they also create jobs. This is not to say there are no losers: all three will destroy some people’s jobs. But history shows that they create jobs for other people and, most importantly, they create more jobs than they destroy. The real problem is politics. In advocating economic reforms, politicians neglect to mention that there will be losers from those reforms and, in doing so, make no plans to help them.

Take trade first. Trade has dramatically reduced prices for Australian consumers — audiovisual and computing equipment is 72 per cent cheaper thanks to trade, cars are 12 per cent cheaper, toys and games are 18 per cent cheaper, clothes are 14 per cent cheaper. But when it comes to the impact on workers, Australians are more suspicious.

They shouldn’t be. Research shows that Australia’s trade undoubtedly creates more jobs than it destroys. More importantly, the negative effect that imports can have on employment is weakening over time as more of the things we buy from overseas (mining equipment, IT equipment) are used in what we export (mining resources, education services).

These results are not surprising when trade is properly understood. Trade is about specialisation. It allows us to focus our finite resources (labour, capital, energy, materials) on producing the things we are good at (and that earn us the most money) while importing the rest. Focusing on the jobs lost from trade is to look at trade with one eye open. For every job lost in one area, more have been created in another.

Encouraging stronger competition between firms often attracts the same criticism. The idea is simple: industries protected from competition by government laws and regulations (domestic airlines, pharmacies, the medical profession, the legal profession, coastal shipping and many more) might charge higher prices for consumers, but at least their workers are safe from losing their jobs through cut-throat competition.

Again, the research shows this is completely backwards. Economic theory suggests that stronger competition means increased productivity and more businesses competing to attract workers, both of which result in higher wages and better conditions. And this is what we see in the data. Industries that lack competition not only inflict higher markups on consumers, they also treat workers terribly: they pay them less, are more likely to form anti-worker cartels and push down the share of national income going to wages. Paul Keating’s competition reforms substantially reduced prices — they made electricity 19 per cent cheaper, telecommunications 20 per cent cheaper and milk 5 per cent cheaper — and created more jobs as the reforms took effect.

Technology is the most controversial of the three alleged job-destroyers. By producing cheaper goods, automation has dramatically reduced the cost of living for the most vulnerable. But warnings about its effect on employment have been dire. Up to five million Australian workers might need to find new jobs, according to McKinsey. These aren’t just forecasts, either. The number of workers needed to make a car has fallen from eighty-four during the time of Henry Ford to just a handful in the time of Elon Musk, thanks primarily to automation.

But, again, this is a one-sided view. Advances in technology have created jobs and industries that Henry Ford could never have imagined. The long view of history shows that the disruptions caused by advances in technology have created more jobs than they’ve destroyed. In Australia, despite significant increases in all the things commonly believed to destroy jobs — trade, competition and technology, as well as immigration, population growth and foreign investment — both employment and workforce participation have trended upwards as a percentage of the population over the longer-term.

So why are Australians so glum about trade, competition and technology? Behavioural economics suggests a few theories. Topping the list are loss aversion, status quo bias and the identifiable-victim effect. Studies show that people get a greater benefit from not losing something than they got from gaining that thing in the first place; that people have a bias towards the status quo; and that people respond more strongly to a person clearly harmed by an action (for example, the unemployed worker on the TV news) than to a large but invisible group that benefited (for example, consumers).

Politicians know this. So, when they set about selling a reform that has both winners and losers, it’s easier to lie. They sell trade as “boosting Aussie exports” and “opening markets overseas,” and they sell technology as “the most exciting time to be an Australian,” because that way there are no losers. The problem is that there are losers from trade, competition and technological change, and pretending this is not the case prevents politicians for developing the supports and compensation those people need.

The result is exactly what we have today: a patchwork of weak state and federal policies on retraining and reskilling, inadequate and poorly targeted safety nets and a constant demonisation of the unemployed. It’s only when we accept the facts about trade, competition and technology that we can have an informed pubic conversation about how to manage their costs and benefits. •

The post Workers versus consumers: a false tradeoff appeared first on Inside Story.

These groups, mostly poorly paid, are in service occupations. But professionals — most obviously, health professionals, from public health experts to doctors and nurses — are also critical to our response. Parents who have suddenly had to oversee homeschooling have been made aware of the hard work done by teachers.

On the other side of the coin, millions of workers have lost their jobs, or kept them only because of the JobKeeper scheme. Those losses have been concentrated in tourism, restaurants and cafes, universities and other service sectors.

Most of the industries shut down by the pandemic, as well as most of those we’ve relied on in the fight to control it, are large employers of women. Job losses have been particularly concentrated in industries that employ young people, who are trying to make the transition from education to employment.

Yet anyone looking at the recovery strategies put forward by governments at state and federal levels would barely be aware that these occupations exist. The focus of all of these strategies is on the kinds of workers (mostly men) who wear hard hats and hi-vis clothing.

The federal government’s National Covid-19 Coordination Commission’s strategy is based on expanding the oil and gas industry, which employs about 20,000 people. The NSW government is even more backward-looking, attempting to extend the life of the doomed coal industry. The Queensland government’s strategy, focused on agriculture, mining, manufacturing and construction, is little better, but at least gives a nod to industries of the future. A fresh airing was given to other perennial proposals, including very fast passenger trains and the Bradfield scheme to turn back northern rivers.

It is hard to overstate how misconceived these strategies are. But it may be useful to look at some statistical evidence before going any further.

Australia’s workforce falls into three groups: manual workers (trades workers, machinery operators and drivers), service workers (community services, clerical and sales) and professionals (including managers). In February 2019, professionals constituted the largest of these groups (36 per cent of employed people), followed by service workers (33 per cent), with manual workers (30 per cent) making up the smallest group. This represents a reversal of the pattern in 1986, when manual workers made up 40 per cent of the workforce, service workers 32 per cent, and managers and professionals only 27 per cent.

Industry data makes the same point. As of February 2019, agriculture, mining and manufacturing accounted for about 10 per cent of the workforce, and construction less than 10 per cent. In total these hard-hat industries are slightly smaller than the combined totals for healthcare and education, a little over 20 per cent of all employment. The remaining 60 per cent of employment is spread across a range of service industries.

An industry strategy focused on hard hats would be misconceived at the best of times. But it is particularly inappropriate in the context of the pandemic. The industries being promoted as the way forward are not only declining in terms of employment share, they are overwhelmingly dominated by men and (with the partial exception of construction) by prime-age (twenty-five to fifty-five) and older workers.

Yet the pandemic has affected female workers, and young people of both genders, far more severely than prime-age men. Women have suffered both in terms of job losses and from the increased burden of domestic work arising from school closures. Younger workers were badly affected by underemployment even before the pandemic and are likely to suffer reduced income throughout their lives as a result of the crisis.

Sadly, none of this seems to matter to politicians faced by a photo opportunity in a hard hat. This is a time when we could do with some radical, even utopian, thinking about the way we organise life and work after the pandemic. Instead, we get policies that resemble an episode of Utopia. •

The post Hard-hat utopians appeared first on Inside Story.

At the National Press Club yesterday Scott Morrison announced not only that he would be abandoning his anti-union “ensuring integrity” bill but also that his government would be bringing together unions and businesses to sort out changes to a broken industrial relations system. “It is a system that has, to date, retreated to tribalism, conflict and ideological posturing,” declared one of the country’s chief tribalists, conflict merchants and ideological posturers.

This is no Accord-style proposal, and there is enough half-cooked history out there already without adding more to the pot. The Prices and Incomes Accord was not a meeting between government, business and unions; it was an agreement and partnership between the Labor Party, then still in opposition, and the Australian Council of Trade Unions. It did not include business. It was not based on the idea of a government sitting down with one interest among many and having a pleasant chat about industrial relations law. It assumed that unions — or at least their leading officials — would be brought into the policymaking processes of government. And to some extent, over the years ahead, that is what happened.

The Accord was a trade-off in which unions agreed to wage restraint in return for the legislative benefits sometimes called a “social wage.” One aim was to contain inflation, which the Labor Party and the ACTU could agree was a problem for both workers and the national economy. Another — especially on the union side — was to ensure that its members would benefit from Labor in government. Medicare is one of the Accord’s progeny. Compulsory superannuation would become another.

Nor was the Accord an effort to reform the industrial relations system. On the contrary, it depended on the existence of strong unions, a centralised system of wage determination and an empowered Arbitration Commission — the combination that had underpinned Australia’s industrial relations system since the early years of the century. Once that system was gradually wound down from the late 1980s and replaced by enterprise bargaining, the Accord became increasingly unimportant, even as it moved through to an eventual Mark VII (or Mark VIII, if you count the one never implemented because Labor lost the 1996 election).

It is also fundamentally mistaken to imagine that having an Accord is somehow at the other end of the spectrum from doing what Scott Morrison and the Coalition have spent a great deal of energy and effort trying to do: coerce the unions. The Accord — if I may borrow an evocative phrase used by the late Peter Coleman in quite another context — was a combination of the “open smile” and the “broken bottle.”

It was all smiles if unions behaved themselves. But if they didn’t — if they were like one of the ancestors of the CFMMEU, the Builders Labourers Federation — they could expect to feel the full force of the government’s iron fist. The BLF was deregistered when it refused to play ball — by federal and state Labor governments. The Federation of Air Pilots was treated with no greater tenderness when it demanded wage increases of almost 30 per cent.

Far from representing some personality change, Scott Morrison’s plans for sweetness and light between government, unions and business look more like cover for his necessary decision to abandon a bill that was going nowhere and had become an embarrassment in a political and economic environment transformed by a pandemic. The iron fist won’t be far away: Morrison will not play to Sally McManus in the way Robert Menzies did to her distant predecessor Albert Monk, or Malcolm Fraser did to Bob Hawke, because he doesn’t have to. Monk and Hawke led an ACTU that represented half (or more) of the workforce, in an industrial relations system that did organised labour plenty of favours. McManus, while widely respected, leads a union movement that enjoys none of these advantages.

The Accord had its critics at the time. Even during the 1983 election campaign, a young shadow treasurer, Paul Keating, in one of the more embarrassing of the campaign’s gaffes, admitted that he did not know whether it would work. It was not a good look for a party that was using the Accord to show that it could rebuild a failed economy in partnership with the unions. For the right, the Accord gave unions too much influence over a government led by a former ACTU president. For critics on the left, all the sacrifices seemed to be on the union side. The benefits to workers seemed meagre, especially once the government became increasingly preoccupied with cutting expenditure during the economic crises of the mid 1980s — which Keating warned might otherwise turn Australia into a banana republic.

Observers frequently confuse the Accord with the National Economic Summit of April 1983. Held in the House of Representatives chamber of the old Parliament House, the summit was a rather dramatic statement by a new government about its own priorities. It included business as well as unions, state governments and even the odd representative of the community sector. The whole affair was treated as a great triumph for Hawke — he had supposedly signed up both the unions and business to his economic agenda — but it was in many ways an enlarged and polite version of the blokey world of horsetrading and deal-making in which Hawke had flourished in the 1960s and 1970s. Most of the major interests that we would now regard as needing to be represented on such an occasion — First Nations people, women, the unemployed, people with a disability — were absent. It was of its times, a meeting of men in suits.

Those times have changed, but Hawke continues to mesmerise the political class, even on the right, his governing style seemingly the gold standard ever after. He remains the prophet of “consensus” as surely as Menzies is the prophet of “the forgotten people” and John Howard of “the battlers.” “Bringing Australia Together” — a 1983 Labor campaign slogan — is now treated as the only viable alternative to the aggressive and snarling partisanship that seems to have been the default position of Australian politics for a generation. But democracy is about contention as well as consensus.

The Accord envisaged a cooperative but empowered union movement, one that still represented about half the workforce. Its critics on the left today, including political economist Elizabeth Humphrys in an important recent study, argue that it left in its wake a neoliberal economic order and a union movement so bereft of rank-and-file power that it could no longer offer any serious challenge to government or bosses. The kind of sweetheart dealing between unions and employers — often at the expense of members — uncovered by the trade union royal commission was one fruit of its creeping frailty. Another has been the flat wages, wage theft and deteriorating employment conditions — especially for casual workers — that have dogged the economy for years.

If it is far from clear what the unions have to offer Morrison, it’s hardly more so what he can offer the unions. He has placed on the table issues such as “award simplification” (whatever that means); “enterprise agreement making” based on the need to “get back to the basics” (of course we do); casuals and fixed-term employees (about which he offers no views); “compliance and enforcement” (followed by a reference to unions and employers doing “the right thing”); and “greenfields agreements for new enterprises” (at this point, union official breaks out in a cold sweat). There’s not much for unions to get their teeth into here, but plenty that ought to worry them in the hands of a government that has been relentlessly anti-union since the moment it took office.

Is he going to provide unions with greater opportunities to organise than current labour laws allow them? That would go down like a lead balloon among the Coalition’s “base,” business donors and barrackers in the right-wing media. Is he prepared to do anything to encourage union membership, given that he’s recently discovered how terribly helpful unions can be? (After all, unions do have to be paid for, and those who pay their union dues are often underwriting the wages and conditions of the many more who don’t.) What support is he prepared to offer coal workers certain to be restructured out of their jobs in the years ahead? Or are we just going to get continuing reruns of the false hope that workers and communities will have a bright future if only Labor and the Greens can be kept at bay? As ever with this marketing man as prime minister, all that is solid quickly seems to melt into air.

Whatever the outcome of this initiative, let’s not pretend that we are seeing the return of the Prices and Incomes Accord. It had its faults, but it was at least based on the idea of workers getting something in return for stagnant wages. By way of contrast, Morrison offers… what? It’s hard not to see this as an example of the kind of frontrunning and kite-flying Morrison was prone to as treasurer, at least according to Malcolm Turnbull’s recent memoir. •

The post Are we in Accord? appeared first on Inside Story.

Public discussion about migration to Australia tends to simplify a complicated and nuanced reality. Annual permanent migration to Australia stood at 179,085 in 2018–19, made up of approximately 62 per cent in the skilled stream, 27 per cent in the family stream and 11 per cent in the humanitarian stream, which includes refugees. As of 4 April 2020, around 2.17 million people were living in Australia on temporary visas, including roughly 672,000 New Zealanders, 565,000 international students, 203,000 international tourists, 118,000 people on working holiday visas, 139,000 temporary skilled visa holders, and about 90,000 people on temporary graduate visas. This total also includes more than 280,000 people on bridging visas but not the estimated 50,000 to 100,000 people without a visa.

This picture is complex enough without delving into the quagmire of visa categories and conditions that apply to refugees and asylum seekers, depending on how they arrived and where in the immigration process they are.

Rather than focusing on visa categories, though, we want to explore two much more important questions. How can Australia respond to the individual needs of migrants as they settle here, regardless of their visa category? And how can we best support all migrants to participate fully in Australian society and the economy?

Despite the fact that temporary visa holders benefit Australia in many ways, the federal government largely expects temporary migrants to look after themselves while they are here. Yet they bring many benefits. They pay tax; they fill skills gaps and labour shortages in sectors including health and care, logistics and agriculture; and they often live and work in regional locations crying out for residents and workers.

Temporary migrants also support some of our largest industries. The Victorian government estimates that just one group — the 250,000 international students who came to the state last year — contributed $12.6 billion to state revenue. And, while there have been calls to put Australian workers first, studies show that migrants don’t disadvantage local workers, and can actually lift their participation in the workforce.

A new report by Eve Lester has found that the federal government treats migrants predominantly according to their visa status rather than their individual needs. Funding or contractual arrangements often mean that non-government agencies largely follow these government policy and program settings, leaving temporary migrants particularly vulnerable.

Lester stresses that the term “temporary” is in many ways misleading. For many migrants a temporary visa is a step towards permanent residency, although this goal has become increasingly hard to attain. Lester notes the growing underclass of “permanently temporary residents” that live in “a holding pattern that makes them highly exploitable and in which they hover at the margins of socioeconomic engagement.”

The current approach to migrant services “creates cracks through which those in the grey areas will invariably fall,” says Lester. Women on temporary visas who are experiencing intimate partner violence, for instance, often face barriers to seeking help, such as fear of deportation or losing custody of their children, and limited English skills. Most are ineligible for Centrelink financial support or childcare subsidies, and social and community housing is largely inaccessible to them. They often have no option but to remain in a dangerous situation.

While the federal government has funded the Red Cross to provide a small one-off emergency relief payment to temporary visa holders at risk of destitution, the exclusion of temporary migrants from its broader response is only deepening this disadvantage. In the short term, expanding existing pandemic measures to include temporary visa holders in vulnerable situations is vital. Australia could also learn from how other countries are tackling labour shortages in the health sector, including by fast-tracking overseas skills recognition for refugees and new migrants.

All states and territories are now providing grants or other support for international students and/or other temporary migrants unable to return home. Some universities are also filling the gaps with emergency support funds for stranded international students. In each case, this reflects an understanding of not only the short-term imperative of supporting these Australian residents but also the long-term implications of their exclusion.

Nearly 300,000 temporary visa holders are thought to have left Australia since the start of the year. With immigration paused indefinitely, none will be arriving to replace them. This gives us the opportunity to ensure that migrant services are more effective when borders reopen.

Fortunately, we already have the blueprint and tools we need to achieve this. Last year a panel led by former senior public servant Peter Shergold set out a compelling blueprint for improving the settlement experience of humanitarian migrants. Their proposals would link the efforts of Commonwealth, state and local governments to industry and the community sector, reducing the wasteful fragmentation built into the current system. This approach could equally be used to support other vulnerable migrants in Australia.

Their proposals for humanitarian migrants have been endorsed and promoted by the federal government, and many are already in train. For instance, the Department of Home Affairs, where Australia’s immigration programs sit, took over management of settlement services and English-language programs in mid 2019. Alison Larkins has been appointed to the new role of the Commonwealth coordinator-general for migrant services, and a new Refugee and Migrant Services Advisory Council, with members from civil society and the private sector, was announced in February this year.

Reforms are being tested now to ensure the national employment services system, Jobactive, adapts much more effectively to an individual’s journey, employers’ needs and local circumstances. This should mean a far better service for all unemployed and underemployed Australians, and more resources for those with complex needs. More flexible delivery of the Adult Migrant English Program is also slated for testing this year. Experience with JobSeeker and JobKeeper should point the way towards targeted wage subsidies and higher levels of unemployment support for the most disadvantaged jobseekers.

Locally connected, place-based approaches to delivering critical services have been widely commended and are achieving good results. These approaches use local networks to lift social and economic participation. In Victoria, for example, Wyndham City Council and its partners have been running the Wyndham Employment Trial to boost economic participation for young people and humanitarian migrants. Eighteen employers are recruiting, and ninety-four humanitarian migrants have been placed in employment.

Working arrangements built during the trial are helping local organisations to respond in a coordinated way to the challenges of finding work for jobseekers in the wake of Covid-19. The success in Wyndham sheds light on how we can better support refugees and vulnerable migrants to settle in Australia.

Fully implementing the necessary governance and service reforms, and scaling up effective place-based approaches to include broader groups of migrants and others facing disadvantage will ultimately lead to more successful settlement and a more inclusive society.

It has been estimated that greater social and economic inclusion will yield serious economic benefits for Australia. Queensland alone stands to gain $250 million over ten years by making better use of the skills of migrants and refugees. Reducing gaps in participation, employment and income by 25 per cent relative to the average Australian jobseeker for just one annual humanitarian intake could be worth $180 million to the federal budget over ten years as well as $484 million in income for those refugees and their families.

Refugees are known to be Australia’s most entrepreneurial migrants — they are nearly twice as likely as other Australian taxpayers to run businesses — and every 1000 new refugee businesses generates $98 million in annual economic activity and taxes.

The pandemic has exposed Australia’s disjointed approach to migrant support, but it has also inadvertently created a chance to do better — to enhance Australia’s recovery and, at the same time, bed down the reforms we need to harness the full potential of Australia’s migrant population.

A lot of the thinking has already been done, and Canberra has created the necessary governance mechanisms. Now is the time to grasp the opportunity to scale up these initiatives. •

The post A chance to do better for migrants, and for the economy appeared first on Inside Story.

If your encounter with this overstretched medical system proves fatal, then you’re just one more victim of the American government’s failure to react quickly and effectively to the coronavirus threat. If you’d arrived at an Australian hospital with those symptoms, on the other hand, you’d be much more likely to get undivided attention.

The difference seems obvious, and yet this clear benefit of Australia’s response to Covid-19 is often ignored in economic commentary about the trade-offs made by different countries in recent months. Some commentators assume that the cost of economic and social restrictions can be calculated simply by looking at lost production and the rise in unemployment. To get a real sense of costs, though, we need to use the full range of macroeconomic tools to compare the impact of the government’s restrictions with the counterfactual scenario of what would have happened without them.

First, it’s important to recognise that the economic fallout appears to be just as bad, and could end up being worse, in countries with fewer restrictions. The recession is a global phenomenon, and it will affect countries engaged in strong mitigation strategies (Australia and New Zealand, for example) alongside countries taking less stringent approaches (like Sweden and the United States).

In fact, it is possible, even likely, that the recession will turn out to be less severe in countries with stronger mitigation strategies. Thus, the restrictions could have relative economic benefits, not costs, in terms of output and employment.

Compounding the problem is the tendency of this commentary to take a static rather a dynamic perspective. A static trade-off uses a one-time calculation that balances, say, the value of a life against the value of a maintaining a job. It depends on a cold-hearted calculation of the statistical value of a life and the implicit side-effects of loss of employment, such as suicide and a rise in domestic violence. But it doesn’t account for the fact that the real trade-off with death is about when and how, not if, and what matters most about job losses is whether they are temporary or longer term.

What is scary about Covid-19 is that it can produce a massive spike in premature deaths and overwhelm hospital systems quickly, resulting in those further deaths that aren’t necessarily a direct result of the virus. But if a heart attack victim in New York dies because the hospital is overstretched, that death is still the result of the failure to mitigate the spread of the virus. Around the globe, hundreds of thousands of premature deaths will have huge economic consequences.

These deaths would be even more numerous if not for the fact — as macroeconomic models tell us — that people faced with a massive outbreak of a contagious disease will choose for themselves many of the precautions that governments might otherwise have imposed on them. They won’t go to restaurants; they will work from home if they can. This means that countries with less stringent restrictions will still experience a recession, but will suffer many more premature deaths in the meantime compared to countries with a strong mitigation strategy.

Effective mitigation strategies like those in Australia and New Zealand mean that activity will pick up more quickly when restrictions are eventually relaxed. More people will be willing to re-engage in spending and work than if they were warily considering their options in Wuhan, Northern Italy, Spain or New York after a much bigger death toll. The quicker pick-up will temper the severity of the recession and turn some of what might have been permanent job losses into something more temporary.

These future economic benefits, ignored in static trade-off calculations, need to be taken into account to get a complete picture of the net impact of Australia’s restrictions. Under a dynamic trade-off of the kind usually calculated by macroeconomists, the future benefits end up being large and far in excess of current costs.

The third and most important principle from macroeconomics seemingly lacking in some economic commentary is the need to use as many policy tools as there are problems needing to be solved. Economic and social restrictions are not the only tools available to governments dealing with the economic and social fallout from Covid-19. It is true that monetary policy is now severely limited by very low interest rates, but more fiscal stimulus remains a viable option.

The social costs of the restrictions are certainly very real. If lockdowns lead to higher rates of domestic violence, for instance, we can’t simply stand aside as if this is an inevitable feature of human behaviour during an economic crisis. We should use whatever educational and preventive measures we can and ramp up programs to support victims.

Importantly, if estimates of the negative social impacts of the restrictions are even partly based on past experiences in recessions, then the surest way to mitigate them is to do whatever we can to tackle the economic crisis with bridging measures and fiscal stimulus. Again, the counterfactual matters: any premature loosening of mitigation restrictions could lead to a massive outbreak, a worse economic crisis, and more social ills rather than fewer.

The trade-offs involved in responding to the Covid-19 crisis are not the ones some economists claim they are. They involve current and future costs and benefits that are relative to the cost of a recession that can’t be avoided. Tackling these trade-offs involves multiple policy tools, including fiscal policy, not just whatever restrictions our governments have imposed on economic and social activities. •

The post Covid-19 trade-offs: the full story appeared first on Inside Story.

Global integration clearly has its downsides. We are living with them right now. Increased financial integration means more severe financial crises. Increased trade integration means we are more exposed to the economies and policies of other countries. And increased people-to-people links mean one country’s disease can quickly become a global pandemic.

“Remember the good times” is what we tell people when they lose a loved one. We remind them that the decades of good times far outweigh the bad times they are currently experiencing. The same is true for global integration. One or two years of economic pain from Covid-19 does not justify throwing out the decades of uninterrupted prosperity delivered by Australia’s openness to international trade, investment and people.

Those advocating a more closed Australia are quick to talk up the benefits of greater economic independence — the absence of pandemics, global financial crises and trade wars are certainly among them. But those advocating a closed Australia are suspiciously silent about its costs.

Consider trade first. Exports contribute almost $400 billion to the Australian economy each year, or around 21 per cent of our GDP, and are linked to more than 1.5 million Australian jobs. How do those advocating a more closed economy plan to fill this hole? Some suggest that domestic demand could fill the gap through a national Buy Australian campaign. This is a laughable proposition. More than 70 per cent of Australia’s agricultural production is exported. More than 25 per cent of our tourism industry relies on international tourists, to say nothing of universities and mining. The only way domestic demand could absorb this enormous excess supply would be through a catastrophic collapse in prices, sending the vast majority of Australia’s farmers, tourism operators, universities and mining companies into bankruptcy.

The Buy Australian argument is similarly tone deaf to the challenges facing poorer Australians who cannot afford to hold such luxurious opinions. For them, trade has dramatically reduced the cost of living. Compared with a decade earlier, audiovisual and computing equipment is 72 per cent cheaper, cars are 12 per cent cheaper, toys and games are 18 per cent cheaper and clothes are 14 per cent cheaper. Do those advocating a closed Australia honestly believe poorer Australians could afford to see their cost of living rise to this extent?

These huge numbers don’t even come close to the benefits of trade to the Australian economy. The reason we trade is the same reason you don’t perform your own surgeries, service your own car and cut your own hair. Specialisation makes us rich, generalisation makes us poor. Trade has led to enormous productivity gains in Australia by allowing us to specialise in the things we are good at making, earn $400 billion each year selling these things to the world, and use some of this money to import the things we are bad at making. Those who advocate a closed Australia are advocating taking resources away from the sectors in which we excel internationally — agriculture, mining, education — and putting them into sectors where the world leaves us for dead.

Trade is vital to innovation and competition. Australian businesses that actively innovate are more than twice as likely to export than businesses that don’t. This is no coincidence: a closed Australia is a less innovative Australia. Competition creates innovation. Trade in education and tourism are just as vital to Australia’s international image, our commercial links and our influence overseas as they are to our economy: Indonesia’s former vice-president, trade minister and finance minister all studied at the Australian National University. You can’t buy that sort of influence.

Foreign investment is no different. Australians don’t save enough to finance the amount of investment we need at home to maintain our standard of living. In normal times, we come up short by almost $60 billion. That’s $60 billion of extra capital we would need if we were to close up shop. Where would this come from? It would have to come from the pockets of Australian households and businesses via higher interest rates on mortgages, credit cards and business loans.

Foreign investment gets projects and companies off the ground that then employ more people. Little wonder that one in four of the biggest employing businesses in Australia have more than 50 per cent foreign ownership. Foreign investment from Canada, the European Union and the United States alone contributed to employing around 676,000 Australians in 2015.

Immigration is no less important. The Labor Party is now calling for reduced immigration after Covid-19 to give workers a fair go, despite the lack of evidence that immigration reduces local wages in Australia. The question for Labor is the same: how does it plan to pay for this? In recent years, population growth, two-thirds of which has come from migration, has accounted for most of Australia’s economic growth. How does the Labor Party propose to fill this gap? The silence on these questions is deafening.

Over the next few months and years, Australia will continue this conversation about whether we should have a more closed and independent economy. Some are advocating a light touch — stronger domestic capacity to manufacture medical equipment (although a larger national medical stockpile would presumably achieve the same thing at smaller cost to the economy) — while others are advocating something much more severe.

Calls for the latter are nothing more than economic populism, plain and simple. They are arguments by those who, having not done their homework, claim that Australia can have more economic independence without any cost. It is a dishonest argument. Those who push for a more economically independent Australia must answer a simple question: “How do you plan to pay for that?” •

The post The high price of sovereignty appeared first on Inside Story.

We know all this, and yet it was alarming to read claims by the International Monetary Fund that the world is about to experience the worst recession since the Great Depression. One journalist wrote excitedly of “a decline in global output thirty times greater than during the global financial crisis.” The basis of that alarming statement was an IMF graph showing a global output decline of 3.0 per cent from the pandemic, compared with 0.1 per cent during the GFC.

Source: International Monetary Fund, World Economic Outlook, April 2020

Even more strikingly, the IMF assumes that the pandemic can be brought under control relatively rapidly, without an indefinite lockdown. A longer lockdown, the IMF’s analysis implies, would mean a bigger downturn.

The reality is less dire. If the pandemic can be controlled while most economic activity is allowed to resume, and if stimulus policies can be sustained (that’s two big ifs) then most of the developed world will suffer less severely than in the GFC. Moreover, while the biggest economies in the developing world, those of China and India, will be significantly affected, both are projected to experience positive economic growth for the year as a whole.

How can this be so? The IMF statement is misleading for two reasons. First, it compares the single years of 2020 (for the pandemic) and 2009 (for the GFC). But the GFC, like the Great Depression, lasted much longer than that. The official length of the GFC-induced recession in the United States, as estimated by the National Bureau of Economic Research, was eighteen months. And the adverse effects on employment and incomes continued for nearly a decade, right through the Obama administration, leading economists such as Brad DeLong to label it the Lesser Depression.

Europe’s experience was even worse, with the bailout of banks producing the sovereign debt crisis of 2010 and the disastrous period of austerity. GDP did not return to the pre-crisis level for years, and the losses appear to have been permanent.

By contrast, the IMF is projecting a “V-shaped” virus-induced recession during 2020, with most of the output lost this year being regained next year. The reasoning is straightforward. If the virus is eliminated or effectively contained, businesses like restaurants and retailers will reopen quickly and consumers whose spending has been constrained by the lockdown will be keen to patronise them.

The second factor is the treatment of China and India, both of which experienced stellar economic growth in the first decade of this century. India was largely unaffected by the GFC, and China’s fiscal stimulus policies (like Australia’s) minimised the impact. As a result, they maintained positive economic growth and, because of their size, effectively cancelled out the impact of the GFC in the developed world.

When the virus emerged, by contrast, China and India were already growing more slowly than in the past. In China’s case, this was largely because it had exhausted the easiest sources of growth (technological catch-up and migration from agriculture to industry). India’s slowdown reflected a series of missteps by the Modi government, notably a botched currency reform. With a lower initial growth rate, the pandemic pushed growth in these countries closer to zero. Already, in the March quarter, China has experienced negative growth for the first time since it began producing national accounts, and India is likely to follow.

On the plus side, China’s lockdown appears to have contained the virus, and the economy is beginning to recover. Lockdowns elsewhere seem to have followed a similar course, taking a month or two to produce a substantial reduction in infections. If these low levels can be sustained with appropriate social-distancing measures, a V-shaped recovery is possible.

The big risk for Australia, in health terms, is that excessive alarm about the economic consequences of lockdowns will lead to a premature removal of controls and a renewed outbreak of the pandemic. Any relaxation of controls must be based on a careful analysis of the benefits and costs.

In economic terms, the biggest danger is an early attempt to return to pre-crisis “normality.” Even if the upturn begins in a few months, industries such as international tourism will take years to recover. Income-support measures will need to be maintained well beyond the six months for which the current legislation provides. Moreover, the crisis has exposed the complete inadequacy of the support provided to unemployed workers and people with disabilities under successive governments.

Rather than a “snapback” to the supposed normality of the recent past, we need a policy that takes account of the reality that our economic system is subject to regular crises, generated both by external shocks like a pandemic and by its own inherent instability. •

The post Are the IMF’s forecasts too pessimistic? appeared first on Inside Story.

Most economists decided weeks ago that the prospects of such a “V-shaped” recovery were slim. So, it’s important to understand what sits behind the IMF’s optimistic thinking.

First to the predictions for 2020. The numbers are ugly but not unexpected. The global economy is forecast to shrink by 3 per cent. For Australia, like other developed nations that have shut down vast swathes of their economy, the hit is particularly large: our economy is expected to shrink by 6.7 per cent this year.

The IMF is more sanguine about Australia’s unemployment outlook, forecasting a jump to 7 per cent, well below the Treasury forecast of 10 per cent. Those numbers hide people who are not working because of Covid-19 but have stay attached to their employer via the JobKeeper payment, as well as people who leave the labour force entirely. Grattan Institute estimates suggest the true share of Australians hit by Covid-19 could be somewhere between 14 and 26 per cent, or even higher, with unemployment held to between 10 and 15 per cent because many will continue to receive the JobKeeper allowance via their employer.

But it is the 2021 bounce-back that surprised us. The IMF forecasts that the world economy will grow by 5.8 per cent in 2021, with Australia’s figure forecast to be 5.8 per cent, recovering most of 2020’s lost ground.

Two key assumptions lie behind these estimates.

First, the forecasts assume that the pandemic “fades” in the second half of 2020 and all economies reopen. The IMF doesn’t spell out the health scenario that would generate such a happy outcome.

Even a cursory reading of the Covid-19 strategies of most major economies suggests life won’t return to normal anytime soon. Restarting economies without sparking a second round of contagion would almost certainly require enormous new investments in mass testing or mass surveillance, and probably both. The technological obstacles are significant, the politics are fraught, and there are few signs the necessary preparations are being made to reopen on such a time frame.

Scaled-down restarts were initially effective in economies such as Singapore, but the government there has since resorted to a lockdown to keep infections under control.

Slowly opening less risky sectors and then reverting to shutdowns if the virus starts to climb the curve is much more likely in most countries. Very few expect we’ll return to business as usual by Christmas.

Even for New Zealand and Australia, where eradication is a real prospect, some important parts of the economy — international tourism, for example — still wouldn’t reopen until a vaccine arrives, and that is probably at least eighteen months away.

Australia’s recovery will also be constrained by a sharp decline in inbound migration. A large share of Australia’s aggregate GDP growth in recent years is a result of population growth, 63 per cent of which came from net overseas migration between 2016 and 2019. The prospect of prolonged closure of Australia’s borders to safeguard against resurgent outbreaks is likely to reduce the flow of inbound migrants for some time, dragging on any economic rebound.

The IMF’s second key assumption is no less rosy. It assumes that government policies will be effective in preventing mass bankruptcies, extended job losses and financial crises — in other words, that the crisis is merely a temporary (albeit severe) hit, and economies will bounce back with their productive capacity intact and little in the way of significant scarring.

The IMF rightly points out that many governments have acted swiftly to support their economies. Wage-subsidy schemes in most advanced economies will help keep businesses and households afloat during the shutdown. The Australian government has provisioned for its JobKeeper scheme to last for six months. Many other countries, including the United States, Canada and Britain, have only planned for two or three.

Under most plausible health scenarios these schemes will need to be extended — and the longer the shutdowns, the larger the long-term economic costs. Firms that can endure a three-month shutdown are unlikely to survive for twelve months without more government support. And the experience from past downturns suggests that the scarring caused by an extended period of unemployment or underemployment can last for a decade or more.

As the American economist John Cochrane points out, restarting an economy is more like switching on a nuclear reactor than flicking on a lightbulb.

The IMF does go to some effort to spell out the uncertainty. It notes that the risks to its forecasts are all on the downside. So why would it put forward such a pollyanna scenario as its baseline? Australia’s policymakers have been successful so far because they have responded to the cold reality of the health and economic situations. The last thing we need is an outbreak of magical thinking. •

The post Are the IMF’s forecasts too optimistic? appeared first on Inside Story.

Having come to Melbourne in 2008 on five-year student visas, the pair have been waiting for a decision on their permanent residence visas since 2 January last year. They have lived and worked in Adelaide for the requisite period, and meet the other requirements of the regional migration visa for which they applied. They have paid their taxes and become valuable members of the Adelaide community.

“Sujith is just the loveliest man — a pleasure to work with,” says Friebe. “His dedication to his tasks and his fellow workers is just what any high-performing business needs.”

The visa Sujith is seeking is straightforward and could be processed very quickly, yet the Department of Home Affairs says the waiting time is between twenty-four and twenty-eight months, a bizarre situation given that prime minister Scott Morrison was encouraging migration to places like Adelaide as part of his “congestion busting” population plan in March last year. Interest in these visas was intense, he said, and applicants would be given high priority.

Jimmy, another of Friebe’s staff, is also without work since the restaurant closed. He is on a provisional visa, which means he is ineligible for JobKeeper and JobSeeker payments. After seven years in Australia, initially on a student visa in Melbourne and then on a temporary graduate visa in Adelaide, Jimmy was nominated by the SA government in August last year for a provisional regional visa, pending an application for permanent migration. He was much encouraged by the prime minister’s comments last year.

Just a couple of months ago, Sujith and Jimmy were two of the twenty-five employees of a successful, well-established business. Once the restaurant was forced to close, the JobKeeper payment was a godsend for ten of those employees. Most of the others, who are casual employees, will rely on the JobSeeker payment.

But Jimmy and Sujith are eligible for neither. And the prime minister’s response? “Go home,” he said earlier this month, which scarcely seems fair given that Sujith and his family and Jimmy have tried to do all the federal and state governments have asked of them.

So far, Sujith and Jimmy have been supported by the generosity of Friebe and others, but with the business generating no revenue that cannot continue much longer. Friebe is looking at ways that he and the two men’s fellow workers can continue to help them out.

The treasurer has said businesses like Friebe’s can use the subsidies the government is offering to help temporary entrants such as Sujith and Jimmy.

“The treasurer really doesn’t appear to understand what is involved in putting a business into hibernation,” says Friebe. “The PAYG subsidy will quickly be swallowed up by fixed costs such as creditors, electricity, insurance, phones, security/monitoring. We then need to have the cash to get up and running again on the other side of the crisis.”

He’s angered that the treasurer is suggesting otherwise. “Whilst I appreciate the government are managing a lot in a short period of time to flatten the curve of this pandemic, it shows a complete lack of practical and genuine understanding of the position forced onto millions. Hardworking employees like Jimmy and Sujith will be essential when my restaurant reopens.”

Sujith, Priyanga and Jimmy are just three of more than a million temporary entrants facing destitution if they cannot find a job or get home. Does the government really want to see queues at charities as long as the queues at Centrelink? •

Am earlier version of this article appeared in Pearls and Irritations.

The post Suspended sentence appeared first on Inside Story.

Let’s start with the things that need changing. One of the biggest cracks revealed by Covid-19 is an increasingly casualised workforce. More than 2.6 million Australians are in casual employment with no paid leave. This was bad in normal times because it meant increased uncertainty for households, resulting in less spending, less labour mobility and fewer people taking the risk of starting a business or going for a new job. But when Covid-19 struck, this casualised workforce became an even bigger liability. More people in insecure work meant more people losing their jobs, exacerbating the downturn. This problem has come home to roost, leaving the government scrambling to extend the already expensive JobKeeper payment to the casuals who were originally excluded.

The same is true for Australia’s social safety net. Covid-19 revealed what economists have been saying for many years: that payments like Newstart (now called JobSeeker) are grossly inadequate. The human cost of this neglect has been substantial. But economists warned that the neglect also meant that Australia had weaker “automatic fiscal stabilisers” — programs that routinely increase government spending when the economy is slow and then ease that spending when the economy strengthens. JobSeeker contributes to this process because it is paid to unemployed people, whose numbers grow when the economy weakens. But the decline in the generosity of these payments over many years (because they are indexed to inflation instead of wages) has made our economy less resilient to shocks and less able to bounce back. Again, this has come home to roost: the government has been forced to step in, increase the payment and foot the bill.

Another crack revealed by Covid-19 is debt. The problem isn’t government debt: Scott Morrison and his colleagues could increase spending by three-quarters of a trillion dollars and we would still be average among G20 countries. It’s the high level of household debt in Australia that has made the crisis worse. As I wrote last year, weak balance sheets mean households have smaller buffers. As a result, the downturn in household spending has been sharper, and that has also required a bigger government response.

Covid-19 has also revealed how deepening distrust in government and institutions over time has made it harder to manage the pandemic. The Edelman’s Global Trust survey asked Australians to rank government, business, the media and non-government organisations by how competent and ethical they were. None were found to be both. According to those surveyed, businesses are competent but unethical. NGOs are ethical but not competent. And the government and the media were neither.

Forty-five per cent of Australians distrust these institutions. Yet, at various points in the crisis, the government and the media seem puzzled about why Australians aren’t listening to them. Inconsistent messaging and the lack of coordination between the federal and state governments — another serious long-term challenge exposed by Covid-19 is the weakness in our Federation — have not helped.

If the old saying “never waste a crisis” holds true, then there are plenty of problems we could use the Covid-19 pandemic to fix. Reversing the casualisation of the workforce, strengthening automatic stabilisers, boosting the safety net, better managing household debt, increasing trust in institutions and strengthening the Federation are at the top of that list. The government’s rhetoric of a “snap back” to normal times shouldn’t be used as political cover for ignoring these problems.

But not everything needs fixing. Calls have already been made to change things about the Australian economy that not only are vital to our long-run economic interests but are also playing a critical role in our recovery. Two things stand out: trade and foreign investment.

The most fundamental automatic stabiliser Australia has is its floating exchange rate. When the economy is weak, the exchange rate falls, making our exports and assets cheaper than those from other countries. This boosts our exports and increases foreign investment, both of which play a vital role in supporting the Australian economy and will be crucial to Australia’s recovery.

It is therefore perplexing that the government and a growing number of commentators are going out of their way to try to weaken these benefits. The government announced last week that it would make it harder for foreign investment to flow into Australia, arguing that the economy is weak and needs to be protected. This is silly. It shuts off a vital source of growth, particularly given investment has been so anaemic for so long, and it ignores the fact that making assets cheap during a downturn is exactly why we have a floating exchange rate in the first place. It is a feature of our economic system, not a flaw.

The same is true for trade. A weaker Australian dollar is a boon for Aussie exporters. Once economies are reopened, a vital source of our recovery will be the goods and services bought by our trading partners, the return of tourists to our shores and the return of students to our universities. Calls for Australia to come out of Covid-19 less trade-dependent are a recipe for disaster. Those who advocate it should be held accountable for the slower, longer recovery that will follow.

Although misguided, fears of an open economy are understandable in the current environment. Open economies have lifted billions of people out of poverty and have immeasurably increased the living standards of Australians. But they also mean that global shocks and even problems in one country can quickly become a problem in ours. This is the downside of openness, and we are currently living it. But while some wariness is understandable, this should not blind us to the long-run benefits of openness, particularly when it will be so vital to our recovery.

Distinguishing between the things we should change in the Australian economy and the things we shouldn’t will shape Australia’s recovery from Covid-19. Now is not the time for policy on the run. •

Adam Triggs is Director of Research in the Asian Bureau of Economic Research at ANU’s Crawford School of Public Policy and a non-resident fellow in the Global Economy and Development program at the Brookings Institution.

The post Rebuilding the economy after Covid-19 appeared first on Inside Story.

This leaves Australia (and almost every other country) in the early stages of what is likely to be a serious economic slump — more serious (in Australia’s case) than the one prompted by the global financial crisis, and possibly the most serious since the Great Depression of the 1930s. By last week, according to an ABS survey published yesterday, 49 per cent of businesses had already been adversely affected by falling demand — and in some cases by shortages of staff — and 86 per cent expected to be adversely affected in coming months.

It is difficult to judge just how severe — how deep and how long — this downturn will be. It depends on how comprehensive the shutdown turns out to be, and how long it lasts. And that depends partly on the advice governments receive from medical experts — advice that can differ, as we are now learning, from one expert to the next. It also depends partly on how quickly an effective tracking-and-testing regime (similar to those developed in China, South Korea, Taiwan and Singapore) can be implemented that would allow mandatory social-distancing requirements to be eased before a vaccine can be developed, tested and made widely available. Finally, the depth of the downturn, if not its duration, will also be affected by the success of government and central bank efforts to support businesses and individuals.

With almost no reliable or useful history to draw on, economists can only construct scenarios based on assumptions about all these factors.

By way of illustration, consider a scenario in which current restrictions are extended to include schools in every state and territory, and parts (though not all) of the manufacturing and construction sectors. Assume exemptions for agriculture, mining, utilities, some other parts of manufacturing (especially food and beverages), food and beverage retailing, some business services (such as accounting and legal practices) and of course health services, as well as most government operations (though many public servants would be working remotely).

Under that scenario, the economy could contract by almost 10 per cent in the June quarter — an unprecedented decline — followed by a much smaller decline in the September quarter. With negative growth likely to have occurred in the March quarter as well, this would constitute Australia’s first recession (by the most commonly used definition) in almost thirty years. It would also be the most severe, with a cumulative decline in real GDP of more than 10 per cent. By comparison, real GDP declined by 1.4 per cent in the 1990–91 recession, and by 3.4 per cent in the recession of 1982–83.

Some sectors would experience much more significant contractions — around 70 per cent in accommodation and food services, for example, more than 50 per cent in art and recreation services and in other personal services, more than 40 per cent in retail trade and in transport, 25 per cent in wholesale trade and in construction, and at least 20 per cent in manufacturing.

A harder shutdown would inevitably result in an even sharper and broader, but possibly shorter, downturn.

Among the principal objectives of the government and the Reserve Bank has been to reduce the impact on employment of the sharp downturn in output during the shutdown period, and to improve the prospects of a swift return to pre-crisis levels of employment by assisting businesses to survive through a period of shrivelled or completely dried-up revenue.

Those measures have been unable to prevent a significant number of employees being stood down or retrenched, although in many cases employers (particularly large businesses) have indicated that they will have jobs to go back to when restrictions have been lifted. Another of the government’s objectives has been to provide people who have lost their jobs, temporarily or permanently, with easier access to more generous income support than might otherwise be available. With the assistance of state governments and financial institutions, it is also providing some temporary relief from costs such as mortgage repayments and utility bills.

As but one illustration of the possible impact of some of these measures, suppose that, in each sector, employment falls by about half as much as output. In hospitality or retailing, for instance, where casual employment is more commonplace, employment losses may be larger than this; in some other areas, such as healthcare and supermarkets, there may be some net increase in employment.

Under those assumptions, employment could fall by almost 1.4 million — equivalent to a decline of more than 10 per cent from the February level. That is a similar percentage to the decline in output, because labour-intensive sectors of the economy are likely to be affected more severely by the shutdown than sectors such as mining or agriculture.

The impact of job losses of this order on the unemployment rate will depend on how many of the people who lose their jobs meet the statistical definition of being unemployed, which includes a requirement that they are not only willing and able to work, but are also “actively looking” for a job. If all of them fit those criteria, then the unemployment rate could reach around 15 per cent — the highest since the early 1930s. But it seems more likely that many people who lose their jobs will see little point in “actively” looking for work — in which case the labour force surveys will record them as being “not in the labour force” rather than “unemployed.” If, say, two-thirds of people who lose their jobs are classified as “not in the labour force,” the unemployment rate would likely increase to almost 9 per cent.

A more realistic picture of what is happening in the labour market could be provided if the government were to publish a weekly total of the number of people receiving the new coronavirus supplement, similar to the Unemployment Insurance Weekly Claims series published every Thursday in the United States. Such information would also assist in judging whether governments need to do more to cushion the impact of the crisis.

The economy’s recovery can’t start until restrictions on the movement and gathering of people are eased, whenever that might be, and it is unlikely to be as swift as the downturn. Some pent-up demand will lift spending on meals out and various forms of entertainment, but many people’s capacity to spend will have been eroded, perhaps significantly, by an extended period of substantially reduced income (or none at all).

As occurred after the financial crisis, many people may also want to save more in order to offset the depletion of their superannuation balances by the falls in sharemarkets. Home-buyers and businesses who have taken up the repayment holidays offered by financial institutions will face higher repayments (because interest not paid during the shutdown will have been capitalised). And, inevitably, some businesses will not have survived the downturn, and their employees will not have jobs to return to. Businesses that have survived may not be able to return to pre-shutdown levels of employment.

The economic downturn will thus have lasting consequences, not least for government finances. But that’s a topic for another time. •

The post Measuring the downturn appeared first on Inside Story.

The critics were wrong, and wrong in a major way. As industry insiders, they all paid the price for their poor predictions. Their products would all exit the industry, replaced by the new Apple, of course, but also by Samsung and Huawei. What turns out to be a successful innovation might not seem that way at first. There is a reason for that: innovation is new to the world. If it was obvious, someone would have done it.

Technology forecasts can also be wrong in the other direction. In 2001, after years of stealth development, inventor Dean Kamen unveiled the Segway. This was a personal transporter with two wheels on either side of a platform with a stick and handlebar jutting from its centre. At a time when computer-controlled gyroscopes were rare, it seemed like magic. Implausibly, the Segway would balance itself and its occupant upright. The rider simply leaned forward to accelerate and backward to stop. It seemed like something from the future. It seemed like something that you wanted to try.

Many others heralded the Segway as a revolution. Steve Jobs said it was “as big a deal as the PC.” John Doerr, the famous venture capitalist behind Netscape and Amazon, believed it would be bigger than the internet. It was hard to find many early detractors. Alas, a decade and a half later, you might see a Segway used by a traffic cop or group of tourists being led around a city. Otherwise, it is a discarded technological concept. Why didn’t the Segway work out? There were some safety issues, but that hasn’t prevented the police from adopting them. One theory is that people stuck out too much on them, drawing attention in an unwelcome way.

The point is that our forecasts — optimistic or pessimistic — for individual technologies can often be way off base. Marc Andreessen, Netscape founder and venture capitalist, compares his performance with that of Warren Buffett, the world-famous proponent of “value investing”: “Basically, he’s betting against change. We’re betting for change. When he makes a mistake, it’s because something changes that he didn’t expect. When we make a mistake, it’s because something doesn’t change that we thought would.”

We started this discussion of technological prospects with the iPhone and Segway precisely because of this question of far-reaching impact. The iPhone established a dominant design for smartphones. Thanks to people having the internet in their pocket, we got Uber, Airbnb and Spotify. We got Facebook, Instagram, LinkedIn and Twitter to inform, engage and infuriate us. Developing economies skipped over bank accounts to mobile banking, such as Kenya’s ubiquitous M-Pesa service. If the doubters had been right, we would have had none of these things. With the Segway, we didn’t end up changing urban transportation. Billions might have switched to a travel technology that eased congestion and cut emissions, but we didn’t.

Are there still big breakthroughs to be made? On this, economists disagree. There are technological optimists who believe that big breakthrough innovations lie in our future, and pessimists who believe they won’t surpass the past. How can we evaluate their arguments?

The tech optimists

In early 2014, owners of Tesla’s Model S electric vehicles received a recall notice from the US National Highway Traffic Safety Administration related to a problem that could cause a fire. What car owners usually have to do in these cases is return the car to a dealer to be fixed. This is costly for everyone involved. This time it was different. The problem could be fixed by updating the software in the car, and the update could be pushed to almost 30,000 vehicles overnight because Teslas are connected by default to the internet. No muss, no fuss.

The fact that this could now be done for so many products with embedded software caused Andreessen to proclaim that “software is eating the world.” Put simply, real things were no longer fixed in their capabilities. Because of software, they could be enhanced without having to physically rebuild them.

The tech optimists are not optimistic simply because they know that the universe has more to reveal. They are optimistic because they believe that we are still living in a time of accelerating technological change. Andreessen argues that the benefits of computing technologies and the digitisation revolution are ongoing because they are based on software — something that scales easily. More than half the world’s population came online in just the past decade, and the world is not yet fully connected. Moreover, the value of that network increases disproportionately to the number of people on it — an effect known as Metcalfe’s law.

From the perspective of an innovator in software, that means the customer base is still growing rapidly. What is more, with greater numbers of users, distributed infrastructure — known commonly as “the cloud” — becomes cheaper to use, even aside from the reductions in the cost of hardware in data centres. In 2000, it may have cost a start-up $150,000 per month to host an internet application in the cloud. Today it is less than $150. Those gains translate into increased profitability and lower risk for every single software entrepreneur.

Tech optimists point to multiple trends. Since the 1960s, Moore’s law saw processing power double roughly every eighteen to twenty-four months. As a consequence, microprocessors in 2018 had eight million times as many transistors as the best microprocessor in 1971. Worldwide data storage is now around a zettabyte, or ten bytes to the power of twenty-one. Each minute, 300 hours of video are uploaded to YouTube. The next mobile telephony standard, 5G, will operate at many times the speed of the previous generation of wireless technology.

Technologies are sometimes used in unexpected ways. Graphics processing units (developed for hardcore gamers) were used to train neural networks designed to emulate the learning functions of the brain. These new developments in what is called machine learning have led to a renaissance in artificial intelligence research.

Around five years ago, using deep learning methods pioneered by several Canadian university professors, computers’ ability to understand speech and recognise images took a leap forward. These new methods mimicked the brain function, and allowed multiple levels of sorting and classification. The result effectively allowed computers to pick up nuance and associations that even humans would miss. In October 2016, Microsoft engineers announced that their speech recognition software had attained the same level of accuracy as human transcribers when it came to recognising speech in the “Switchboard Corpus,” a set of conversations used to benchmark transcribers. In a controlled environment, machine voice recognition is now more likely to comprehend what we’re saying than the average human. Meanwhile, facial recognition algorithms used by Baidu, Tencent-BestImage, Google and DeepID3 have an accuracy level above 99.5 per cent, compared with humans’ rate of 97.6 percent.

The best way to explain what has happened is to focus on what the new artificial intelligence techniques do best: prediction. Machines can now take a large amount of data (numbers, images, sound files, or videos) and review it for relationships that allow them to forecast with a high degree of accuracy. Image recognition, for example, is basically a prediction activity: “Here is a picture. What is your best guess at what someone would call this?”

Although these technologies still make mistakes, they have the ability to outperform humans in real-world contexts. In 2011, IBM’s Watson computer played the quiz show Jeopardy! against two champions of the game: Ken Jennings and Brad Rutter. Watson won. IBM’s next major human-versus-machine contest came in 2018, when the company showed off its IBM Debater. The computer was able to engage at a reasonably coherent level with a human counterpart on the topic of whether government should subsidise space exploration.

Learning machines don’t just have to rely on their own experience. Indian online retailer Myntra recently deployed an algorithm that designed new clothing images by modifying and combining popular patterns. One of those computer-designed t-shirts, featuring blocks of olive, blue and yellow, is now a bestseller. Artificial intelligence is arguably the next general-purpose technology: a technology so foundational that myriad other innovations grow on its base. We have seen this happen with the steam engine, electric power, plastics, computers, and the internet. The optimists believe that artificial intelligence could have the same potential.

To see how technology might drive science, remember that Galileo’s research — which showed convincingly that Earth revolved around the sun — was based on a technological advance in the form of a telescope that could magnify distant objects thirty times. A few decades later, the creation of a microscope that could magnify tiny things 300 times enabled Robert Hooke to document the existence of cells. These massive breakthroughs in astronomy and biology would have been impossible without advances in glass production and precision manufacturing.

Today, it’s easy to point to similar advances. The use of gene editing could revolutionise medical science. Strong and light materials such as graphene could change manufacturing. These are radical technologies that could bring about decades of further innovation.

The tech pessimists

Others take an altogether dimmer view of our prospects. They worry that we have already picked the low-hanging fruit over the past two centuries, and that the outlook for the next century is bleaker. Their argument is not based on some oracle-like insight into the future but instead on the inescapable economic law of diminishing returns.

In economics, the figure that looms largest on this side of the argument is Robert Gordon. His concern revolves around just how great the relatively recent past has been. Prior to 1870, economic growth occurred at a trickle. But after 1870, the major innovations at the heart of the Industrial Revolution began to work their way fully through society. It wasn’t just that steam power made factories more efficient; our knowledge of science also brought us to a point where new technologies were shaping the environment around us.

In the century following 1870, most people in the United States and Western Europe (and a handful of other places) went from carrying water to having it delivered to their houses at the turn of a tap, instantly and in a form safe enough to drink. Washing machines saved time and made our clothes last longer. Indoor toilets took sewage far away from houses at the push of a lever or yank of a chain. Energy could be easily delivered to people’s houses. Information was brought in by the radio, telephone and television. Cars provided freedom and reshaped the urban form. A reasonable person might suppose that society will never again see such radical changes. The interesting thing is that we can see this in the data on economic growth that measures how innovations have translated into productivity improvements.

Growth has its ups and downs. Smooth out the temporary recessions and upswings, though, and the century until 1973 was an era of steady progress that suddenly petered out. Initially, many economists saw the slowdown as an aberration. Nobel laureate Robert Solow, who pioneered the field of economic growth, said in 1987 that “you can see the computer age everywhere but in the productivity statistics.” Maybe it was a mismeasurement because computers were assisting services whose productivity was notoriously hard to measure? The economic historian Paul David reminded us that when electricity was introduced, it took decades for it to show up in measures of productivity. Maybe once firms worked out how to use computers effectively, the productivity gains would become apparent?

Many advanced nations did experience a surge in productivity growth in the late 1990s. Yet its rate then slowed in the twenty-first century. For workers, things are even worse because of a decoupling of wages from productivity. Even where firms are getting more output for a given level of inputs, they are not sharing most of those gains with employees.

Consequently, a generation of adults has not experienced the fruits of productivity improvements. They are as well educated as their immediate forebears, they are more lightly taxed, and the businesses that employ them have the benefits of more integrated global financial markets.

The problem comes down to something economists call “diminishing returns.” When England continued to put more land under farming during the nineteenth century, as David Ricardo noted, the productivity of additional acres fell. Take any fixed resource and there is only so much you can extract from it. In the twentieth century, Solow observed that this held for other types of capital such as machines. It also applied to workers. The only way out was technological progress, which allowed society to get more out of the same inputs.

So long as the growth in knowledge we had achieved in the past continued into the future, there was nothing to worry about. Yet here is where the tech optimists and tech pessimists part company. The optimists, as we have noted, anticipate rapid technological progress. The pessimists are not so sure. If that is the case, they say, then why have this generation’s inventions not transformed our lives in the way of the great twentieth-century innovations? Do the twenty-first century’s inventions really compare with air conditioning, airplanes and automobiles (to take just one letter of the alphabet)?

To tech pessimists such as Gordon and Tyler Cowen, the answer comes from merely looking at how technological changes from the 1870s to the 1970s transformed the way we live. Electricity transformed work, shifting people from agriculture to the cities. In the cities that shift combined with running water, sewerage systems, and efficient heating and cooling techniques to allow for a comfortable and productive urban life. Electrical appliances reshaped household economics, freeing women to join the paid labour force. Transport on the roads and air was transformed, facilitating unprecedented interregional trade and travel. All this added up to dramatic improvements in productivity. Since 1973 there have been useful inventions to be sure. But they are yet to deliver an equivalent surge in productivity.

What has the pessimists worried is that researchers and scientists are finding it harder to unearth new ideas. Research by Northwestern University’s Ben Jones shows that Nobel laureates are getting older. To be more precise, over the past century the age at which someone does research that will win them a Nobel prize has been rising. The same is true of work that leads to a patent. In addition, more knowledge breakthroughs are being made by teams rather than individuals. This points to more specialisation in knowledge production, with fewer instances in which an individual comprehends developments at the frontier of multiple disciplines. Because this raises the cost of innovating, Jones calls it the increasing “burden of knowledge.”

As technology advances, it becomes tougher to find the next new thing. Take semiconductors. As we have noted, Moore’s law has seen a steady doubling of the density of computer chips every eighteen to twenty-four months. Moore’s law continued up until the mid 2000s, but significantly, the cost of recent increases is eighteen times larger than it was for similar proportionate increases in the 1970s. The same pattern exists in agriculture and medical research. What was once easy has become hard. It suggests that just to keep the slower growth in productivity that we have, innovators must run faster and faster.

Uncertain prospects

The tech optimists and the tech pessimists both have a point. The optimists note that there is still potential for new knowledge, and can point to exciting possibilities that are attracting significant scientific and engineering resources. The pessimists’ colder calculations remind us how exceptional past growth was and point to the logical implication that those ideas that gave the biggest boosts to productivity were likely ones we have already exploited. Historians such as Joel Mokyr have looked at all this discussion and remind us that we have been here before. In every decade, one can find optimists and pessimists. And, at least as far as continuing technological change is concerned, the optimists have usually been on the right side of history.

What does this all mean, however, for the creation price — that is, the price that must be paid to reward innovators and entrepreneurs for their efforts? The answer lies in the cost of innovation. Where the tech optimists and tech pessimists fundamentally differ is in how costly it will be to innovate in the future. If there are technological opportunities just waiting to be exploited, as the optimists claim, then the creation price can be set relatively low. On the other hand, if the cost of innovation is rising, as the pessimists claim, then the creation price will be higher, and growing over time. More resources will have to be dedicated to innovative activities to maintain historical growth rates. In that situation, we will have to ask if it is a price worth paying.

Forecasting the future is like driving through fog. We need to accept that the creation price is uncertain. It could be high, low or somewhere in between. It will likely be different for different technological opportunities and directions. But at the same time, everyone faces this uncertainty. No one has a special insight into the future. That includes entrepreneurs. And given that uncertainty, the best way to get more equality and more innovation is to reduce the costs those entrepreneurs face today.

Planning for flexibility

Which brings us to equity. Here, the goal ought to be a set of institutions that provide a safety net, both for entrepreneurs who fall short of the stars and for those left behind when the rocket takes off. It pays to think about such institutions as a form of insurance, providing greater resilience in the face of a changing world. If you’re giving advice to a teenager, now is the time to tell him or her about the value of being flexible. Education isn’t just an investment; it’s about providing more life options.

To achieve this in the education system, we propose making teacher effectiveness the core focus of schooling, improving the quality of vocational training, and encouraging MOOCs (massive online open courses). And it makes enormous sense to use the talents of the 51 per cent of the population who are women by encouraging technologies that make jobs more family-friendly, and reforming laws that end up biasing the labour market against women. Gender equity isn’t worthwhile just because it will boost productivity but also because — as Canadian prime minister Justin Trudeau might say — it’s 2019.

As economist Sendhil Mullainathan puts it, “The safest prediction is that reality will outstrip our expectations. So, let us craft our policies not just for what we expect but for what will surely surprise us.” The task is to shape a future that looks more like Star Trek than Terminator.

Uncertainty need not be scary. The story of human history — particularly in recent centuries — is of how we have employed our shared ingenuity to improve lives. Longevity has risen. Whole diseases have been eliminated. The typical job is more fulfilling and less painful. Entertainment is more abundant, and much of it is of higher quality (try spending a week watching television from a generation ago). Food standards have risen, and cars are safer than ever. Life is far from perfect, but there is a good deal to celebrate. •

The post More Star Trek than Terminator? appeared first on Inside Story.

Because of immigration, Australia is one of the youngest developed nations on the planet. Our median age of only thirty-seven is significantly lower than the OECD average of well over forty. If immigration is maintained at around current levels, Australia will maintain that youth advantage even though our population will continue to age, particularly over the next twenty years.

The fact that migrants to Australia come from many different countries is also a good thing. And — Cronulla riots notwithstanding — we are a socially cohesive society. New arrivals have been remarkably successful in so many ways.

But is it enough for the prime minister simply to keep saying we are the world’s most successful multicultural nation? In the face of rising global anti-immigration sentiment, can Australia sit back and assume we will be immune to xenophobic forces? The rise of white supremacist and neo-Nazi groups should be a warning sign, but will our government take it seriously? Remember how, when the head of Australia’s home affairs department, Mike Pezzullo, gave a speech just before the Christchurch massacre, he didn’t list right-wing extremism among the seven major threats facing Australia.

Australia became the world’s most successful multicultural nation not by accident or good luck but because we have followed the right set of policy principles since the second world war. Australia’s leaders need to understand those principles and continue to stress their importance to the public.

Since prime minister Ben Chifley and immigration minister Arthur Calwell launched Australia’s postwar migration program, Australia has used immigration to build the nation, manage demographic transitions and strengthen the economy. Over the intervening seventy years, political leaders have explained their immigration policy directions in a broad demographic, economic and social context.

The next intergenerational report, due next year, gives the government an opportunity to again talk about immigration in terms of our long-term future. It must use that chance to produce a much more sophisticated analysis than the “population plan” it issued earlier this year, which was essentially a marketing exercise. With the creation of a new population unit in Treasury, it’s to be hoped we will see more realistic assumptions about population growth and net overseas migration than those used in this year’s federal budget.

It would be good if the government also explained the basis of those assumptions so we can all understand the direction of policy. And it should resume setting migration program targets rather than using a ceiling, which is a surreptitious way of enabling home affairs minister Peter Dutton to cut the migration program without having to find associated budget savings.

Our approach to immigration has descended into tactical responses to perceived political problems, the latest crisis or administrative bungles — and there have certainly been a lot of those lately. Or, worse still, immigration has been used to whip up fears about African gangs, an invasion by “boat people” and the spectre of open borders. The government has become obsessed with keeping a relatively small number of people on Manus and Nauru, and a family of four on Christmas Island, and restricting other boat arrivals to temporary protection visas, all for purely political advantage.

Given that the government’s turn-back policy remains in place, there is no evidence these actions are contributing in any way to “stopping the boats.” The financial and human costs of indefinite detention, and of indefinitely keeping people on temporary protection visas here in Australia, have been massive — and even the political benefits are questionable.

The debate about the medivac legislation should not even be taking place. The people in offshore detention should have been resettled years ago, just as in a previous era prime minister John Howard and immigration minister Philip Ruddock managed to resettle people without boat arrivals resuming.

But the biggest immigration policy challenge we face is wage theft and the exploitation of migrant workers. Hardly a day goes by when we don’t hear about wage theft more generally. And we all know immigrants are worst affected by wage theft and worker exploitation.

The government’s recent initiatives will only make this worse. The new regional visas and the Designated Area Migration Agreements, which give the employer almost total control over a migrant’s future, will increase the level of exploitation. The state/territory-sponsored provisional visa will require its holder to live in regional Australia and work in a skilled occupation that earns a minimum of $53,900 per annum. While that pay level may be realistic in Sydney and Melbourne, it is very hard to get in regional Australia.

Many of these provisional visa holders risk being exploited by employers because of their vulnerable situation, or remaining in immigration limbo until their five-year visa expires. They will then have to go home or become overstayers after possibly five to ten years of working and paying taxes in Australia.

The government also downplays the labour scams that bring tens of thousands of people to Australia on visitor visas with the intention of applying for asylum.

In combination, these policies will see the development of a permanent and growing underclass of exploited migrant workers. While such an underclass has been a feature in the United States, Europe, Saudi Arabia and the United Arab Emirates, Australian governments of the past have tried very hard to avoid its development here.

No more, though. The current government seems quite happy to allow these scams to flourish despite its strong border-protection rhetoric.

From an immigration policy perspective, this is the one to watch. Will government take substantive action against wage theft in general, and the exploitation of migrant workers in particular? Or will Australia get a permanent underclass of its own?

Then there’s the problem of dodgy private vocational and employment training colleges. Given that governments have introduced increasingly extensive legislative and administrative arrangements to deal with this problem since the 1980s, you would think it was behind us. Not so, it appears. The Australian Skills Quality Agency registered hundreds of private VET colleges in the period 2014–17 and then, from 2018, had to cancel the registrations of hundreds of them. And yet we have seen a resurgence of media revelations in recent weeks.

This latest bout started in around 2013, when the immigration department decided it would progressively devolve responsibility for checking key student visa requirements to individual educational institutions. The result was a tremendous increase in overseas student numbers. Many had entered on the basis of undertaking a higher education course and then transferred to private VET colleges. Now we have tens of thousands of overseas students and temporary graduates in Australia with questionable qualifications from private providers that have had their registration cancelled.

The federal government, state/territory governments, skills-assessing bodies and employers will find it very hard to work out which overseas student has a genuine VET qualification and which has a qualification of little merit. The impact on the reputation of Australia’s international education industry, our third-largest export industry, will be severe, as will the impact on the students themselves and on honest VET providers.

Although Australia has long had a relatively tight policy on family reunions, parliament has consistently voted against giving governments the power to limit the number of spouse and dependent child visas. Yet the current government has decided to ignore the will of parliament and limit the number of these visas anyway.

The backlog of partner visa applications is now well over 80,000, with a two-year average processing time following an application fee of almost $8000.

Essentially the government is saying that if you marry someone from overseas, the two of you should settle in some other country. Amazingly, Australia’s migrant communities are not calling out the government. But it is time for the auditor-general’s office to investigate this abuse of power. And at the same time, it might also look into the set-aside rate for partner visas — the percentage of appeals that are successful — which has climbed to 59 per cent. Not only is the department taking forever to process partner visas at an exorbitant cost, but it can’t even get the decision-making right.

A go-slow approach also applies in citizenship processing. The government has never pointed to any research that suggests delaying access to citizenship is good public policy — that’s because there is no such research. The fact that Pauline Hanson wants the government to delay access to citizenship even more says everything you need to know about this policy.

The auditor-general has made it abundantly clear that citizenship applications have actually become easier to process as more are being lodged decision-ready. A large and growing portion of Australia’s migrants have been in Australia as temporary residents, and that means authorities hold more information about them than ever before.

And if the government says it can do character and security checks on applicants for the new Global Talent Initiative within weeks, there is absolutely no good reason for citizenship applications to take a year to process.

The auditor-general found that the delays in processing citizenship applications are largely due to applications sitting for long periods without the appointment of a processing officer. The government needs to remember that helping new migrants to become citizens as quickly as possible has been a core part of Australia’s success as a multicultural nation. Allowing new migrants to declare their loyalty to Australia is central to social cohesion. Menzies understood that. Holt understood it. Whitlam, Fraser, Hawke and Keating understood it.

It is important, of course, to help new migrants learn English and secure employment — but you don’t do that by depriving them of access to citizenship. You do that by funding English-language courses and delivering them in the right way and in the right circumstances.

The government also needs to look at better ways of helping new migrants secure employment than the currently failing Job Network system. The system has been a costly disaster — but its biggest failing is with new migrants. In particular, Job Network providers will never find it profitable to help humanitarian entrants to secure employment.

Finally, I want to come to an issue that may sound a bit arcane but will affect migrant communities in a very significant way. This is the privatisation of Australia’s global visa-processing platform.

The platform used to process visa applications is central to the management of immigration. Put simply, we can’t manage immigration without it. The plan for the next version to be developed and owned — yes, owned — by a private company means the government will effectively be beholden to an external, private organisation.

How will that company make money? In the first instance, all application fees will rise by $35. But it won’t stop there. Further increases will be as inevitable as increases in health insurance premiums. But the most serious issues will arise if the private company is allowed to introduce a premium service stream — one where the applicant pays a much larger fee for faster processing and — wink, wink, nudge, nudge — better outcomes. In these circumstances, the private company won’t be able to make extra money if it can’t convince applicants of a likely better outcome from the premium stream.

The private company will also have access to some of the most sensitive data about the private lives of Australia’s immigrants, and their Australian sponsors, an absolute treasure trove that can be used for marketing purposes.

It’s amazing that any government that cares about strong borders, immigration integrity and maintaining confidence in immigration would be taking the risk of privatising the global visa-processing platform. •

This article is based on Abul Rizvi’s speech, “Current Challenges in Immigration Policy,” to the NSW Multicultural Communities Council earlier this week.

The post Australia’s multicultural advantage appeared first on Inside Story.

Comparing the economy’s performance in the second half of this decade with the first half reveals just how badly things are going. Quarterly wage growth is down 40 per cent. Retail spending growth is down 30 per cent. Consumption growth is down 15 per cent. Investment now contracts each quarter by an average of 0.4 per cent. The rate at which the economy creates new businesses has fallen from 14 to 11 per cent and GDP growth is now at global financial crisis levels.

The treasurer is quick to blame a weak global environment, but this doesn’t stand up to scrutiny. He’s correct that the global environment is weak and riddled with downside risks, but thus far it has been supporting the Australian economy rather than weakening it. Average quarterly growth in net exports has been six times higher in the second half of this decade than in the first. The Australian dollar has supported our exporters by falling 16 per cent from its 2018 peak, and low global interest rates have made it cheaper for our governments, banks, firms and households to borrow abroad.

The problems in our economy are home grown. The weakness in the global economy and the damage caused by the trade war will indeed hurt the Australian economy, but that pain is yet to come. Global trade growth has fallen by half and foreign investment by a fifth since 2017 and the eventual deal between the United States and China will almost certainly hurt, not help, Australia: diverting Chinese demand for agricultural produce away from Australian farmers and towards those in America.

So, what’s the plan? There doesn’t appear to be one. Or, if there is one, the government is keeping it very close to its chest.

We were told after the federal election that tax cuts and interest rate cuts would come to the rescue, encouraging households to increase spending. Even back then, this argument was unconvincing. The data shows that Australian households are deleveraging — paying down record levels of household debt — and are thus more likely to save any windfall gain than spend it. Reserve Bank officials have made this point repeatedly. As for interest rate cuts, the Reserve’s own analysis shows that the full effects of its cuts probably won’t be felt until 2020. No surprise, then, that despite lower tax and interest rates, retail spending hasn’t changed in the slightest and household consumption continues to stagnate.

The bright spot is housing. House prices and clearance rates are increasing once again. Many hope this will support the economy through wealth effects and a boost to construction. But even if homeowners spend their windfall rather than bank it (the latter of which seems more likely in the current environment), inflated asset prices are hardly the growth strategy we were hoping for.

The critical problem is that the sources of long-run sustainable growth — investment and, more importantly, productivity — are nowhere to be seen.

Investment in Australia has been so weak for so long that we are now experiencing “capital shallowing,” with the ratio of capital to labour starting to fall. This is a big problem. A shrinking capital stock means weaker long-run growth. Productivity growth is similarly anaemic. The Productivity Commission showed in June that labour productivity growth for 2017–18 was less than a fifth of its long-run average.

The absence of these long-run drivers of growth paints a bleak outlook. Other than a lack of action, it’s alarming that both sides of politics appear to have mischaracterised the problem, proposing solutions that will achieve little.

The immediate problem facing the Australian economy is clear when you look at the data. Consider the following. While investment is contracting, corporate profits are at record highs, the ASX200 has broken new ground, bond yields and interest rates are at record lows and share buybacks and dividend payouts are both at unprecedented levels — up 140 per cent compared to the four-year average. Qantas has recently bought back almost a third of all its shares and is by no means alone.

What does this tell you about the economy? It tells you that businesses are awash with cash and can easily get more if they want it. It tells you that trying to boost investment in this environment through investment allowances, instant asset write-offs, corporate tax cuts or any of the other measures being proposed by both sides of politics to pump more money into businesses is like giving a glass of water to a drowning person. It also tells you that trying to make already cheap money even cheaper with further cuts to already low interest rates (either by cutting the cash rate to reduce short-term interest rates or using quantitative easing to reduce long-term interest rates) won’t have the effect it previously did.

Put simply: the problem isn’t supply, it’s demand. Businesses will only invest, expand production and make more stuff and produce more services if they think they can sell them. If they can’t see demand, they won’t increase supply. The only things businesses see when they look out their windows is collapsing department stores, declining consumption, indebted households, a risky global environment and a federal government actively weakening demand by taking more out of the economy than it is putting back in (in other words, by running a budget surplus). Australian businesses would be crazy to invest in this environment, and they’re not.

To boost investment, we need to boost demand, and there are plenty of levers available to the government to achieve exactly that.

Increasing Newstart is not only the moral thing to do, it will put money into the pockets of people who will definitely spend it. Increasing the minimum wage will help the most vulnerable and will push up wages across the economy for the millions of Australians who either receive the minimum wage or receive an award wage that is linked to it. The government should abandon its plan for budget surpluses given weakness in the economy, and it should expand trade liberalisation to boost external demand.

Further tax cuts are an option, but tax cuts are a long-term structural response to a short-term problem. Increased spending makes more sense, particularly given the government can borrow and spend at the cheapest interest rates in history.

For long-run productivity, the best time to implement structural reform is anytime. The lowest-hanging fruit is competition reform. Multiple industries in Australia are completely sheltered from competition. Airlines, pharmacies, the legal profession, the medical profession, coastal shipping and numerous other industries are run by firms that are sheltered by law from having to compete. Cracking these industries open will unleash productivity. Competition is the fundamental ingredient of a well-functioning capitalist economy. Without it, inequality rises, wages fall, investment collapses, growth falters and mark-ups rise. Sound familiar?

The Australian economy needs demand, not even cheaper cheap money. Until we properly understand the problem, we will keep producing ineffective solutions. •

The post It’s the demand-side, stupid! appeared first on Inside Story.

Nor is the gloom entirely unwarranted. Exports are doing well, but the growth in business investment is flat. Home building, which has supported jobs and incomes over the last five years, has topped out and will soon fall. Slow wage growth and high mortgage debt are inhibiting household spending. Government investment has helped, but even at today’s high levels it is less than one-twentieth of GDP.

The result is slow growth in overall economic output. It’s true that jobs growth has been quite good, more or less keeping pace with the rate of increase in output, but that also means there has been little increase in output per hour worked or labour productivity over the last few years. Without an increase in output per hour worked it is difficult to sustain an increase in income per hour worked; thus, low wage growth. And without productivity growth, output can’t increase much faster than the growth of labour supply.

These circumstances don’t suggest a recession is imminent, but they do present a picture of disappointingly low growth in living standards. The Reserve Bank is responding with lower interest rates, and the government with tax cuts. What difference will these responses make?

After a long period of no change the Reserve Bank has cut its cash rate by 0.5 per cent over the past two months. It may well do more. We now know that the bank would like to get down to 4.5 per cent unemployment, from 5.2 per cent today, so long as inflation “is not a problem.” If inflation is below the 2.5 per cent target and not markedly accelerating, and if unemployment is above 4.5 per cent — which probably won’t happen for quite a while — the bank could in principle be prepared to cut further.

Somewhere, however, there is a floor to the rate commercial banks charge on loans, and therefore a limit to their capacity to hand on rate cuts. This is largely because banks pay a zero or near-zero rate of interest on a large part of the funds they hold on behalf of households. Those deposits are always roughly equal to the stock of owner-occupied home lending, and most of them pay little or no interest. The cost of holding these deposits is not reduced by a lower Reserve Bank policy rate because the funding is nearly free anyway. If the banks cut their lending rates further they are cutting profits. The lower the policy rate, the more unwilling commercial banks will become to reduce loan rates in response.

The lowest likely cash rate is therefore said to be 0.5 per cent. Whether that is the actual floor we might discover in coming months. If it is, the total possible cash rate cut in this easing episode is 100 basis points, or 1 per cent, and we are halfway there.

The Reserve Bank also has the capacity to reduce long-term fixed interest borrowing rates by purchasing longer-term securities. It did so during the 2008 crisis. But that was more in the nature of balance sheet and liquidity support for institutions in a frozen market. The bank recognises that, other than borrowing by governments, most Australian loans are priced using short-term interest rates. Reducing long-term borrowing rates won’t have much impact, particularly given that government bond rates are already at a record low.

Would a rate cut of 1 per cent make a discernible difference to economic activity? The rate cuts will make little difference if the commercial banks don’t reflect them in lower lending rates. Even if they do, the magnitude of the feasible cuts is quite small. From 1.5 per cent to 0.5 per cent is 100 basis points. In the earlier phase of this episode the bank was able to start off from a cash rate of 4.75 per cent at the end of 2011 and bring it down to 1.5 per cent by August 2016. This 325 basis point cut not only raised household disposable income but also stimulated a boom in house prices and then in house construction that significantly contributed to offsetting some of the downturn in mining investment. It also took the Australian dollar down from US$1.10 to US$0.70, considerably helping Australian exports. Yet business investment fell, inflation fell, and wage growth fell — all issues to which the bank is now responding. If 325 basis points didn’t stimulate wage growth and inflation, 100 basis points won’t either.

The earlier rate cuts were associated with a faster rate of jobs growth from early 2014. But that faster rate has continued. The additional rate cuts might help, but as the bank itself says, jobs growth is pretty good anyway.

This new round of rate cuts cannot match the earlier round, either in size or in the type of impact. No new upswing in housing construction is likely in a market that is well supplied for the moment, and with migration slowing. In the year to May, approvals for new private house construction fell by nearly a third. It is already the case, as Reserve Bank governor Philip Lowe spelled out in his statement announcing last week’s cut, that “borrowing rates for both businesses and households are at historically low levels” and the Australian dollar is at the “low end” of its recent range. The change in the value of the currency after his announcement was very modest.

It is true that household borrowing is higher now than it was in 2011, magnifying the impact of the rate cuts on household income available for other spending. Yet even the impact on household spending of a 100 basis point cut in total (assuming we see two more 25 basis point cuts) would be fairly modest. Contrary to the widespread belief, most households are not stretched by mortgage payments. Despite the rise in household debt, interest payments as a share of household disposable income are no higher today than they were in 2003, and much lower than a decade ago. Housing interest rates have gone down more than borrowing has gone up.

The stock of variable rate owner-occupied loans is roughly equal to annual household disposable income. If the banks passed through to existing loans the whole of a one percentage point cut in the cash rate, household disposable income (that is, net of mortgage interest) would increase by something like 1 per cent. This is not an insignificant increase, though some of it would be matched by a corresponding fall in rates paid on household deposits, some of it might be saved, and any increase in consumption would anyway be spread over a year or two. The 325 basis points in cuts from 2011 to 2016 do not seem to have had any marked impact on household consumption, though it’s true they may have prevented it slowing more than it did.

As for the tax cuts, at $7.2 billion for this year they are roughly equal to a 0.6 per cent addition to household disposable income. This might make some difference to the rate of growth of household consumption this financial year. But we need to bear in mind that the federal budget papers show that personal income tax as a share of household income will increase despite the tax cuts, that personal income tax per head will increase, and that government tax revenue will increase faster than government spending. Overall the budget stance remains contractionary. The tax “cuts” are really a reduction in the rate of increase of tax revenue. Even with them factored in, the budget forecasts that tax revenue will increase $18 billion or 4 per cent this year — somewhat faster than the likely growth of household disposable income. The overall impact of tax this year will be to moderate any increase in household consumption.

As Phillip Lowe explained, a rationale for the new round of rate cuts is the bank’s discovery that unemployment could fall to 4.5 per cent without “inflation becoming a problem.” Although it may be wondered whether senior bank officials ever really thought 5 per cent unemployment was as low as it could go without accelerating wages growth, this is a perfectly good rationale. After all, if inflation is quite low, if wages growth is low, and if home prices are no longer rising, why not see if even lower interest rates make a difference? This at least conveys a sense that the bank is doing its best to help. But what really matters, as the bank once used to say, is not the change in the rate but the level. At 1.5 per cent, the policy rate was already very low indeed. The main contribution monetary policy can now make it to keep the rate low until it becomes inconsistent with rising inflation.

The basic problem for the bank is that the causes of Australia’s slow growth are beyond its influence. It can ameliorate the impacts but it can’t solve the problem. It could not stop the big decline in mining investment from 2012 to now. It can’t solve today’s underlying problem, which is low growth in output per hour worked, or labour productivity. That these indicators are low is probably due partly to declining business investment in recent years, partly to the relatively rapid growth of jobs in industries such as health and education with relatively slow productivity growth, and partly to either a slowdown in technological change or its mismeasurement.

This is a problem we share with most advanced economies, and it has so far proved beyond the wit of central banks or governments or business leaders. Spending on transport infrastructure to ease bottlenecks would help, as Dr Lowe frequently suggests. Doing more on workplace skills and on the quality of education would help, as the Productivity Commission suggests. So would sorting out the healthcare system, another Productivity Commission suggestion. But these reforms would make a difference over many years, not the next few. Meanwhile we should be wary of touted changes in the tax mix and the industrial relations framework, almost all of which are designed to advantage one group of Australians over another without adding to the common prosperity.

For all that, some good things have been happening, largely unnoticed, in the Australian economy. One is that two-thirds of Australians over fifteen, a bigger share than ever in our history, are either working or looking for jobs. Jobs growth has been strong. Another is that not only is Australia running a surplus on trade with the rest of the world, it is running the biggest-ever trade surplus and also the lowest current account deficit for quite a while.

Nor have the twenty-eight years of growth passed without consequence. On average, Australians command four times the real wealth per head they commanded in 1991, when the long expansion began. Our real income per head is two-thirds higher. Output has much more than doubled. So long as employment is increasing, a spell of low productivity growth that neither the Reserve Bank nor the government can fix is something we can manage. •

The post Nearly three decades of economic growth — and yet… appeared first on Inside Story.

The major agenda items for the conference had been foreshadowed nearly two years before, in February 1942, shortly after the United States and Britain had signed a mutual aid agreement. The Americans, mindful of the difficulties they’d had in collecting loan repayments from allies after the first world war, signalled that they were prepared to forgo repayment this time so long as their allies in the latest conflict agreed to meet a number of commitments after the war.

Australia signed the mutual aid agreement in September 1942. For its advisers — among whom were some of the nation’s most distinguished economists, including L.F. Giblin, Roland Wilson, Leslie Melville, and H.C. “Nugget” Coombs — the most contentious clause, Article VII, committed the signatories to two things: first, “the expansion, by appropriate international and domestic measures, of production, employment and the exchange of goods”; second, “the elimination of all forms of discriminatory treatment in international commerce, and… the reduction of tariffs and other trade barriers.” The agreement also called for signatory governments to meet and determine how best to attain these objectives, as they eventually did in part at Bretton Woods.

By the time Australia signed the agreement six months later, it was clear that the priority of the United States was the second part of Article VII, the removal of impediments to international trade. But the Australians argued that priority should be given to the first part: the expansion of employment and production by “appropriate international and domestic measures.”

The British government summoned the Dominion governments — Canada, Australia, New Zealand and South Africa — and India, which was then a British colony, to London for preliminary talks on postwar reconstruction in October–November 1942. There, John Maynard Keynes presented his plan for an International Currency (or Clearing) Union to promote external economic stability. But, as Roland Wilson learnt when he visited the United States on his way back to Australia, a rival American plan had been devised by Harry Dexter White, a senior US Treasury official. Whereas Keynes’s plan proposed what in effect was a world central bank, White’s planned United Nations Stabilisation Fund was more akin to a global credit union.

Once Wilson was back in Australia, the merits of the two plans were thoroughly dissected by the economists. They supported Keynes’s plan, which was more generous than its rival, and allowed for greater discretion, including greater exchange rate flexibility in certain circumstances.

The Australian economists were also developing their own response to Article VII, later to be known as the “positive approach” or the “full employment approach.” It called on the Allied powers to sign a treaty committing them to domestic policies aimed at maintaining full employment. This would keep world demand for goods and services high and thus make it easier for governments to reduce trade barriers. In other words, the pursuit of the first requirement of Article VII would create the necessary conditions for the achievement of the second.

The United States, the economists contended, was putting the cart before the horse, expecting the elimination of trade barriers to create the conditions necessary for the expansion of production and employment. This would fail, they argued, for governments would never agree to the dismantling of trade barriers if unemployment stayed high.

Australian officials promoted this response to Article VII at international meetings in 1943 and through the early months of 1944. Once it became clear that Washington would not accept his plan, Keynes tried to use his powers of persuasion to have White’s plan amended. But he was able to achieve very little, and when delegates assembled at Bretton Woods in July 1944 they were presented with an only slightly modified version of White’s plan.

The Dominions and India were summoned again to London in April 1944 to clarify the positions they intended to take at Bretton Woods. It was then announced that Australia’s delegation to Bretton Woods, unlike those of most other nations, would be led not by a senior minister but by Australia’s leading authority on international financial matters, Leslie Melville, economic adviser to the Commonwealth Bank. The other three members of the delegation were F.H. Wheeler of Treasury, Arthur Tange of the Department of External Affairs, and J.B. Brigden, adviser to the Australian Legation in Washington. All were notable economists.

The Australians fought hard at Bretton Woods to have three modifications made to the draft plan for the International Monetary Fund (there was little objection to the World Bank). On the first point — a commitment by all members of the IMF to pursue policies aimed at maintaining full employment — it won the support of Britain, France, Poland, New Zealand and a number of other countries, but was defeated by objections from the United States and most of the South American countries (nineteen of the forty-four countries at Bretton Woods were from South America), with Russia, China and India providing little support.

To drive home the point, the United States and Canada announced that, while they recognised the relationship between employment and monetary policy, any resolution implying that acceptance of the IMF should be contingent on signing the employment agreement was outside the conference’s terms of reference.

On the other two issues — an increase in drawing rights and greater exchange rate flexibility for primary exporting countries — the Australians gained some minor concessions. When it came to ratifying the draft agreement at the end of the conference, Australia signed at the eleventh hour, but Melville was forced by the government to declare that he was signing “for purposes of certification only.”

Weighing up the pluses and minuses of membership on his return to Australia, Melville considered that, on balance, it would be to Australia’s advantage to join the IMF. He saw no difficulties with joining the World Bank (then known as the International Bank for Reconstruction and Development). After a bitter fight within the Labor Party over whether Australia should endorse the Bretton Woods Agreement, the government finally accepted membership of both organisations.

When he announced in parliament on 13 March 1947 that Australia would join the Bretton Woods institutions, prime minister Ben Chifley noted that Australia had “consistently maintained the view that the successful working of international economic organisations, and the expansion of international investment and trade, depends to a very great degree on the achievement and preservation of full employment in the major industrial countries.”

After “a long series of formal and informal discussions,” Chifley insisted that the “positive approach” had “finally succeeded.” He highlighted the references to employment in the UN Charter and the fact that the British government had obtained from the International Monetary Fund “a ruling that steps necessary to protect a member country from chronic or persistent unemployment arising from pressure on its balance of payments are among the measures necessary to correct a fundamental disequilibrium.”

As a result of the prolonged political battle, Australia missed the deadline for membership as an original member of the IMF and World Bank, though it was able to join — on 5 August 1947 — on the same terms as original members. When the number of executive directors of the IMF was increased from thirteen to fourteen in February 1948, Treasury secretary Stuart McFarlane was elected to fill the position, with Roland Wilson becoming the alternate director. And when Macfarlane retired in 1950, he was replaced — quite appropriately — by Leslie Melville. •

The post Bretton Woods at seventy-five appeared first on Inside Story.

Do you recognise this world? You do? Maybe you’re a North Korean dissident, or a refugee who fled Stalin’s Russia. Or maybe you’ve just got home from work.

“Most workers,” argues the American philosopher Elizabeth Anderson in her provocative new book, “are governed by communist dictatorships in their working lives.” When we enter our workplaces we enter a system of private government. And it’s not a pretty sight: the private governments of the past were run by leaders who took power by force or by birth; the private governments of today are run by CEOs.

Taking her examples from American sources, Anderson tells of poultry processors forced to wear adult nappies because they are denied toilet breaks; sweatshop conditions in Californian garment factories; astounding levels of sexual harassment in restaurants across the nation; out-and-out wage theft in many industries; and Amazon warehouse workers suffering under heatwave conditions because management wouldn’t install air conditioning. (To be fair, they did organise for ambulances to ferry the workers who collapsed from heat stroke to hospital.)

Of course, these are the extreme examples. But the system of control, Anderson says, is near universal. Big Brother is boss, and if you don’t like it, there’s the door.

Western governments might be democratic in nature, but when we pass through those ubiquitous security gates into the place where we spend a third of our lives, our corporate lanyards round our necks, we surrender to a system of government that Henry Tudor would recognise and approve of.

Philosophers love their thought experiments, and Anderson’s is a doozy. She describes something familiar in a new way and the scales fall from your hitherto unseeing eyes. After reading her book your workplace will never look quite the same again. Men and women might be born free, but everywhere they are chained to their cubicles.

Journalist and screenwriter Dan Lyons would agree. He’s spent the last couple of years journeying through the work gulags of modern capitalism, talking to dissidents on the shop floor and hubristic managers in the corner offices, and he’s come back a modern-day Solzhenitsyn.

Lyons is no philosopher, or sociologist for that matter, but he is funny — and he’s pissed off. Once a successful journalist, he was disrupted out of a job he loved at Newsweek, ended up working at a tech start-up staffed by enthusiastic millennials, wrote a jaundiced book about his experiences (naturally enough called Disrupted), and ended up contributing to the hit HBO comedy Silicon Valley.

You’d think he’d be content now, but Lyons is having none of that. He’s convinced that modern work practices are making people seriously unhappy, and he thinks it’s all the fault of his traditional enemies: those smug oligarchs who run Big Tech. Lab Rats is the result of this personal crusade.

Because Big Tech companies are powerful and successful, how they do things is copied shamelessly by many other companies hoping to emulate their share prices. As a long-time critic of Silicon Valley’s culture, Lyons is convinced that the industry’s influence on the happiness of modern workers will reach far beyond a pocket of California.

Big Tech loves cheap workers. Facebook, Amazon, Netflix and Google — the so-called FANGs — are all big companies with relatively small workforces, mostly made up of contractors. For Lyons, the growing use of contract workers, pioneered by tech companies like Lyft and Uber, is making job security a thing of the past.

And Big Tech also loves change, at least on its own terms. Unfortunately, that’s not so good for workers. As Lyons points out, “being exposed to persistent, low-grade change leads to depression and anxiety. The suffering is akin to what we experience after the death of a loved one or spending time in combat.”

Move fast and break things, as the Facebook motto had it. Even lives.

Uncovering the dark side of Silicon Valley is becoming a journalistic industry. In Brotopia, the American TV reporter Emily Chang, presenter and executive producer of Bloomberg Technology, examines how the tech industry treats women. Her tales show job discrimination, investor prejudice, and a culture of sexual politics that would look more at home in parts of the National Rugby League.

The chapter of Chang’s book that got a lot of publicity (including an extract in Vanity Fair) when it was first published in the United States dealt with the anonymous sources who told her about the sex parties held by the upper echelons of the tech business. The sense of entitlement among powerful men is, of course, an old and dismaying story. But the CEOs, founders, venture capitalists and paper billionaires of the Valley have given it a new twist. Perhaps because they were virginal nerds in high school and university, they somehow feel they have earnt the right to run a tech version of the Playboy mansion circa 1972, but with more money, better drugs and even less duty of care.

It’s the same kind of self-justifying ideology used to disrupt legacy businesses or claim that the gig economy is an improvement on that old-fashioned notion, workers’ rights.

Chang’s book also reports on the structural issues that bedevil the tech sector. Despite playing an important role in the creation of the industry, women are woefully underrepresented in its workforce. According to Chang, not only are there too few female coders, developers, CEOs and venture capitalists in tech, but there is also no real commitment to overcoming the deficiency.

In an otherwise interesting and well-researched book, Chang does seem to miss one of the most important issues arising from the Valley’s woman problem. As Safiya Umoja Noble shows in another recent book, Algorithms of Oppression, the programming choices that lie at the heart of the whole enterprise are often hopelessly biased against women and minorities, mainly because they are written by a very narrow cohort of white, Ivy League–educated men.

So, what kind of shop floor of the future are these men creating?

One day a software programmer in Los Angeles called Ibrahim Diallo turned up to work to find that his security pass didn’t work. Luckily the security guard recognised him and let him in. Then his computer wouldn’t let him log on. His supervisor sent an email to HR to sort things out. She got back a computer-generated reply saying that he was no longer a “valid employee.” Diallo had been fired by a computer.

Because of a software malfunction, Diallo spent three frustrating weeks without a job and without pay. A minor Kafkaesque moment in the history of industrial relations, you might say. But Dan Lyons says it’s a parable of what’s already happening. “We are meat puppets, tethered to an algorithm,” he writes.

We already have software programs that screen resumés, and irritating workplace surveys run by AI, as well as the widespread use of “continual performance improvement algorithms” that literally monitor a worker’s every move. By creating a new hybrid, part worker, part machine, we run the risk of dehumanising the workplace, says Lyons — with far-reaching psychological effects on workers.

“In my quest to understand the epidemic of worker unhappiness,” writes Lyons, “I’ve come across stressors like dwindling pay cheques, job insecurity and constant, unrelenting change. But [the] fourth and final factor of unhappiness in the workplace — dehumanisation — might be the most dangerous of all.”

An optimist at heart, Lyons says he’s also found signs of a counterrevolution, at least in some companies. There’s the Chicago-based software company Basecamp, which mandates that its staff work only forty hours a week — except in summer, when they take Fridays off. Basecamp’s owners aren’t pursuing world domination, just interesting and fulfilling lives. And, anyway, they’re not short of cash: one of them can still afford to collect racing cars and compete at Le Mans.

Then there’s Managed by Q, a contract-cleaning business, where “everybody cleans,” even the firm’s founder and CEO, who still does shifts scrubbing toilets. Unlike many newly minted companies, Managed by Q doesn’t rely on the gig economy to shave wages and conditions; everyone who cleans also gets health insurance, a pension scheme and stock options.

Lyons argues that companies like these have seen what’s happening in Silicon Valley and then done the opposite. They don’t make Google-sized returns, but their staff turnover is lower, their productivity is higher, and people have fun at work.

The reform that Lyons seems to miss, however, is the most obvious one: collective action. Last November, for example, around 20,000 Google workers staged a walkout protesting at the company’s use of forced arbitration to settle sexual harassment or assault cases instead of allowing its workers to go to court. By February Google had bowed to the pressure and agreed that it would no longer force employees to settle disputes in this way.

As the group that led the campaign, Google Walkout for Real Change, tweeted at the time, “This victory would never have happened if workers hadn’t banded together, supported one another and walked out. Collective action works. Worker power works. This is still just the beginning.” •

The post A spectre is haunting the workplace appeared first on Inside Story.

For the Canadian government, the TPP’s chapter on labour “seeks to ensure that economic development is not achieved at the expense of workers’ rights.” For the US government — at least before it withdrew from the agreement — the chapter provides “the strongest protections for workers of any trade agreement in history,” setting a “high-water mark for labour protections in a trade agreement.”

We disagree. We believe that the TPP’s labour provisions are destined to be ineffectual because they include both flexible standards and what might be called standards for flexibility, as well as allowing mutually assured non-compliance. These flaws highlight the need to radically reconsider labour provisions in trade agreements so that they fulfil their promise of protecting employees.

By “flexible standards,” we aren’t simply referring to the flexible application of labour regulations. We are referring to situations where the flexibility is so significant as to seriously call into question whether a standard is being laid down at all — where the flexibility is so considerable that we are inclined to say that there is no legal norm.

It is this kind of flexibility that we find with the centrepiece of the TPP’s labour chapter, Article 19.3:

Both of these sub-clauses provide for flexible standards, as we’ve described. In sub-clause (1), the flexibility stems from a reliance on “the rights as stated in the ILO Declaration.” Given that there are no rights stated in the ILO Declaration — only principles informed by the rights in the ILO conventions that the TPP expressly excludes from the agreement in footnote 3 — this is a poor piece of drafting, at best.

What this means for the scope and content of labour rights will become clear only when arbitral decisions begin to be made under chapter 28 of the agreement. The grindingly slow processes under labour provisions of US trade agreements strongly suggest that this could take quite some time: the first and only such decision was handed down more than nine years after the complaint was lodged.

It is also unclear whether the Article 19.3 principles will be interpreted in the light of ILO supervisory bodies have interpreted the rights from which they are drawn. Crucially, does the “freedom of association and the effective recognition of the right to collective bargaining” include the right to strike? This right isn’t explicitly mentioned in the ILO Conventions 87 and 98, but it has been held by the ILO supervisory bodies to be implied by Articles 3 and 10 of the Convention Concerning Freedom of Association and Protection of the Right to Organise.

The flexibility of sub-clause 2 of Article 19.3 is obvious, and not only because footnote 5 leaves the determination of what are “acceptable conditions of work” to the discretion of individual governments. The sub-clause also fails to refer to the many ILO conventions and recommendations. (Eighteen conventions and twenty-three recommendations relate to occupational safety and health alone; no fewer than thirty-four conventions deal with hours of work, holidays and night work.)

As well as these flexible standards — ostensibly hard legal provisions that turn out to have rubbery insides — the TPP’s labour chapter allows legalised minimalism through standards for flexibility: non-existent standards, liquid-soft obligations, and heavily qualified obligations.

The preamble to the 1998 ILO Declaration on Fundamental Principles and Rights at Work suggests the areas where the labour chapter ought to have laid down standards but failed to do so. “The ILO should give special attention to the problems of persons with special social needs,” it says, “particularly the unemployed and migrant workers.” Rather than “special attention,” the labour chapter pushes these groups to the margins, burying issues that specifically concern them within the numerous topics that can be subject to cooperative activities between the parties.

Accompanying the absence of standards in relation to the unemployed and migrant workers are liquid-soft obligations. We find examples in Articles 19.6 and 19.7, which speak for themselves (emphasis added):

Article 19.6: Forced or Compulsory Labour
Each Party shall also discourage, through initiatives it considers appropriate, the importation of goods from other sources produced in whole or in part by forced or compulsory labour, including forced or compulsory child labour.

Article 19.7: Corporate Social Responsibility
Each Party shall endeavour to encourage enterprises to voluntarily adopt corporate social responsibility initiatives on labour issues that have been endorsed or are supported by that Party.

Finally, the labour chapter’s heavily qualified obligations provide too much flexibility. In most — if not all — cases, a breach of the obligations in this chapter only happens when it can be shown to occur “in a manner affecting trade or investment.” This is explicit with the three most significant provisions (Article 19.3, Labour Rights; Article 19.4, Non Derogation; Article 19.5, Enforcement of Labour Laws). But even where other provisions impose substantive obligations, some of the processes under the chapter strongly suggest that allegations of their breaches need to establish how they occur “in a manner affecting trade or investment” (for example, Article 19.2(c): Public Submissions; and Article 19.11(2): Cooperative Labour Dialogue).

In practice, interpreting “in a manner affecting trade” is likely to present formidable, perhaps insurmountable, challenges, in terms of both the financial evidence and the degree of specificity it requires. These demands could easily asphyxiate the TPP’s labour standards.

And mutually assured non-compliance? Article 19.3(1) of the TPP commits the parties to adhering to the ILO Declaration on the Fundamental Principles and Rights at Work of 1998. Given its flexibility, there is a clear danger of a “minimalist” approach to this commitment.

What would a more robust approach look like? It would recognise that the four labour principles in Article 19.2(1) are based on the eight fundamental conventions of the ILO:

Convention 29 (Forced Labour Convention, 1930)
Convention 87 (Freedom of Association and Protection of the Right to Organise Convention, 1948)
Convention 98 (Right to Organise and Collective Bargaining Convention, 1949)
Convention 100 (Equal Remuneration Convention, 1951)
Convention 105 (Abolition of Forced Labour Convention, 1957)
Convention 111 (Discrimination (Employment and Occupation) Convention, 1958)
Convention 138 (Minimum Age Convention, 1938)
Convention 182 (Worst Forms of Child Labour Convention, 1999)

Only three of the eleven signatories have ratified all eight fundamental conventions. The remaining eight signatories have ratified only a selection:

Australia: 7 (not Convention 138)
Brunei: 2 (not 29, 87, 98, 100, 105 or 111)
Japan: 6 (not 105 or 111)
Malaysia: 6 (not 87 or 111)
Mexico: 7 (not 98)
New Zealand: 6 (not 87 or 138)
Singapore: 6 (not 87 or 111)
Vietnam: 5 (not 87, 98 or 105)

Judged against these conventions, all signatories to the TPP are in breach of Article 19.3(1). Another area of non-compliance derives from long-running deficiencies in implementing existing conventions. Australia is no stranger to breaches of the freedom of association conventions, for instance, and not in any trivial sense. Since 2010, it has been clear that foundational aspects of the federal Fair Work Act — restrictions of the subject matter of bargaining and the right to strike — are in breach of these conventions.

Finally, there is the fact that the obligations under the labour chapter, however attenuated, are unlikely be enforced by the signatories. Except for Canada, none of the TPP signatories strongly supports the labour provisions; for them, the TPP is principally directed at market access. “Developed” countries like Australia, Canada and New Zealand seem to believe that they are already in compliance with such provisions, despite compelling evidence to the contrary. This belief carries with it the assumption that the agreement’s labour chapter won’t require any significant regulatory changes, an assumption that “developing” countries are unlikely to disturb given their own lack of compliance. All this will be reinforced by the flexibility of the chapter. Even without the United States, there will likely be mutually assured non-compliance.

How could the labour provisions in trade agreements be made more effective? First, all signatories should be required to ratify and implement the eight ILO fundamental conventions, the ILO conventions on labour migration, and the ILO conventions on social security. This obligation should expressly incorporate ILO jurisprudence. And breaches of this obligation should not be limited to those that occur “in a manner affecting trade or investment.”

Signatories must understand that they will need to make significant changes to law and policy to comply with this obligation. All signatories should develop Labour Consistency Plans, and these should be vetted by the ILO. The labour provisions should also provide that a failure to implement provisions of these Plans would be presumptively considered a breach.

Finally, an effective remedy must be in place for cases of non-compliance, consistent with basic rule-of-law requirements. That means access to an independent body to resolve the dispute, with workers’ organisations having the right to make a complaint in any case where they have an interest. In the event of a breach of labour standards, the same remedies should apply as in the case of violations of the rights of investors under the other provisions of the trade agreement. In other words, there should be no discrimination between labour and capital on the enforcement of rights. •

This article draws on the authors’ submission to the inquiry of the Senate Foreign Affairs, Defence and Trade References Committee into the Proposed Comprehensive and Progressive Trans-Pacific Partnership Agreement.

The post The great trade-off appeared first on Inside Story.

Chart 1 shows the pattern of employment in Australian manufacturing from 1966 onwards. After reaching a peak of 1.38 million in 1973, employment declined to 870,000 by 2017. But then came a turnaround, with a net addition of 85,000 employees in the past year.

Chart 1: People employed in manufacturing in Australia, August 1966 to August 2018 (Labour Force Survey original data)

Note: The break between 1984 and 1985 reflects a change in official classifications.
Source: Australian Bureau of Statistics, Labour Force, Australia, Detailed, Quarterly, 6291.0.55.003, Table 04; Australian Bureau of Statistics, Labour Force Australia Historical Summary 1966 to 1984, 6204.0, Table 20.

The same pattern is evident when we look at manufacturing’s share of total employment in Australia. In 1966 it was 25.5 per cent. It declined to just 7.1 per cent by 2017, before rising to 7.6 per cent in 2018.

Chart 2 uses quarterly data to look in more detail at employment in manufacturing over the past decade. The growth in employment commenced in August 2017, and by August 2018 employment in manufacturing had returned to the same level as in November 2010.

Chart 2: People employed in manufacturing in Australia, third quarter 2008 to third quarter 2018 (Labour Force Survey trend)

Source: Australian Bureau of Statistics, 6291.0.55.003, Table 04.

Before getting too carried away by a renaissance in manufacturing, though, a cautionary note is necessary. Figures from the new Australian Bureau of Statistics Labour Account don’t show the same jump in manufacturing employment. (According to the Bureau, the Labour Account uses “the macroeconomic framework and statistical techniques used in the Australian National Accounts to help address the inconsistencies, scope gaps, frequency and timeliness shortcomings of labour data drawn from a variety of business and household surveys and other administrative sources.”)

Chart 3 presents the numbers for employment in manufacturing from both series, the LFS and the Labour Account. For the period from the second quarter of 2017 to the second quarter of 2018, the LFS shows an increase in employment of 54,600 persons whereas the Labour Account reports just 7300.

Chart 3: People employed in manufacturing in Australia, third quarter 2008 to third quarter 2018 (Labour Force Survey and Labour Account trends)

Source: Australian Bureau of Statistics, 6291.0.55.003, Table 04; Australian Bureau of Statistics, 6150.0.55.003, Table 4.1

But both series show similar increases in total employment over the same period — 335,100 in the LFS and 372,600 in the Labour Account. The implication is that increases in employment attributed to the manufacturing industry in the LFS are being attributed to other industries in the Labour Account.

Chart 4 shows the main industries where the two data sources differ in attributing employment growth between the second quarter of 2017 and the second quarter of 2018. Whereas the LFS attributes 16 per cent of the growth in total employment to the manufacturing industry, the Labour Account says it is only responsible for about 3 per cent. By contrast, construction, education and training, and administrative and support services explain much larger shares of the increase in total employment in the Labour Account than in the LFS.

Chart 4: Share of increase in total employment accounted for by selected industries, Australia, second quarter 2017 to second quarter 2018 (trend)

Source: Australian Bureau of Statistics, 6291.0.55.003, Table 04; Australian Bureau of Statistics, 6150.0.55.003, Tables 1–20.

Of the main two likely reasons for the difference, the first is sampling variability. “After adjusting for conceptual and scope differences between data sources,” says the Bureau, “a statistical discrepancy remains between the number of filled jobs as reported by businesses and the number of filled jobs as reported by households. These discrepancies represent the cumulative impact of data source error, including survey error, and modelling error.” It is unclear, however, whether sampling variability can explain such a large difference in manufacturing employment.

The other potential reason relates to differences in how employment is calculated at the industry level. In the Labour Account, “the number of employed persons is the sum of those holding main jobs in the industry, plus those holding secondary jobs after adjusting for double counting (i.e. for persons holding multiple jobs in the same industry).” The LFS only counts an individual’s primary job.

This means that the LFS and Labour Account would differ where there is a change in the number of workers who have a seconday job in that industry. On that basis, the different estimates of changes in manufacturing employment could be explained if, in the past twelve months, there was an increase in the number of workers whose main job is in manufacturing and an equal-sized decrease in the number of workers with a secondary job in manufacturing. But Labour Account data suggest little change in either series between 2017 and 2018.

In other words, these different estimates of the change in manufacturing employment between 2017 and 2018 are something of a puzzle at this stage. But they do suggest the need for caution in interpreting estimates from the LFS.

Changes in employment over the past twelve months have not been uniform across manufacturing industry sectors. Roughly speaking, two types of experiences can be identified. First, there are several sectors (see Chart 5) in which employment has rebounded in the past year after decreasing between 2008 and 2017. Second, there are other sectors in which employment has continued to decrease after 2017.

Chart 5: Rising and falling sectors: people employed (thousands) in Australian manufacturing industry, selected sectors and years (original data)

Source: Australian Bureau of Statistics, 6291.0.55.003, EQ06.

Finally, the story by state is also uneven. Employment has rebounded in the manufacturing industry in New South Wales, Queensland and Western Australia after 2017, but in Victoria, South Australia and Tasmania it has either continued to decrease or risen only minimally.

Much of these differences in state-level changes in manufacturing industry employment appear to be explained by the make-up of employment across states. What appears to differentiate Victoria most from New South Wales and Queensland is not an absence of growth in employment in sectors such as food, textiles, clothing and footwear, and machinery/metals production, but simply the much larger negative impact of decreases in employment in the transport equipment sector. South Australia has been adversely affected in the same way, and has not had the benefit of strong employment growth in the machinery/metal production sectors. •

The post Is manufacturing on the rise? appeared first on Inside Story.

Here in Australia, there’s less unanimity. Shadow assistant treasurer Andrew Leigh has highlighted how the richest Australians have taken a rising share of overall income since around 1980, and the newly elected national president of the Labor Party, Wayne Swan, wants to see a renewed effort to reverse that trend. Yet treasurer Scott Morrison says inequality is falling rather than rising.

Part of the disagreement comes down to the question of what we are measuring and over which period. In the decade since the global financial crisis, income inequality in Australia has remained stable or even fallen slightly, but that fall came off a historic high for inequality. There is little doubt that inequality is worse now than it was in the early 1980s. As the IMF reported in its Fiscal Monitor for 2017, “Australia is among countries with the highest growth in income inequality in the world over the past thirty years.”

The Australian Bureau of Statistics’s latest analysis of inequality, released in June, reinforces the point. This is the ABS’s most comprehensive study yet, and not only takes account of the impact of income tax and social security benefits on households, but also factors in government-provided health, education and other community services, along with the GST and other indirect taxes. According to this broader measure, inequality is lower than we thought, but it has risen in recent decades.

At least Australia has enjoyed growing prosperity, Scott Morrison might reply. After all, as the Economist has pointed out, our economy has exceeded the record set by the Netherlands by racking up “the longest stretch of growth in modern history.” This is the message the government highlighted in the budget papers and has used in international promotional campaigns. But when we look at the trends over a longer period, that claim also becomes questionable.

Here, a timely new book from Oxford University Press offers a valuable comparative perspective. Inequality and Inclusive Growth in Rich Countries aims to identify which policies have been successful in limiting the rise in inequality by promoting income growth for those on middle and lower incomes. It analyses in detail the experiences of ten rich countries — Australia, Belgium, Canada, France, Germany, Italy, the Netherlands, Spain, Britain and the United States — over recent decades, showing that stagnant incomes and rising inequality can be dealt with where the political will exists. (Disclosure: I wrote the chapter on Australia.)

A particular theme of the book is a phenomenon that has been called “decoupling,” the process by which the incomes of working-age households have risen more slowly than per-capita gross domestic product. This means that economic growth hasn’t benefited households up to the median level of income — the point at which half the earners receive less and half receive more — as much as it did in the thirty years following the second world war.

What explains this divergence between the growth in per-capita GDP — the measure trumpeted by politicians — and the growth in median household incomes? Basically, the differences come down to the fact that the two sets of figures are collected from different sources for different purposes.

Per-capita GDP is a measure of total domestic economic output, regardless of where it’s consumed; household income surveys only gather information on Australian residents. Certain income sources —imputed rent, retained profits, or in-kind benefits — are included in GDP but not reported in household surveys. Non-responses to household surveys, and misreporting by survey staff, also affect comparability.

Once collected, the two sets of figures undergo different adjustments. Per-capita GDP is adjusted using the GDP “deflator,” which takes account of price changes among all goods produced in Australia. Household income is adjusted using the consumer price index, which takes account of price changes among goods consumed by households. A higher growth in CPI relative to the GDP deflator indicates that households are faced with relatively faster-rising prices.

While GDP growth is expressed in per-capita terms, median income is commonly “equivalised,” with total household income divided by the square root of the household size to reflect the fact that it’s cheaper per person to live together. Because the composition of households is changing over time, a further incompatibility arises: as the average household gets smaller, the economies of scale fall, producing a lower growth in median income compared to a per-capita measure.

Finally, it’s important to bear in mind the difference between “per capita” and “median.” Per-capita GDP growth will outpace median income growth if incomes grow faster in the top half of the distribution.

In Inequality and Inclusive Growth in Rich Countries, Brian Nolan (the book’s editor), Max Roser and Stefan Thewissen apply this distinction to the available data. They show that between 1981 and 2010 real per-capita GDP in Australia grew by an average of 1.83 per cent each year, while real median equivalised household income grew by an average of 1.21 per cent. The gap — 0.62 per cent — was the tenth-highest among twenty-six OECD countries, though only half the disparity for the United States. It is worth noting that about 40 per cent of the divergence in Australia is due to inequality, whereas the figure is about 25 per cent in the United States.

Over the whole period from 1981 to 2010, the growth rate of per-capita GDP in Australia was the equal eighteenth-highest of the twenty-six countries and the growth rate of median income was seventeenth-highest — not exactly world-beating.

Most importantly, household income growth for working-age households varies dramatically across those years. As this chart shows, the period from the early 1980s to the mid 1990s is very different from the subsequent period.

Source: Our World in Data

In the early 1980s real incomes fell or were stagnant for virtually all households except in the highest decile (the richest 10 per cent). Real incomes grew very modestly in the second half of the decade, again with the exception of the richest 10 per cent. Real average income then fell among all income groups in the early 1990s, but the drops were greater for households below the median than for those above. Incomes grew much more strongly for all groups in the second half of the 1990s and the early 2000s, although the gains were nearly twice as great for the highest-income group as for the lowest. This growth — which had started in 1992 — was only sufficient to get lower-income Australians back to where they had been in 1989.

The period from 2003 to 2008 stands out. Real average incomes grew by between 6 and 11 per cent per year for a full five years. Again, the richest did best, but all household groups enjoyed unprecedentedly high rates of growth. Households below the median did better than those in the next four deciles.

Real average incomes for households in the bottom half of the working-age income distribution declined after the global financial crisis, although this time the richest income group also experienced a fall. While the figures are not shown here, income growth has remained modest since 2010, except among poorer age and disability pensioners, who benefited from the Rudd government’s increase in the pension in 2009.

Overall, these divergent patterns of income growth resulted in rising levels of inequality among working-age households. Although incomes rose significantly, all but the richest 10 per cent lost ground. For the sixth to the ninth deciles, income shares were broadly stable until 2003, then fell until the global financial crisis and didn’t subsequently recover.

The share of the richest 10 per cent of working-age households increased from 20.4 per cent to 24.7 per cent. As a result, the Gini coefficient — the most common measurement of inequality — increased from around 0.27 to 0.33 over the period, somewhat less than for the total population (including those of pension age).

Even though income distribution widened among working-age households below the median, these figures suggest that the increase in inequality resulted mainly from the richest pulling far ahead of the median rather than from the poorest falling significantly behind. For the period as a whole, the richest 10 per cent were the only group to increase their share of income.

The most striking feature of these results is the extreme divergence between periods. A period of negative or very low income growth was followed by a period of positive growth, a deep recession, a longer period of solid growth, and five years of supercharged growth across the distribution, culminating in a final period that looks more like the 1980s.

Also striking is the fact that the half-decade from 2003 to 2008 accounts for a very substantial component of the improved living standards households experienced across the whole period. For the lowest three income deciles, those years contributed more than the entire net increase in real incomes since 1981–82 — in other words, without the mining boom they would have gone backwards. For the next two deciles they contributed more than 80 per cent of the total, and for the remainder they contributed two-thirds.

Moreover, the 2003–08 period constitutes a very substantial moderating factor in terms of the overall discrepancy between the growth in per-capita GDP and the growth in median equivalised disposable household income, with real median income growing faster than per-capita GDP by close to five percentage points per year. Indeed, if the 2003–08 period had followed the long-term trend then the discrepancy between per-capita GDP and median income would have been nearly three times as great, and significantly larger than in the United States, although not as large as in several Eastern European countries.

The 2003–08 mining boom and its impact on Australia’s terms of trade look like a once-in-a-generation event that’s unlikely to be repeated, at least in the immediate future. This raises the question of whether Australia is truly a miracle economy, or whether is has once agin showed itself to be a lucky country.

These divergent trends raises two obvious questions. What are their causes, and what role has government policy played in offsetting or reinforcing them?

Let’s start with trends in work-related earnings. Because these are the most important source of income for working-age households, changes in the level and distribution of earnings are likely to be a major contributor to overall income inequality.

The chart below shows trends in the ratio of the ninetieth percentile of full-time earnings to the tenth percentile. This ratio increased between 1975 and 1983, before the first income survey. For most of the next ten years, it remained stable or, if anything, declined slightly. Starting in around 1993, wage disparities steadily increased, then fell slightly at the end of the period. At the beginning of this period, a high-wage worker was being paid about 2.6 times the wage of a low-paid worker; by 2016, the ratio had increased to around 3.3 times.

Source: OECD (2017), “Earnings: Gross Earnings: Decile Ratios,” OECD Employment and Labour Market Statistics database (accessed 14 September 2017)

Trends in the labour market also play a role in inequality. The most up-to-date analysis of long-term labour-market changes in Australia comes from economists Michael Coelli and Jeff Borland at the University of Melbourne. They examine two related indicators, job polarisation and earnings disparities.

Job polarisation occurs when high-skill and low-skill employment accounts for a larger share of the job market at the expense of middle-skill jobs. Coelli and Borland’s analysis of data from the 1960s through to 2011 concludes that the share of employment in low-skill jobs increased by 2.2 percentage points and the share in high-skill jobs increased by 17 percentage points. The share in middle-skill jobs, meanwhile, fell by 19.2 percentage points. This polarisation primarily occurred in the 1980s and the 1990s, and was primarily a male phenomenon.

In their analysis of earnings disparities, the two researchers point out that in 2013–14 the lowest decile of income earners worked an average of ten hours per week, and the second decile worked around fifteen hours per week — in both cases mainly as a result of unemployment, non-participation in the labour market, or part-time work. At the other end of the income scale, highly paid full-time workers worked around forty hours per week.

The next two charts show trends in the labour-market status of men and women aged sixteen to sixty-four between 1978 and 2016. They use ABS labour force survey data and figures from the OECD’s wages database to identify the extent of low pay, defined as the percentage of full-time workers earning less than two-thirds of the median. All percentages refer to a percentage of the population rather than a percentage of those in the labour force.

The charts focus on the proportion of the working-age population who can be defined as being in “good jobs” — in other words, full-time workers who aren’t in low-paid employment. They show that the proportion of men in good jobs was above 70 per cent at the beginning of the period. This fell throughout the 1980s and again in the recession of the early 1990s by about 10 percentage points. The figures continued to fall at a slower rate until 2016, with the overall result that between 1978 and 2016 the proportion of men in good jobs fell by nearly 16 percentage points.

Source: Author’s calculations from labour force survey data and the OECD wages database

About a third of that decline is explained by the increase in the proportion of men who weren’t in the labour force (up from 13 to 18 per cent), and another third by men in part-time work who weren’t looking for longer hours. Roughly another fifth of the group, or 3.3 percentage points, was made up of part-time workers who would like to work longer hours. In total, more than half of the total change reflected an increase in part-time work.

While the proportion of men who were unemployed doubled between 1978 and the peak of the 1990s recession, it subsequently fell to the point where it was no higher in 2016 than it had been in 1978. Low pay among full-time workers has increased, but not strongly. Its highest point was just before the global financial crisis, but it only contributed around 8 per cent of the overall change.

The second of these two charts shows the corresponding data for women. The trends run in the opposite direction, with the proportion of women who are not in the labour force falling from nearly half of those of working age to less than 30 per cent. The proportion who are underemployed and looking for longer hours increased more significantly for women than for men, while the proportion of women working part-time but not looking for longer hours rose by close to 10 percentage points. Low-paid full-time female workers made up a slightly higher share of the population at the end of the period compared to the beginning. Overall, women in “good jobs” rose from about 24 per cent to 30 per cent of the female population, which only partly offset the fall in the proportion of men in well-paid full-time jobs.

Source: Author’s calculations from labour force survey data and the OECD wages database

Over the whole period, the share of the total population of working-age in “good jobs” fell from 47 per cent to 41 per cent.

It could be argued that not all part-time jobs are “bad jobs,” and it’s certainly true that the majority of those who work part-time are not seeking longer hours. If we treat people who are happily working part-time as having “good jobs,” then the increase for women would be greater — from around 38 per cent to 54 per cent — and the fall for men would be lower — from 74 per cent to 64 per cent. Of course, this is an upper limit: not all part-time jobs, even if those in them are not seeking longer hours, are well paid.

Both young men and young women may not be seeking longer hours because of study commitments, while many workers may accept low-paid part-time jobs because of family and other care commitments. Nevertheless, the share of part-time work is very high in industries where low pay would be expected. As Jeff Borland has pointed out, 47 per cent of men and 62 per cent of women employed in retailing were part-time, as were 57 per cent of men and 67 per cent of women working in accommodation and food services, and 41 per cent of men and 51 per cent of women working in healthcare and social assistance. These jobs are not likely to be well paid.

Finally, let’s look closer at the period since the global financial crisis. Technically, Australia didn’t fall into a recession during that downturn, partly because the federal government launched one of the largest fiscal stimulus packages among OECD countries. The boost was equivalent to 4.6 per cent of 2008 GDP, with a very large component delivered through payments to households.

What has happened since then to household income levels and their distribution? The table below shows that by 2015–16 real mean incomes were only 2.7 per cent higher than they had been eight years previously, and real median incomes only 2.8 per cent higher. The Gini coefficient fell from 0.336 to 0.323 — although it was still higher than at any time prior to 2007–08. The reduction in inequality largely reflected a fall in the income of the top 20 per cent, with the self-employed bearing most of the losses.

The income share of the poorest 40 per cent of the population increased somewhat over this period. The ratio of incomes of the tenth percentile to the median increased quite significantly from 46 per cent to 51 per cent, the highest it has been since the income surveys began.

Source: Australian Bureau of Statistics, Household Income and Wealth, Australia, 2017, Catalogue No. 6223.0

Overall, what is most striking about these figures is the very slow growth in real mean and median household incomes — for the median, less than 3 per cent in total, or about 0.35 per cent per year for the previous eight years. This is only slightly higher than the growth rate between 1985 and 1989 (0.23 per cent per year), considerably below the growth rate between 1995 and 2001 (2.1 per cent per year), and much less than the growth rate between 2003 and 2008 (7.2 per cent per year).

Australia might not have experienced a large drop in living standards following the global financial crisis, but the rise in household incomes has slowed considerably and inequality has remained broadly stable. Moreover, the federal government’s social policy priorities have moved more strongly to “budget repair,” with proposed cuts in social security spending likely to have the largest impact on lower-income families. This helps explain why the period since 2012 more closely resembles the late 1980s than the more rapid growth from the mid 1990s to 2008.

“Budget repair” almost inevitably implies that the social security system will become less effective in reducing inequality. Because the Australian social security system targets the poor more heavily than any other rich country, the OECD expects that cuts in social security would increase inequality to a correspondingly greater degree.

The government’s current tax plans will also make personal income tax slightly less progressive. More significantly, the proposed “speed limit” on Commonwealth tax levels will  severely limit the government’s capacity to meet the challenges of population ageing and respond to further increases in inequality.

These decisions contrast with the 1980s and 1990s, when the Accord between the Hawke–Keating government and the trade unions brought tax reform — including broadening of the tax base — and improvements in the “social wage,” which partly offset the trends to higher inequality associated with the labour-market changes during that period. •

The post Good times, bad times appeared first on Inside Story.

The cut in numbers doesn’t come as a result of any official reviews. Indeed, a joint Treasury/Home Affairs report last month lauded the contribution of skilled migration to Australia’s economy and budget, as did a 2016 Productivity Commission report on Australia’s migrant intake. They echoed a strong response by treasurer Scott Morrison to Tony Abbott’s calls for sharp reductions in migrant numbers earlier this year.

In Budget Paper No. 3, Treasury says Australia’s total fertility rate was a shade over 1.8 babies per woman in 2017, which it expects will rise to 1.9 babies by 2020 and then level off. This may explain why Treasury expects the natural increase in population, after trending down for a decade, to bounce up from 145,500 in 2016 to 186,600 by 2021.

But Australia’s fertility rate has declined since the Australian Bureau of Statistics released its population projections in 2012. And given the changing circumstances — a growing proportion of women in the workforce, high childcare costs, slow wages growth and record levels of household debt — it is difficult to see why Treasury assumed the fertility rate would rebound to 1.9 babies per woman by 2020.

Over the forward estimates, it would be safer to assume that the natural increase remains around 150,000 per annum, or slightly lower, with the annual number of deaths increasing at a slightly faster rate than the annual number of births.

Treasury is on slightly safer ground with net migration, which it assumes will decline from 242,600 in 2017 to 221,400 in 2021. Such a decline is highly unusual at a time when the economy is forecast to grow strongly. But given Dutton’s actions, has Treasury actually underestimated the rate of decline in net migration?

Home Affairs has confirmed that the 2017–18 migration program will come in significantly below the “ceiling” of 190,000 people (possibly 20,000 lower). The new visa category for New Zealand citizens resident in Australia for at least five years will intensify the fall in numbers: these visas, granted to people who have already been counted as arrivals, will be included in the skill stream of the migration program. With around 10,000 expected to be issued in 2017–18 (and numbers likely to remain at that level or higher for a number of years), the effective cut to the program will be closer to 30,000.

The ceiling for the humanitarian program has increased to 18,350 for 2018–19. This is not very different from the level in recent years, when the one-off intake of an additional 12,000 Syrian refugees boosted numbers. Those 18,350 visas will also need to allow for those among the 30,000 onshore applicants for refugee status who are successful in their bid.

Then there’s temporary migration. The number of skilled temporary entrants (formerly 457 visa holders) has been in steady decline since a peak of just over 200,000 in March 2014. By March this year, the number was just over 150,000. While a strengthening economy would usually lead to an increase, Peter Dutton’s changes, which took full effect from March 2018, will not only significantly reduce the contribution these visa holders make to net migration but also have a flow-on impact on overseas students and working holiday-makers.

The number of overseas students in Australia has surged since the Knight Review was implemented in 2012. But the growth in offshore overseas student visas slowed in 2017–18 as a result of a range of factors, including a significant increase in fees charged by Australian education institutions and the narrowing of opportunities to extend stays in Australia.

Because the number of student visas granted to visitors, students and others already in Australia continued to increase strongly in 2017–18, the stock of overseas students will continue to grow in the short term. But the significant narrowing of opportunities to extend stays will result in a substantial increase in departures of students over the next few years.

The number of temporary graduates in Australia (currently over 50,000) will continue to grow as many of the 500,000 overseas students in Australia complete their degrees and apply for a temporary graduate visa. The number of people whose temporary graduate visa expires will also grow, and departures will rise as a result of the narrowing options for staying beyond that period.

The impact on working holiday-makers — whose contribution to net migration has been declining since 2012–13 — will be similar. They too will face fewer opportunities to extend their stay in Australia.

Offsetting these factors will be an increase in people arriving on visitor visas and then applying for a long-term temporary stay or permanency. This group has been growing in recent years and numbers are likely to accelerate because of the large backlog in the family stream and a further increase in processing times for employer-sponsored visas.

Net movement of NZ citizens to Australia will continue to be subdued. When the NZ economy performs poorly, NZ citizens become a substantial component of net migration. With current forecasts suggesting that the NZ economy will remain strong, the push factor has weakened.

Finally, Australian citizens also play a role in migration flows. A relatively weak Australian economy can drive up the number going offshore for work — as was evident in the period 2011–12 to 2014–15, when the net outflow of Australian citizens increased from 6480 to 26,170.

While Australia’s stronger economy in 2016–18 may have attracted some of these expatriates back (and slowed the departures), the stronger world economy will still be attractive to many ambitious young Australians. Unless there is a sharp downturn in the global economy, a high level of emigration from Australia will continue.

All this suggests that there is little chance of Australia’s population maintaining an average annual growth rate of 1.6 per cent. As a result, the level of net migration in 2016–17 will represent a one-off peak. Peter Dutton’s policy changes will ensure net migration averages less than 200,000 per annum over the next four years. The key swing factors will be the extent to which overseas students and temporary graduates delay departure (given that their options for staying are now very limited) and the relative strength of the Australian economy.

If the economy continues to strengthen over the next few years, net migration may only fall to around 200,000 per annum, giving an annual population growth rate of around 1.4 per cent over the forward estimates. But if the economy weakens — or at least if it doesn’t strengthen compared to the world economy, and the NZ economy in particular — then Dutton’s gamble may further drive down net migration, and with it Australia’s population growth rate. Net migration of less than 150,000 per annum and a population growth rate closer to 1.2 per cent per annum is quite possible.

This would have serious implications for Treasury’s assumptions about gross domestic product, household consumption growth, jobs growth and tax revenue over the next four years. Given that the cuts target the skilled migration stream and temporary entrants, who have high participation and employment rates, there will also be a negative impact on Treasury’s assumptions for participation and productivity.

This is a gamble the government should be explaining to the Australian public, to state and territory governments and to the business community, many of whom will be making decisions on the basis of the assumed 1.6 per cent population growth. The minister’s gamble also raises questions about the affordability of the government’s proposed tax cuts. ●

The post Immigration roulette appeared first on Inside Story.

As it happens, Lambert’s history is correct. Back in 2005, after it had gained control of the Senate, the Howard government passed its controversial WorkChoices legislation. In response, the union movement launched the Your Rights at Work campaign, which ultimately played a decisive role in the government’s demise in 2007. In government, Labor overturned WorkChoices. Its Fair Work Act passed through parliament in 2009, creating a new set of rules for workers and bosses.

So successful was the anti-WorkChoices campaign that it was revived for the 2010 election. Opposition leader Tony Abbott was forced to declare that not only had WorkChoices died but it had been buried and cremated. Subsequent attempts to resurrect it have so far failed.

On the facts, then, the Chamber of Commerce is correct. If the rules today are unfair, it is Labor’s Fair Work Act — itself the result of the unions’ Your Rights at Work campaign — that is to blame. If industrial relations laws are stacked against workers, then that’s the case not despite the labour movement but largely because of it.

Take a claim central to the critique advanced by McManus at the Press Club. According to her account, the right to strike is so restricted and heavily regulated that it is nearly dead. And once you take away workers’ power to withdraw their labour, you take away their bargaining power. It’s no wonder, as McManus points out, that wage growth is at record lows, Australians’ real take-home pay is declining and the wages share of national income hasn’t been this low in half a century.

Even figures on the other side of politics are showing signs of unease. As Tim Colebatch wrote last year, “when a Liberal treasurer tells us he is worried that the low rate of wage growth is slowing the economy, then something is seriously wrong.” Colebatch pointed out that in the previous two years just 28 per cent of the increase in national income had gone to wage and salary earners while 49 per cent had gone to increased corporate profits. In the previous year, profits in the mining sector had grown by a massive 504 per cent but wages had increased by just 0.6 per cent.

Meanwhile, strike activity in Australia has declined so precipitously that the Australia Institute’s Jim Stanford can plausibly claim that “strikes have become almost non-existent in Australia’s economy.”

As the ABC’s Stephen Long has outlined at length, restrictions on industrial action under Labor’s Fair Work Act are elaborate and onerous (and, as we’ll see, in breach of international law). They proscribe strikes in four main ways.

First, the Fair Work Act limits when workers can walk off the job to the period after an agreement has expired, even if there is a legitimate dispute about whether the wages or conditions in a pre-existing agreement are being honoured.

Second, the legislation then dictates a convoluted process that, in practice, suffocates industrial activity. Before taking action, a union must conduct a referendum of all members. But it must first have made an application to the Fair Work Commission and demonstrated that it has been unable to achieve agreement with the employer through good-faith bargaining. If this approval is given, the member plebiscite — usually a postal ballot conducted through the Australian Electoral Commission — must specify each and every kind of action the union is considering, whether it’s a full-day strike, a lunchtime stop-work meeting, a ban on excessive overtime or a work-to-rule initiative. A majority of members must return their ballot paper in the post, and a majority of those need to have voted in favour of the specified form of industrial action. Although the ballot process inevitably takes weeks, industrial action must occur within thirty days of approval having been granted. After that time, the strike action becomes illegal again and subject to hefty penalties — unless a new ballot has been conducted.

In other words, even the decision to ballot members about taking industrial action is heavily constrained. Union officials have to demonstrate to the Fair Work Commission that they have exhausted the possibilities of good-faith bargaining, but they can’t leave escalation so late that, by the time a lengthy ballot process is concluded, the will of members has begun to fade. And, of course, the people on the other side of the bargaining table know this.

Third, in addition to dictating when and how strikes can be called, the Fair Work Act constrains actions by limiting the legal justifications for a strike to a narrow range of “permitted matters.” Workers can’t legally strike in support of industry-wide claims, multi-employer agreements, or a common claim across an industry. Nor can they strike to strengthen job security by seeking limits on an employer’s use of casual and contract labour. Similarly, workers have no industrial recourse on matters like executive pay, company environmental practices or corporate social responsibility. Sympathy strikes and secondary boycotts are forbidden, as are strikes in support of an increase in the minimum wage.

And fourth, even once all these conditions have been met, strike action isn’t necessarily lawful. As Long explained, having exhausted good-faith bargaining in relation to permitted matters and having balloted members on industrial action, unions have to “give the employer three days’ notice before pursuing any action, during which time the employer is free to apply to a tribunal or court to have the strike quashed.” The Fair Work Commission must uphold the employer’s application if it judges that strike action could “cause significant damage to the Australian economy or an important part of it” or that the action is going to cause “significant economic harm to the employer or employees who will be covered by the agreement.” As Sydney train drivers learnt the hard way in January, this can mean that the very fact a strike is likely to be effective will count against its legality.

If a union decides to proceed with industrial action without having met these extensive conditions, it is immediately exposed to hefty financial penalties and the opprobrium of having broken the law. These risks are not mitigated, as they once were, by access to an independent umpire that played a role in conciliating disputes.

“The basic right to strike in Australia is very nearly dead,” Sally McManus observed in response to the Fair Work decision against the Sydney train drivers. What she didn’t say is that the cause of its demise is Labor’s Fair Work Act. While she has made clear that the quest to recalibrate enterprise bargaining involves a departure from the industrial relations policy of the Keating government, she has been much more coy about the fact that the Change the Rules campaign constitutes an emphatic rejection of Labor legislation passed less than a decade ago.

The obvious defence is that the Australian labour movement was preoccupied with defeating an electorally successful conservative government and overturning the draconian industrial relations legislation it had introduced. A new industrial relations order had to be forged in the face of hostile opposition and predictions of industrial chaos. Today, though, the union movement is blaming the Fair Work Act for causing the near-death of the strike and record-low wage. No matter how sanguine you might be, if you’re a unionist that is a sub-optimal outcome.

Understanding what went wrong is of more than historical interest. From mass rallies in capital cities to an ad campaign featuring harsh industrial realities intruding into the kitchens of working families, the Change the Rules campaign looks for all the world like Your Rights at Work redux. The chief difference is that the original was launched in opposition to Howard-era laws but the revival is aiming to overturn the very Labor laws that replaced them. Nobody who rallied to Change the Rules in recent days did so in the hope that the end result will be something they are disowning in less than a decade — or that the Chamber of Commerce might, in time, start defending.

How did it come to this? Many in the union movement believe the Rudd government betrayed them. According to this view, the union movement played a key role in delivering government to Labor in 2007. After the election, the ACTU released research showing that industrial relations was a key issue for eight out of ten voters, with 13 per cent saying the issue caused them to change their vote. Later, using data from the Australian Election Study, political scientists Murray Goot and Ian Watson reported that the number of electors who saw industrial relations as “extremely important” to their voting decision more than doubled between the 2004 and 2007 elections, from 30 per cent to 67 per cent. “In the electoral battle over WorkChoices,” Goot and Watson conclude, “the ACTU set the terms of the debate.” In government, though, Labor failed to return the favour.

For this story, I spoke to union officials and rank-and-file activists who answered the ACTU’s call in 2005 when WorkChoices became law. As a member of the Greens, I brought a particular perspective to the issue — a belief that the relationship between Labor and the unions isn’t as mutually advantageous as is sometimes assumed — and wanted to test it against the perceptions of people involved in that historic union campaign.

Among the people I talked to were those who proudly displayed maps of the NSW towns of Queanbeyan and Cooma on which they had marked each street they had doorknocked. For them, the moment of what one called “total betrayal” was in April 2007, when Labor announced its industrial relations policy. While they were doing the hard yards talking to their neighbours about the evils of WorkChoices, they believe that Labor was devising a policy that could only be described as WorkChoices Lite

But that response highlights how the truth is a little more complicated than a simple tale of the labour movement’s parliamentary wing betraying its industrial wing. The policies that the union movement are attacking today were pretty clearly set out in Labor’s pre-election policy document, Forward with Fairness (page 16 deals with strike action). And it is hard to blame a political party for going on to deliver its announced policy when elected to government.

Even after the election, as Labor’s legislation was being negotiated behind closed doors and its precise shape came into public view, the union movement was hardly a vocal critic. This general rule is illustrated by the one notable exception.

In February 2009, the Victorian Branch of the Electrical Trades Union, or ETU, submitted a complaint to the International Labour Organisation, or ILO, alleging that the Fair Work Act contained “numerous contraventions of freedom of association principles, including restrictions on the right to organise, the right to bargain collectively and the right to strike.” Pointedly, in light of the recent cases in which industrial action has been prohibited on the basis it will cause harm to a part of the economy, the union contended that “section 423, as drafted, appears likely to render all successful industrial action unlawful — in contravention of freedom of association principles.” The complaint was upheld, with an ILO request that the Australian government review six sections of the act, “with a view to their revision.”

This March, the inconsistencies between Australian law and international labour law were a recurring motif in the ACTU secretary’s speech. But the ACTU and the Australian union movement were much more reticent when the offending laws were being introduced into parliament, debated and passed.

Dean Mighell was the leader of the Victorian Branch of the ETU that was behind the complaint to the International Labour Organization. When I spoke to him recently he emphasised that he was out on his own in publicly criticising the Labor government. “Very few unions — I can only think of ours — actually said, ‘Hang on a minute, this is a shit deal for workers. This fails ALP policy. This fails ILO conventions.’ And when we took the issue up, no one wanted to know us because Labor was in government.”

In 2010, Mighell wrote in the Age about the ACTU’s acquiescence in the genesis of the laws it is now campaigning to overturn. “During the recent Senate inquiry into the Fair Work Bill,” he wrote, “the ACTU refused to buy into the debate that the bill contained many breaches of human rights as defined by Australia’s international obligations under International Labour Organization conventions. If the ACTU is so severely compromised by the ALP relationship that it can’t stand up and fight for basic workers rights, then something is seriously wrong.”

In a chapter for the book The Fair Work Act: Revision or Restitution, researcher Keith Abbott commented on the surprising failure of the broader union movement to make the kinds of criticisms voiced by Mighell. “It is as though the lesser standards applied since the Workplace Relations Act 1996 have become ‘normalised’ in the thinking of trade unions, such that aspiring to standards more in line with their international counterparts is simply held beyond any realistic possibility of being realised,” he wrote.

By 2010, cracks finally started to emerge in the labour movement. In the lead-up to the federal election of that year, union leaders called for a new wave of industrial relations reform as part of a second-term Labor agenda. The right to strike, the right of union officials to meet with employees in their workplaces, and an easing of limitations on the “permitted matters” for bargaining emerged as flashpoints of union discontent. By 2011, the ACTU was in public disagreement with the Gillard government over whether employees should be entitled to negotiate job-security clauses into collective agreements. In 2012, the ACTU’s submission to the post-implementation review of the Fair Work Act argued that “limitations on the right to strike in support of legitimate bargaining claims cannot be justified. They contravene international law and ILO rules and violate the fundamental human rights of workers to strike.”

But the unions found themselves without leverage. Prime Minister Gillard, who had seen the Fair Work Act through parliament as workplace relations minister, showed little inclination for more fundamental change. And she had plenty of other fights on her hands. Having packed up the public campaign when Labor had been elected in November 2007, the union movement had lost any capacity to pressure the Labor government publicly. As Peter Malone, coordinator of the Your Rights at Work campaign in the marginal seat of Eden-Monaro, puts it today, “To have not planned for and implemented an ongoing community-based campaign lessened the credibility of the ACTU and caused many grassroot activists to feel abandoned.”

By 2015, it had become something of an orthodoxy within the union movement that Your Rights at Work had been the most successful union campaign in decades but that the decision to declare victory and go home as soon as Labor got into government had been a historic blunder. “Now we’ve also learnt our lesson from the Your Rights at Work campaign,” ACTU secretary Dave Oliver told union delegates assembled from around the country that year. “We learnt that we made a significant mistake. We made a significant mistake that after the 2007 election we dismantled all the campaigning infrastructure that we had built up over the years…

“And I’ll make you this promise,” Oliver added for emphasis, “as long as I’m here; we will not make that mistake again.”

The lesson of Your Rights at Work is simply summarised. As much as the interests of Australian unions and the Australian Labor Party overlap, they are distinct, and sometimes they conflict — especially when Labor becomes the party of government. The challenge for the union movement is to recognise when divergences exist and to pursue its own interests vigorously in these cases. That manifestly failed to happen in the Your Rights at Work campaign. Will Change the Rules be any different?

One reason to believe it will be is the McManus factor. Appearing on ABC TV’s 7.30 on your first day in the job and declaring that sometimes it’s right and just to break the law is a pretty clear indication that you’re not planning on taking a backwards step in representing the interests of your members. And it works in McManus’s considerable favour that social democratic politics has taken a decisive step to the left. Times are such that, as improbable as it sounds, Bill Shorten has become the most left-wing leader of a Labor opposition since Gough Whitlam. Given the mood of the age, maybe this time the parliamentary wing won’t let the industrial wing down.

Maybe. But a fundamental imbalance in the Labor–union relationship — one that is much larger than individual personalities — remains. Labor long ago became a mass party, one that seeks to balance the interests of “working families” and the “business community.” In government, its constituency is substantially broader than the industrial wing of the labour movement, and its responsibilities much larger. It is more responsive to Newspoll than to the ACTU, more attentive to reports in News Corp papers than input from affiliated unions.

Yet the union movement still believes, by and large, that Labor is the only show in town when it comes to electoral politics. This is evident in the formal affiliation of many unions (though by no means all) to Labor and, for some individuals, in the holding of memberships and (often high) offices in both wings of the labour movement. But, more pervasively, the union commitment to Labor derives from the belief that there is no alternative and that publicly criticising Labor is therefore an act of self-harm. On this account, Labor’s Fair Work Act may have breached international law, suffocated strike action and depressed wages but it was a whole lot better than WorkChoices (and, under Labor, union officials didn’t have to spend time in front of a royal commission).

So, while the Labor Party long ago declared it’s in an open relationship, the union movement can’t forget its wedding vows. It’s a dysfunctional recipe if ever there was one, and the dysfunction manifests in at least three different ways.

First, union leaders are vulnerable to confusing or conflating the interests of their union with the interests of the Labor Party. This happened when the union movement mistook Labor’s election victory in November 2007 for the successful accomplishment of the goals of the Your Rights at Work campaign.

The second kind of dysfunction occurs when union leaders put Labor’s interests ahead of their members’. “You know, for a lot within the union movement the ALP is the most important thing,” Dean Mighell said to me. “And for some it’s more important than their members. There’s safe seats and all sorts of games to play.”

In other instances, union leaders actively pursue their members’ interests but, relying exclusively on the inside game of preselection battles and party conferences, are unable to exert much influence. This was the experience when unions unsuccessfully lobbied the Rudd and Gillard governments for amendments that would ameliorate the Fair Work Act.

But there is an alternative. When Sally McManus controversially defended the right of the CFMEU and other unions to take unprotected industrial action, she had few friends in parliament. Bill Shorten — who as a union leader could never have been accused of militancy in defence of his members’ interests — was emphatic in disowning the ACTU secretary. “I just don’t agree,” he said. In sharp contrast, Greens leader Richard Di Natale, came out in support. “No one knows more than the Greens that it does take brave people to stand up against laws that are wrong if we’re going to change them,” Di Natale said. Adam Bandt, the Greens’ industrial relations spokesperson, pointed out that the laws in question contravened international law: “You can’t condemn people who get punished under them.”

During the 2016 election, Bill Shorten chided the Greens for promising to introduce laws to protect penalty rates. Only months later, after a ruling by the Fair Work Commission in favour of reducing Sunday penalty rates for retail and hospitality workers, Labor backflipped and adopted the Greens policy. In a similar vein, the Greens have been out in front championing worker-friendly laws that would prohibit deals that leave workers on less than award pay (as much as $5000 a year less in some cases), increase secure employment, and guarantee paid domestic violence leave.

For the union movement, there is clearly potential to exploit electoral competition on the left to put pressure on Labor. And while unions have mostly stuck with their historical loyalty to the party, there have been exceptions. Under Mighell’s leadership, the Victorian Branch of the ETU not only disaffiliated from Labor but put significant money into Adam Bandt’s successful campaigns for the seat of Melbourne. And in January 2016 the Australian revealed that the Greens had received donations from the National Tertiary Education Union, the CFMEU and the Maritime Union of Australia, as well as the ETU.

Theoretically, it would be possible — smart even — for the union movement to adopt this approach nationally, for the Change the Rules campaign to mobilise behind Labor in marginal seats while supporting the Greens in inner-city, red–green contests. In practice, of course, there’s no chance of this happening. Even if McManus wanted to make such a move, right-leaning unions affiliated to the Labor Party (think the Shoppies) would block it.

But it’s also clear that McManus herself has no desire to adopt this kind of strategy. Along with Victorian Trades Hall, she campaigned for Labor and against the Greens in the recent Batman by-election (even though neither Trades Hall nor the ACTU is affiliated with Labor). That Labor’s candidate, Ged Kearney, was an old comrade provided an obvious rationalisation, but it also illustrated how difficult it is for the union movement to isolate personal loyalties from a hard-headed assessment of members’ interests.

When unionists criticised McManus on Twitter for siding with Labor, her response was revealing. She didn’t take issue with claims that Labor policies were inconsistent with union positions. Instead she insisted that the best way to change Labor policy was from the inside. “You see,” she tweeted, “the Greens won’t change Labor policy. Labor & MPs change Labor policy.” These are clearly not the sentiments of a union leader who would be willing to use the Greens to pressure Labor — or to keep it honest.

However McManus’s position is viewed, it leaves the ACTU and the union movement with a serious problem. Currently, the ACTU is seeking to persuade the opposition to take its agenda to the next election, negotiations that will no doubt intensify in the lead-up to Labor’s national conference in July. But if Labor doesn’t make the commitments the ACTU regards as critical, it’s unclear what options, if any, are available to it.

So McManus is in an odd position. She’s one of the most skilled negotiators in the country. She leads a movement of 1.8 million people. She has already ploughed millions into a campaign that aids Labor’s effort to win government. And yet she’s bargaining without any alternative to a negotiated agreement. It sounds uncannily like the position of workers who effectively lack the right to strike.

And for whatever deal is worked out between Labor and the ACTU, it’s unclear what the consequence would be if a Shorten government didn’t deliver. As ACTU chief of staff Ben Davison told me, “Regardless of which party forms government after the next election we will continue to fight.” But what a “fight” might entail, given the assumption that there is no electoral alternative to Labor, is not easy to envisage.

In this way, the Change the Rules campaign, like Your Rights at Work before it, embodies a kind of ambivalence among unionists. In significant part, the campaigns are simply attempts to mobilise support to boot out the conservatives and put Labor in government. But, as Davison’s comment exemplifies, they are also aimed at building independent union power and leverage over Labor governments. To that extent, they are an implicit recognition that influencing preselections and party conferences and getting former union officials elected is not enough. An inside game can only go so far, yet unions lack the will to pursue an independent campaign to its logical conclusion. •

The post Were unions the victims of their own success? appeared first on Inside Story.

The Australian Bureau of Statistics adds that the pace of jobs growth is now slowing sharply — as well it might. On those figures, we added one new job last year for every thirty we already had. That’s almost twice our long-term average pace of jobs growth. It’s astonishing.

What makes it even more astonishing are two other bits of data. First, jobs growth was rocketing up when the economy was barely chugging along in third gear. Over 2017 our total economic output (gross domestic product, or GDP) grew by just 2.6 per cent. The real bottom line, GDP per head, grew by just 1 per cent — barely half its long-term average.

So jobs growth was running at twice the long-term average at the same time as economic growth per head was running at half the long-term average. That’s odd.

Second, all that jobs growth did little to reduce unemployment. When it began, the Bureau’s trend unemployment rate was 5.8 per cent. After adding 400,000 jobs, it is now 5.6 per cent.

That is not low unemployment. In the nine years from early 2004 to early 2013, unemployment was that high in only seven months — and that was in the middle of the global financial crisis.

Or take a global comparison. Yes, unemployment is much higher in southern Europe, but our rate is higher than in the most important of our peer-group countries. It’s 2.5 per cent in Japan, 3.5 per cent in Germany, 4.1 per cent in the United States, 4.2 per cent in Britain and 4.5 per cent in New Zealand.

Some of them are celebrating unemployment at record lows. Yet, while we’ve just had record jobs growth, our unemployment rate has barely moved. That too is odd.

Moreover, our rate of underemployment — people in part-time jobs who want more work but can’t find it — remains among the highest in the Western world, at 8.3 per cent. It too has fallen only slightly, from 8.7 per cent a year ago, despite all those new jobs.

Something strange is happening here. What is it?

There’s no one explanation. Globalisation, lax regulation and the gutting of unions has left workers with little power or wage growth. It’s an ideal time to be an employer, and to take on new, compliant workers. Jobs are growing fast because wages aren’t.

Net jobs growth is also high because fewer people are retiring early. In the second half of 2017, almost half the net growth year on year in full-time jobs was among workers aged fifty-five and over. Half a million people are working on after turning sixty-five.

Once these were the workers wanting early retirement. Now their demand is “Hell, no! We won’t go!” This table sums up the dramatic change:

But the single biggest reason why high jobs growth has not reduced unemployment significantly is that it’s not meant to. That fact was touched on in a blink-and-you’ll-miss-it paragraph in this week’s Treasury/Department of Home Affairs report, Shaping a Nation.

The report’s starting point and conclusion is that immigration is always good for us, whatever the circumstances. Yet in a paragraph that appears to have been missed by all the media reporting its findings, it notes:

Recent migrants accounted for two-thirds (64.5 per cent) of the approximately 850,000 net jobs created in the past five years. For full-time employment, the impact is even more pronounced, with recent migrants accounting for 72.4 per cent of new jobs created.

Let those numbers sink in. Almost two-thirds of all jobs created in the past five years have gone to recent migrants, leaving just over a third for Australian jobseekers. In round figures, that means that of the 850,000 net jobs created, 550,000 went to recent migrants, and only 300,000 — that’s 60,000 jobs a year — to Australians looking for work.

The gap in full-time jobs is starker still. It is typical of the report’s sloppiness that it fails to define its terms or time periods, but let’s assume that it means the five years from 2012 to 2017, and is using year-averages. There were just a net 375,000 full-time jobs created in those five years.

If almost three-quarters went to recent migrants, then in round figures, almost 275,000 new full-time jobs were created for recent migrants, and just over 100,000 for Australian jobseekers, or 20,000 jobs a year.

Some readers may recall that we’ve been here before. Inside Story reported broadly similar figures a year ago, for the eight years to 2016. They showed that in net terms, the Australian economy in those years created two full-time jobs for recent migrants from South Asia for every one created for someone born in Australia.

How can that be? Because labour-market policy has abandoned any attempt to balance the interests of employers and workers/jobseekers. The government has simply given employers what they want, and ignored the needs of young Australians.

Employers have been given a carte blanche to bring in skilled migrants to do the jobs, rather than training young Australians to move into them. The section 457 visa is only the best-known of many paths to that end.

The NBN is a classic example. It lets out contracts to Indian firms, which then import their entire workforce for the project from India. Australian jobseekers don’t get a look-in.

You can’t blame the migrants — they’re responding to the opportunities they’re offered. It’s the fault of government that it fails to prioritise training young Australians.

The evidence is the plunge in apprenticeships and traineeships since the Coalition took power in 2013. The National Centre for Vocational Education Research reports that the number of apprentices and trainees slumped from 413,000 in September 2013 to just 262,000 four years later.

Research by the Mitchell Institute at Victoria University reveals that governments spent less in real terms on vocational education in 2015–16 than they did ten years earlier. Who needs vocational education when you can just bring in migrants to do the work?

Treasury’s report doesn’t ask what happened to young Australians in the labour market. It simply assumes that importing migrants to do the work has no impact on job opportunities for young Australians — and quotes other government reports based on the same assumption. Sure, boss, anything you say!

In reality, between 2012 and 2017, the population aged fifteen to twenty-four grew by 113,000. What happened to them in the labour market?

The number in full-time jobs shrank by 113,000.

The number willingly working part-time grew by 41,000.

The number unwillingly in part-time work — the underemployed — grew by 102,000.

The number unemployed grew by 25,000.

The number not even looking for work grew by 58,000.

We are sacrificing the futures of our young people by ignoring their interests, and using glib assumptions to make ourselves feel good about it. Immigration should not be an issue on which economists, of all people, let their hearts rule their heads.

You can be pro-immigration and still conclude that right now we have far too much of it. That is the inescapable reason why jobs growth has failed to lower unemployment. ●

John Quiggin: How to fix vocational education

The post Why is unemployment still so high? appeared first on Inside Story.

Most people, not least American workers, would have seen this as unalloyed good news — even though it was probably exaggerated by the impact of colder-than-usual weather in parts of the United States during January, and by the fact that increases in the minimum wage came into effect in eighteen states,at the beginning of the month. (The weather meant that some workers, typically those on lower pay, were unable to get to work during the week in which the monthly labour force survey was conducted, and would have been excluded from the results.) Nonetheless, the news lined up with the employment cost index (the US equivalent of Australia’s “wage price index”) released a week earlier, which rose by 2.7 per cent over the year to the December quarter of 2017, also the largest annual increase in nine years.

These data represent evidence that workers might be starting to get a slightly larger share of the American economic pie after a decade in which real wages have risen by less than 0.4 per cent per annum — well below the 1.2 per cent annual rate at which labour productivity has grown over the decade. They lend some support to the view that if the unemployment rate is low enough for long enough — and in America it’s been below 5 per cent (“full employment”) for all but one of the past twenty-one months — wages will start to move upwards more rapidly. Wages growth also appears to be starting to pick up in Germany, where the unemployment rate has been below 4 per cent for the past year.

So, although Australia’s unemployment rate is still well above 5 per cent — leaving aside the underemployment represented by people working fewer hours than they can and want to — there is some evidence for the view that the “laws of supply and demand” (as Malcolm Turnbull and Scott Morrison put it) haven’t been abolished entirely as far as the labour market is concerned.

But financial markets haven’t seen any of this as a cause for celebration. On the contrary, they’ve seen it as confirmation that the era of ultra-cheap money ushered in by the global financial crisis is drawing to a close.

For most of the past decade, the four most important advanced economy central banks — the US Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England ­— have been creating money in order to acquire government bonds (and, in some cases, other financial assets). Initially, their aim was to push long-term interest rates down to unprecedentedly low levels; subsequently, the aim was to keep them there, reinforcing the economic stimulus provided by cuts in short-term interest rates to zero or, in the case of the ECB and BoJ, below zero.

When central banks first began pursuing these unorthodox strategies during the darkest days of the financial crisis, some observers drew misguided parallels with the money-printing adventures of Weimar Germany or Robert Mugabe’s Zimbabwe, and concluded that the inevitable result would be higher inflation and currency depreciation. In fact, the only inflation has been in asset prices — in particular, bonds, equities and residential real estate.

As well as lowering the rate at which future cash flows (such as those generated by stocks or bonds) are discounted (thus inflating their “present value”), the search for a higher return in a low-interest-rate environment has prompted investors to take on additional risk. That has added to upward pressure on asset prices: but, as was also the case in the years preceding the financial crisis, many investors appear not to fully comprehend the extent of the additional risks that they have taken on.

The US Federal Reserve ceased its bond-buying programs in October 2014, and in October last year took the first steps on what will inevitably be a long process of gradually selling off most of the US$3.5 trillion of securities it acquired. It has also raised the federal funds rate (the equivalent of the Reserve Bank of Australia’s official cash rate) five times over the past two years, from zero to 1.25 per cent. And since the middle of last year it has been flagging its intention to lift the funds rate at least another three times this year.

Until the beginning of this month, though, investors seemed unwilling to take the Fed at its word. In particular, the US share market advanced — on a weekly if not daily basis — to successive record highs.

If anything, the risks of further upward pressure on US rates have increased in recent weeks. The US is embarked on one of the most ill-timed fiscal stimulus programs in living memory. According to the nonpartisan Committee for a Responsible Federal Budget, the corporate and personal income tax cuts enacted at the end of last year will add almost US$1.5 trillion to the US budget deficit over the next decade; the budget deal reached last week will add another US$420 billion; and the Trump administration wants to add another US$200 billion in incentives for infrastructure spending on top of that.

These measures will boost aggregate demand by a much larger margin than they are likely to lift aggregate supply — at a time when the present US economic upswing is on the cusp of becoming the second-longest on record; when the unemployment rate is lower than it’s been at any time since the late 1960s (apart from a few months at the turn of the century); when the US working-age population is growing at its slowest rate since the end of the second world war; and when GDP is already above its “potential” level (according to the Congressional Budget Office).

All up, the result is less likely to be faster growth in the US economy than to be some combination of higher US inflation and a larger US current account deficit. This will increase the risk not only of higher US interest rates, but also of more protectionist US trade measures (something which, for all the Trump administration’s rhetorical bluster on that score, it has thus far largely eschewed).

The big risk here — for the US, and for the rest of the world, including Australia — is not a replay of the financial crisis of a decade ago. There is no compelling reason to think that the banking system of any advanced economy is on the edge of an abyss similar to the one into which they fell in 2008.

If there’s a parallel from recent history, it’s more likely to be the “tech wreck” of 2000, in which irrational exuberance on the part of equity investors played a key role, as did rising interest rates at the end of a long period of economic growth. But that incident had a fairly mild impact on the US and world economies, not least because the US budget was in surplus at the time, and the Federal Reserve had room to move in order to counter the ensuing downturn. Policy-makers have far less room to move today.

So, to adapt Bette Davis’s response, in All About Eve, to the question “Is it over, or is it just beginning?” — “Fasten your seatbelts: it’s going to be a bumpy ride.” •

The post It’s going to be a bumpy economic ride appeared first on Inside Story.

The question is still timely. The multi-billion-dollar employment services market offers very patchy results for the hundreds of thousands of jobseekers in the system. Through Jobactive, the post-2015 version of the scheme, the federal government pays $7.3 billion over five years to sixty-five private and not-for-profit service providers to assist about 750,000 jobseekers each year in over 1700 locations. With that amount of public money, and with fifteen years in which to fine-tune the service, Jobactive should be an exemplar of how outsourced human services should work in a mature market.

A big, standardised system churning through the unemployed and rewarding short-term placements with individual payments will not help produce a skilled, entrepreneurial, resilient workforce.

But like its predecessors Job Network and Job Services Australia, Jobactive is a big, impersonal system struggling to deliver high-quality services for the individuals using it. Despite the occasional media report criticising elements of the program, it largely escapes scrutiny. It is a system, replete with grand alibis, for which none of the mutually dependent participants inside and outside government takes overall responsibility.

The Department of Jobs and Small Business will soon consider the successor to Jobactive. Simply creating Jobactive II would be a mistake and a missed opportunity: both the government and the opposition need to develop policies that put jobseekers’ livelihoods and aspirations first, and that means working out the best role for government in helping the unemployed, including learning from promising initiatives here and overseas.

Removing human services from direct government control and embedding them in competitive marketplaces was a key element of the microeconomic reforms of the 1990s. That wave of deregulation, privatisation and competition-based reform was kickstarted by Labor and intensified under the Coalition. In the process, we bade farewell to the Commonwealth Employment Service and welcomed Job Network.

Much was promised when the employment-services market was created. Government and industry saw it as a more cost-effective way of delivering social services. Private and non-government organisations, they reasoned, had better on-the-ground knowledge of the labour market and smarter ways of “activating” jobseekers. The new market would keep the long jobless queue moving by finding “real” jobs for the unemployed.

By 2015, according to an analysis I prepared with colleagues at the Centre for Policy Development, the system was operating at two speeds. For unemployed people with comparatively good skill sets and little disadvantage, the results were okay. For the disadvantaged jobseekers struggling to overcome multiple and often complex personal barriers, the outcomes were poor.

The most recent Jobactive data from the Department of Employment, which covers the twelve months to March 2017, confirms that story. Jobseekers are classified into Streams A, B or C — Stream A being those who are most employable and C being those most in need of assistance because of disadvantage. Across the three streams, 49 per cent of jobseekers are employed three months after participating in Jobactive. For the unemployed in Stream A (those with the least disadvantage), the average rate is 59 per cent; for jobseekers in Streams B and C, as the chart shows, this drops off sharply.

Employment outcomes by stream, three months after Jobactive

Source: Department of Employment, April 2016 to March 2017

Stream B jobseekers need more assistance to find a job because they lack skills or suffer from other difficulties. Stream C takes in the hardest-to-place jobseekers, including the most disadvantaged long-term unemployed, people from culturally and linguistically diverse backgrounds, sole parents and poorly educated applicants. Only 27 per cent of people in Stream C found work in the twelve months to March 2017. Almost 44 per cent remained unemployed, and 29 per cent had left the labour force.

Where they do find work through Jobactive, it tends to be insufficient for their needs. Of the 27 per cent in Stream C who did find work, 25 per cent found a permanent role and 62 per cent found a casual, temporary or seasonal role. On average, 53 per cent of Stream C job-getters are seeking more work. The number is highest for those with part-time work, two-thirds of whom want more hours.

Why, fifteen years after the introduction of a fully outsourced system, are we left with an expensive, two-speed system? It’s no mystery: the system is not built for jobseekers, it is built for government to keep the jobless queue moving while reducing long-term welfare dependency.

The Department of Employment purchases services from for-profit and not-for-profit providers whose operations are prescribed in confidential, highly detailed contracts. Although the department has the job of monitoring service providers, poor performance is often overlooked. The loads of compliance data it collects from the providers track the behaviour of jobseekers more than the effectiveness of providers or their long-term impact on their clients.

Nor does the funding model encourage a continued investment in jobseekers. The department pays providers largely on the basis of outcomes achieved for individual jobseekers, with payments varying according to the type and length of job placement. Regional locations have higher loadings, and providers also receive payments for placing jobseekers in work-for-the-dole projects. With a focus on getting the cheapest rate per jobseeker, the department proudly claims that the 2016–17 target of $2500 per outcome was significantly outdone by the actual figure, $1453 per outcome.

Most providers rely on low margins and high turnover, focusing on easier-to-place clients while side-lining the too-hard cases despite the offer of higher incentives. This has been a longstanding problem in the system: providers are naturally looking for the most efficient way to allocate resources, and investigations have shown that some of them cut corners and rort the system. The recent collapse of one of Britain’s major public contractors, Carillion, offers a cautionary tale about misplaced faith in contracting, and the perils of focusing on costs over outcomes.

The system churns through jobseekers like customers at a fast-food cafe, with frontline staff relying mostly on standardised services and support options. Research from 2016 shows that the average caseload for surveyed staff was 147.8 clients, with each of them seeing nearly nineteen clients per day on average, either individually or in groups. Thirty-six per cent of frontline staff have no more than a TAFE qualification or vocational certificate, the research found, and almost a quarter have no post-secondary qualifications.

Among the biggest failures of the employment-services market is that different providers offer similar services, leaving jobseekers with little genuine choice. This standardisation is exacerbated by the fact that Jobactive lacks specialist service provision. When the Refugee Council of Australia examined the program’s operation in key migrant communities in August 2017, it found that refugees with no English-language skills are being incorrectly placed in Stream A, where the lowest level of support is provided. The creation of the Jobs Victoria Employment Network was partly a response to the lack of specialist federal help for vulnerable jobseekers.

Jobseekers’ negative comments about Jobactive in satisfaction surveys aren’t surprising. In the latest surveys, covering the year to March 2017, only 55 per cent of all jobseekers were “satisfied or very satisfied” with the overall quality of service. Only 38 per cent were satisfied or very satisfied with the help they received in finding a job, and 37 per cent with the help they received in gaining skills for work. A shade over half of these jobseekers didn’t believe that the service was suited to their personal circumstances. No private business would tolerate such low customer satisfaction levels, but for Jobactive agencies it is the satisfaction of government that matters.

Even though these providers deliver public services, and even though obvious problems exist, they are shielded from public scrutiny by the commercial-in-confidence provisions in their contracts with the department, which also protect them from freedom of information requests.

With a federal election looming, both major parties must come up with new, compelling answers to Albanese’s question, which lingers like Banquo’s ghost. Just what is the role of government in helping people find and keep a job? What does the government owe the citizens it serves, especially the vulnerable and disadvantaged?

Members of the public already have their own answers. In October last year the Centre for Policy Development ran an online survey designed to understand community attitudes to government. The sample was representative of community demographics. The 1025 responses collected by Essential Media included clear messages that the major parties should consider carefully.

People think that providing health, education, social security and other essential services, and ensuring shared economic prosperity, are among the most important tasks of the federal government. They think that job policies should be a major priority for the federal government. And they are deeply sceptical about outsourcing social services.

In fact, more than four out of five respondents thought it was important for the government to retain the skills and capability needed to directly deliver social services. Why? Because respondents thought government was a “better provider” of social services than charities or not-for-profits in terms of cost efficiency, accessibility, accountability and affordability for users. This wariness of outsourcing social services is deeply held: credible attitudes research from 1994, conducted by the Economic Planning Advisory Commission for prime minister Paul Keating, shows similar sentiments.

None of this is any surprise. Unemployment might be relatively low at the moment but underemployment is high. A growing number of Australians are moving into the gig economy, with its agile but insecure work. Inequality is on the rise and, faced with stagnant wage growth, people are placing a higher premium on receiving quality services. Automation and the use of artificial intelligence will change, destroy and create jobs, but our capacity to harness this disruption is nascent. If Australians genuinely believe that government has a role in the labour market and in creating shared prosperity, then it is only fair that we revise the way we provide social services.

A new strategy for reform begins with a statement of the obvious: markets alone will not produce the social gains we need. A big, standardised system churning through the unemployed and rewarding short-term placements with individual payments will not help produce a skilled, entrepreneurial, resilient workforce. Nor will it help the most disadvantaged. Government has a larger and better role to play, and some in the business community already agree.

Which leads us to how we can use public sector values and talents more effectively. Public and private capabilities should not be viewed as competing: they are essential components that should work together. Australia’s public sector remains unique in its mission and its public service values. The Department of Jobs and Small Business has a sound understanding of the labour market but could offer more services with the right re-investment in skills and capacity. It could improve accountability and transparency, and steward a system to produce results in the community interest. But its own memory of alternative service models will need strengthening; its policy and leadership capability have been run down over two decades by imposed efficiency dividends.

Promising initiatives at home and abroad offer valuable principles for improving services for jobseekers. The best way to make services personal is to make them local: a national framework for helping the unemployed will be more effective if it links to organisations that understand economic conditions in local areas, including local employers, associations and providers. Local service delivery also allows strong partnerships and networks to be built on the ground, integrating services better than market incentives ever could. Effective local programs include the Brotherhood of St Laurence’s Given the Chance scheme; with over 300 refugees having found work since 2013, it outperforms Jobactive.

It’s also important to experiment with new ways of delivering services that can scale up over time. A German program for mature-age workers has used grant-based funding and lower caseloads to invest in clients in a more personalised manner. What began as a small, voluntary program expanded organically to become an almost nationwide endeavour, with the job take-up rate moving from 26 per cent to 35 per cent over four years. Many German job centres are shared municipal and federal government facilities, showing the benefit of collaboration across levels of government.

There is no reason this could not be done in Australia. Parramatta’s Socially Sustainable Framework identifies how the city council can help with social and economic challenges, including assisting disadvantaged jobseekers. In the right mix, local intelligence combined with the resources of the federal government could work wonders. The Department of Employment could embed itself in local offices around the country, collaborating with its local government counterparts to deliver tailored services using the best service-design principles. It could start with a focus on the most disadvantaged postcodes in Australia, where unemployment is most rife.

Assistance must also be enduring. Existing services focus on the unemployed or those who have very recently lost their jobs in specific manufacturing sectors. Government should develop a national policy framework that addresses unemployment, underemployment and insecure work as a whole. In Sweden, Job Security Councils are a “continuous presence” in the labour market, helping workers through career transitions and redundancy rather than waiting for them to appear in the unemployment queue. Swedish unions and industry work in concert to create a resilient workforce that can transition through tough times.

The most effective way to reform the system is to evolve it over time. The National Disability Insurance Scheme provides a cautionary tale of the problems created when a big rollout is rushed. Pilot programs should be allowed to work quietly and calmly in target communities, helping specific groups, investing over a long period, and collecting good-quality data to compare with Jobactive. Direct involvement would make the Department of Employment a smarter purchaser of services, and improve its policy-development capacity. The department already uses pilot programs to test new services: its ParentsNext trials help parents currently out of the workforce to find jobs and education.

This evolutionary approach should lead to a comprehensive national service framework that ties together new pilots and other initiatives into a proper strategy for assisting jobseekers. One viable medium-term alternative could be greater public provision of services to the most disadvantaged jobseekers, leaving market-based providers to assist the less disadvantaged. With more trials, we’ll have more data and better options for reform.

Employment services play a pivotal role in ensuring that all Australians have fair and equitable access to economic opportunity. For too long we’ve focused services on managing the unemployment queue rather than the individuals in it. We’ll limit our own future prosperity and exacerbate social divisions if we don’t fix a service that is obviously not working. ●

The post Big, impersonal and opaque: how Jobactive is failing jobseekers appeared first on Inside Story.

The Organisation for Economic Co-operation and Development, the institutional embodiment of the decades-long push for globalisation, helpfully follows Voltaire’s advice. It states that “economic globalisation,” or just “globalisation,” refers to “the economic integration of different countries through growing freedom of movement across national borders of goods, services, capital, ideas and people.”  

Beyond this, however, globalisation is clearly associated with a number of other processes, of which the most important are rapid technological change and a shift in political power away from labour and national governments and towards capital and global financial markets. Showing consistency in naming conventions, the OECD refers to these processes as “digitalisation,” “deregulation” and “financialisation.” Whatever definition is used, globalisation is facing increasing resistance in many countries, reflected in Britain’s Brexit referendum, for instance, and the election of Donald Trump as president of the United States.  

Past upsurges of anti-globalisation sentiment, such as the “Battle of Seattle” demonstrations against the World Trade Organization in 1999, were ignored by the global political class, even if many of the concerns they raised have turned out, in retrospect, to be justified. But the backlash this time is too powerful to be ignored.

To its credit, the OECD has recognised this, and sought to promote what might be called “globalisation with a human face.” This agenda is set out in a report, Making Globalisation Work: Better Lives for All, presented to a ministerial council meeting this week. The aim of the report is to make the case for globalisation while considering ways to deal with its drawbacks.

The list of problems is a long one: labour’s share in national incomes has fallen; local communities are being blighted and regions are more unequal; labour markets have been disrupted by technological change and digitalisation; the market power of large enterprises and banks has grown, and the productivity performances of frontier firms and the rest have diverged; markets are distorted; national economies have been “financialised”; tax systems are becoming less progressive; and low or preferential tax jurisdictions are being used for tax evasion and avoidance.

What can be done about these pervasive problems, which have developed over many decades? Here, the report is a decidedly mixed bag. There are the usual anodyne prescriptions: better education and training, tougher competition policy, redoubled efforts to fight corruption, and so on. Doubtless the OECD governments represented this week will commit to these measures, as they have done many times before.

The core proposals of the report, however, will present more difficulties. After noting the traditional policy response of providing “transitional assistance” in response to unemployment caused by structural change or recession, the report notes:

The finding that such costs have been larger, more localised and more durable than previously thought, and that this is one source of disaffection with globalisation, suggests that in many countries these approaches have not, in practice, been sufficient to address the problem. In fact, benefit systems, like tax systems, have tended to become less progressive, with cuts to benefit levels, a tightening of eligibility rules to contain expenditures for social protection and a failure of transfers to the lowest income groups to keep pace with earnings growth.

This leads straight to the most controversial and difficult recommendation of the report, namely that governments should seek to restore progressivity to their tax and welfare systems. There is even a nod to the idea of a universal basic income, which would entail steep increases in progressive taxation. 

The problem, as the report notes, is that globalisation has played a central role in the decline of progressive taxation, promoting a shift in the tax burden from the rich to the poor and from capital to labour. The biggest advantages have gone to the biggest companies, contributing to increased market concentration and cartelisation. And, of course, this process has driven the massive increase in the power and wealth of the financial sector.

The situation is not entirely hopeless. On the very day the OECD ministers gathered, officials from seventy-six countries, including Australia (but not, unfortunately, the United States), signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This treaty is designed to update the existing network of bilateral tax treaties and reduce opportunities for tax avoidance by multinational enterprises. When combined with other efforts to exchange tax information and shut down tax havens, the new convention offers some prospect of ending the tax holiday enjoyed for years by giants like Apple and Google.

Can such measures be effective while the global economy is dominated by gigantic and massively profitable financial firms? The power of these firms, massive in itself, is enhanced by the largesse they routinely bestow on compliant political leaders, both while they’re in office, and particularly during their post-political careers. In Australia alone, the financial sector has found lucrative jobs for a former PM, a former treasurer and (by my count) at least half a dozen former state premiers. The same is true in many other countries.

The OECD recognises the increasing evidence that the growth of the financial sector has got to the point where it reduces growth, makes economies more vulnerable to crises, promotes inequality and undermines the living standards of most households. Having done so, however, the organisation offers no remedies.

This gets us back to definitions. While globalisation has many manifestations, by far the most important is the growth of a massive global financial sector managing daily flows of trillions of dollars, almost all of it unrelated to the needs of trade or long-term investment.

As long as this continues, the idea of making globalisation work for all will be a nonsense. International meetings informed by the earnest bureaucrats of the OECD are not going to change that. The shift, if it comes at all, will be driven by the popular anger that this OECD report is trying to assuage. •

The post The OECD joins the backlash against unfettered globalisation appeared first on Inside Story.

The shift in rhetoric isn’t surprising. Despite all the talk of options on the table, the government is yet to show that it’s serious about addressing housing affordability. Few of the proposals it has flagged in recent weeks would make much difference, and some would make the problem worse.

To capitalise on the government’s indecision, the opposition announced its own housing strategy last week. While most of Labor’s ideas are sensible, not many will make housing much more affordable, with the exception of previously announced changes to negative gearing and the capital gains tax discount.

State and federal governments have raised expectations among voters anxious to see action on housing. Governments now need something concrete to point to. There are options that would make a big difference, but none is politically easy. If governments want to be seen to be serious about housing affordability, they’re going to have to make tough choices and avoid the temptation to do the easy (and stupid) things.

The first step to making housing more affordable is to face up to the size of the problem. Australian house prices have more than doubled in real terms since the mid 1990s, far outstripping growth in household incomes. And while low interest rates make it relatively easy to service a loan today, slow wages growth means that the burden of a mortgage is eroded more slowly than in the past. Home ownership rates are falling, especially among the young and the poor. Without change, many young Australians could be locked out of the housing market.

Governments have long promised to improve housing affordability, yet all the while house prices have continued to rise. The politics are hard. More Australians own a house than are seeking to buy a house, and making housing more affordable means house prices will be lower than would otherwise be the case. And many people who live in the established middle suburbs don’t like the idea of more density in their neighbourhoods. If governments really want to make a difference, they need to explain why improving housing affordability matters – and why doing nothing will only make the problem worse.

While making the hard decisions, governments should also set realistic expectations. Although government policy can help, housing is unlikely to become much more affordable overnight. It took neglectful governments two decades to create Australia’s housing affordability crisis, and it will take just as long to improve matters. There are limits to what even a brave government can do.

A lack of policy ideas isn’t the problem. There are plenty, but most of them simply won’t have much effect. Some will make housing affordability worse, drag on economic growth, or subtract from government budgets that are already in trouble. And a few will make a difference, but all of them are politically difficult.

The policies that sound good, but won’t help much in practice, live in the top left of our diagram.

Treasurer Scott Morrison has shown great interest in “shared equity” schemes, which sound like a way for first home buyers to clear the deposit hurdle without significant costs to taxpayers. Such schemes come in many shapes and sizes, but in this case the government would likely stump up some of the capital to purchase a home, and later, when the property is sold, it would get its money back, together with a share of any property price growth. Such schemes already exist in Western Australia and South Australia, where government lenders have issued thousands of loans for people to purchase their own home.

There is some evidence that these schemes increase home ownership rates. Yet they are unlikely to make much of a difference to housing affordability, at least not without big public subsidies. Only one-in-five loans approved by the WA lender in 2015–16 were genuine shared-equity loans. Most were low-deposit loans to borrowers, some of whom may have borrowed from a commercial bank.

Treasurer Morrison is also keen on a “bond aggregator” for the social housing sector. The government would borrow on behalf of community housing providers, and on-lend to the providers – giving them access to cheaper and longer-term finance. While this may help to boost the supply of social housing, a substantial increase in the stock is unlikely unless there are additional large public subsidies to cover the costs of providing housing at below-market rents.

Restricting foreign investment in housing may have some impact on house prices, but again only at the margin. Treasury research suggests that foreign investment has not been a major contributor to recent growth in house prices. Of course, the government should ensure that foreign investment rules are being followed; recent reports suggest that foreign investment rules are still being broken, despite a recent crackdown.

Increasing taxes on foreign investment in housing, as several state governments have already done, and federal Labor has now proposed, may be a sensible way to raise revenue, but it is unlikely to hit house prices unless the tax hikes are very big.

Taxing vacant dwellings, a policy recently announced by the federal opposition and the Victorian Labor government, sounds attractive, but will be difficult to administer. Accountants are likely to be able to fit most vacant homes within one of the exemptions for those temporarily overseas, holiday homes and those who need a city unit for work purposes. A similar tax introduced in Vancouver this year is yet to show that it has overcome these challenges.

While those ideas won’t do much to make housing more affordable, they won’t do much harm either. Several other ideas, shown in the bottom left of our diagram, are less benign: they involve big risks either to the budget or to the economy.

The Turnbull government is reportedly still considering allowing people to use their superannuation to buy their first house. Politicians are understandably attracted to any policy that appears to help first home buyers build a deposit. Unlike the various first home buyers’ grants, which cost billions each year, letting first home buyers cash out their super would not hurt the budget bottom line – at least in the short run. But as we wrote in 2015, such a change would push up house prices, leave many people with less to retire on, and cost taxpayers in the long run. Alternatives that allow first home buyers to withdraw only voluntary super contributions are less foolish, but are unlikely to make much difference to housing affordability.

Another proposal to give first homebuyers extra tax incentives to save for a home has similar problems – it would move taxpayer money into the pockets of vendors without addressing affordability. In fact we’ve been here before: the former Rudd government’s First Home Saver Accounts provided similar financial incentives to help first homebuyers build a deposit. Treasury expected A$6.5 billion to be held in First Home Saver Accounts by 2012. Instead only A$500 million had been saved by 2014, when Joe Hockey abolished the scheme, citing a lack of take up.

The government is reportedly considering providing incentives to encourage seniors to downsize their homes, thereby freeing up larger homes for younger Australians. This idea, too, should be rejected. Research shows that downsizing is primarily motivated by lifestyle preferences and relationship changes. These considerations dwarf the financial trade-offs between having more cash to spend, but a lower age pension. According to surveys, no more than 15 per cent of downsizers are motivated by financial gain. Stamp duty costs (which are analogous to the threat of losing pension entitlements) were a barrier for only about 5 per cent of those thinking about downsizing. If financial considerations aren’t the big barrier then many of the incentives would go to households that would have downsized anyway. As the Productivity Commission found, these incentives have a material budget cost, and distort the housing market by adding even more to the long-term tax and welfare incentives to own a home.

The government should also resist the temptation to push people to the regions. Since Federation, state and federal governments have tried to lure people, trade and business away from capital cities. It has invariably been an expensive policy failure. Despite government policies of decentralisation, the trend to city-centred growth has accelerated in the past decade. Half of all net jobs growth in Melbourne and Sydney is now within a two-kilometre radius of the city centres, reflecting the rapid growth of jobs in service industries, where physical proximity really matters. In the unlikely event that government policy actually succeeded in encouraging more people to live in regional areas, it could reduce house prices in the major cities, but it would also slow growth in incomes.

The government should also tread carefully when it comes to curbing immigration, as proposed by former prime minister Tony Abbott. Slowing immigration would have a big impact on house prices. Australia’s resident population is increasing by about 350,000 a year, and over half of this is due to immigration. But curbing migration could also slow growth in incomes. Recent Productivity Commission modelling concluded that continuing Australia’s approach of taking younger, skilled migrants could result in GDP per person being up to 7 per cent higher in 2060 than if there were zero net migration.

So governments need to focus on the policies in the top right of our diagram: policies that will make a material difference to affordability without substantially dragging on the economy or the budget. Everything in this category is politically difficult.

Given the allocation of federal responsibilities, the Commonwealth can primarily intervene to reduce demand. States have more ability to boost supply, through land-use planning and zoning laws, and by releasing greenfield land. They can also make renting more attractive by reforming state land taxes and residential tenancy laws. Both levels of government can improve access by making better decisions about which transport infrastructure to build, and then introducing congestion charges.

The most obvious way the Commonwealth government can materially reduce housing demand is by reducing the capital gains tax discount and abolishing negative gearing. The effect on property prices would be modest – they would be roughly 2 per cent lower than otherwise – but would-be home owners would benefit. Economic benefits would flow too. The current tax arrangements distort investment decisions and make housing markets more volatile. Reform would boost the budget bottom line by around $5 billion a year. Contrary to urban myth, rents wouldn’t change much, nor would housing markets collapse. If phased in, the reforms would be easier to sell politically and would dissuade investors from rushing to sell property before the changes come into force. An alternative flagged by the government – limiting the number of properties a person could negatively gear – would be much less effective because few people negatively gear multiple properties.

The government should also include the value of the family home above some threshold – such as $500,000 – in the age pension assets test. This would encourage a few more senior Australians to downsize to more appropriate housing. More importantly, it would make pension arrangements fairer, and contribute up to $7 billion a year to the budget.

Making owner-occupied housing liable for capital gains tax could also reduce demand and improve the budget bottom line. But such a change might have unintended consequences. It would discourage people from moving house, since home sales would trigger liability to pay capital gains tax. Young purchasers would be tempted to choose oversized housing to reduce the number of home moves they make over a lifetime. It would be difficult to resist calls to allow deduction of interest payments (given taxation of the gains), which would wipe out most of the benefit to the budget.

Affordability would improve much more if the states did the heavy policy lifting over a number of years to increase supply.

The middle rings of Australia’s large capital cities generally have good infrastructure, and good access to city centres, where most of the new jobs are being created. These cities are sparsely populated relative to other large cities in the developed world outside the United States. Grattan Institute research shows that people want more townhouses and semi-detached dwellings in established suburbs.

Current rules make it reasonably easy to build apartments in the CBD and to develop new housing estates on the fringes of the major cities – so that is what we’re getting. But the rules make it very difficult to subdivide and create extra residences in the middle rings of the capital cities, up to twenty kilometres out of the CBD. Population density in the middle rings has hardly changed in the past thirty years, yet urban infill could supply a lot of the new housing needed.

State and local governments need to change planning laws and practice to make it easier to subdivide in middle-ring suburbs. They also need to increase density along transport corridors, which would both boost housing supply and use existing transport infrastructure better.

Increasing supply will only restore housing affordability slowly. With migration increasing substantially from about 2006, Australia’s population grew by around 350,000 per year, rather than the 220,000 per year that was typical in the previous decade. Dwelling construction did not match demand, particularly in New South Wales. It increased by about 30 per cent in the past four years, but it is still only keeping pace with current population growth. Several years of construction – probably at even faster rates than currently – will be needed to erode the large backlog that accumulated between 2006 and 2014, estimated to be a shortage of about 200,000 dwellings.

This is primarily a state government problem. While the federal government can release some of the limited stock of Commonwealth land, it does not directly control planning rules. It could provide incentives to state and local governments to increase the supply of housing in good locations, but its budget will struggle to provide incentives sufficiently large to overcome the reluctance of a state government that is not motivated to take on the political difficulties anyway.

State governments should also abolish stamp duties and replace them with a general property tax, as the ACT government is doing. Stamp duties on the transfer of property are among the most inefficient of taxes: they discourage people from moving to better jobs, or to housing that better suits their needs. Their abolition would encourage people to move as their circumstances change, making more efficient use of the housing stock. This would mainly improve economic growth rather than housing affordability, but it’s a big prize: a national shift from stamp duties to a broad-based property tax could add up to $9 billion a year to gross domestic product.

Reform of progressive state land taxes, which levy a higher rate of land tax if a person owns more investment property, could improve conditions for renters, because institutional investors would be more likely to offer long-term leases to those renters who seek greater certainty.

Such tax reforms might be encouraged if the federal government provided incentive payments to the states, which would reflect how Commonwealth revenues will ultimately benefit from the increased economic growth. A recent COAG agreement to encourage states to enact economic reforms is a step in the right direction, but more needs to be done.

Governments also need to improve transport networks by using existing transport infrastructure more efficiently and building more effective transport projects. This will make fringe suburbs a more attractive alternative to established suburbs closer to CBDs, limiting price increases in inner suburbs.

First, the federal government should work with states on the possibility of introducing congestion charging to ensure existing roads are used more efficiently. A congestion charge needs to discourage only a small proportion of people from driving to enable a big increase in traffic speed.

Second, the way governments decide on transport infrastructure investment needs to improve. Governments have tended to favour projects in swing states and marginal seats, rather than projects with the highest benefit–cost ratios. They should only commit money to a transport infrastructure project if Infrastructure Australia or another independent body has assessed it as high priority, and the business case has been tabled in parliament.

Housing affordability has vexed Australian governments for two decades, as politicians have tried to appease aspiring first home buyers without upsetting existing home owners. They have dodged the hard choices that would actually make a difference, preferring policies that are cosmetic but politically painless.

Continuing inaction will further reduce home ownership, increase inequality, dampen economic growth, and increase the risks of an economic downturn. The public has figured out that there is a real problem. Unless governments improve the reality rather than appearances, public trust in political institutions will continue to fall. Pretending there are easy answers will only make things worse. •

The post Options for housing affordability: the good, the bad and the cosmetic appeared first on Inside Story.

“Housing affordability” is a catch-all banner for a grab-bag of public concerns linked to rising house prices. Some people resent spending more of their pay packet on housing. Some fear that younger Australians will be locked out of the housing market. Economists are worried that many people can’t find housing with good access to jobs. Patterns of home ownership are increasing inequality between and among generations. Others fret about the risks that higher house prices pose to the economy.

It’s worth teasing these issues apart to understand what should really keep policy-makers awake at night.

Most literally, housing affordability is about how much a person spends on housing relative to everything else. Overall, spending on housing has increased from about 16 per cent of all spending in 1980 to more than 20 per cent today. And this means households have less to spend on other goods and services, from healthcare to entertainment.

Australian house prices have more than doubled since the mid 1990s in real terms, far outstripping growth in incomes. Although attention is focused on the rapidly rising prices in Sydney and Melbourne (a typical house in a capital city currently sells for around six-to-seven times annual incomes, up from around two-to-three thirty years ago), prices have also risen strongly in the regions.

Of course, house prices were always going to rise as incomes increased and finance became cheaper and more readily available. These changes have helped people to access more and better housing. Since the late 1980s, the average floor space of newly constructed houses has risen by around 45 per cent. The number of spare bedrooms has also risen rapidly.

But most of the increase in the value of housing reflects increases in the price of land. These higher land prices mainly reflect restrictions on the effective supply of residential land – both limits on rezoning for urban infill and limits on developing land at the urban fringe – at a time when demand for land is growing strongly.

Of course, most Australians don’t buy a home outright: instead, they borrow to purchase a home. Housing affordability is falling mainly because it takes longer to pay back the principal on a mortgage. That takes longer because house prices have risen much faster than incomes. And nominal incomes are not rising as fast to overtake the nominal amount originally paid for a home.

While it is harder to pay down the principal, paying the interest on a new mortgage on the average-priced home is no more difficult today than in 2003: the rise in prices has been counteracted by the fall in interest rates. As for rents, they have more or less kept pace with wages over the past twenty years. Because mortgage and rent costs haven’t risen much relative to incomes, households are under relatively little financial stress. As a recent Reserve Bank of Australia article showed, more homeowners are further ahead on their mortgage today than in 2006, and fewer households are reporting financial stress events such as being unable to pay a bill.

Inevitably, averages conceal problems for some groups. In particular, it is getting harder for low-income households to pay the rent, particularly if they live in large cities. About 47 per cent of low-income households in capital cities now spend more than 30 per cent of their pre-tax income on rent, up from 36 per cent in 2007.

Higher house prices have also made it harder for buyers to save a deposit, which historically has been 20 per cent of the purchase price. In the early 1990s it took around six years to save a 20 per cent deposit for an average dwelling; it now takes around ten years.

Higher house prices and debts may not currently mean higher mortgage payments, given lower interest rates. But they do increase the risks. If interest rates rise by just 2 percentage points, mortgage payments on a new home will cost more of a household’s income than at any time in the past two decades. With interest rates across the globe at historic lows, the risk of an interest rate rise is real. And because wages aren’t rising fast, households are burdened by big interest payments for much longer.

These risks may explain the second big concern about housing affordability: the worry that “my child can’t afford to buy a house.” While buying a first home might seem “affordable” if we only look at mortgage payments relative to income today, it now involves a lot more risk.

Home ownership rates are falling quickly for those under fifty-five. Falling home ownership among twenty-five- to thirty-four-year-olds might be explained away because people are forming long-term partnerships and having children later in life. But this explanation doesn’t wash for thirty-five- to forty-four-year-olds. Home ownership among this group has fallen from about 75 per cent in 1991 to about 60 per cent today. The fall has been particularly steep among low-income households.

There are plenty of reasons to care about home ownership. Owning a home can provide a sense of community belonging, a sense of prosperity, the motivation for additional savings, and the basis for investing in a business. Under current policy settings, it provides higher after-tax returns on savings, and effectively higher income in retirement. Of course, home ownership also has its costs: for example, home owners may be more reluctant to take on a better job that would involve the emotional and financial costs of moving.

Given current rental markets and policies, renting is relatively unattractive: it is generally much less secure; many tenants are restrained from making their house into their home; and tenants miss out on the tax and welfare benefits of home ownership. Renters are forced to move much more often than home owners, and are less satisfied with their housing.

So it’s not surprising that younger generations still want to own their own home. There is little evidence that falling home ownership is due to lack of desire; rather it seems to be due to lack of opportunity, and the heightened risks.

Housing in the right places is also becoming less affordable. Australia’s large cities are increasingly divided between the middle and inner ring with good access to jobs, and an outer ring whose residents can’t get to many jobs. This divide is becoming more important because much of the net growth in jobs is occurring in the large capital CBDs. Relatively few people commute from outer suburbs to the centre – the travel time is just too long. And whereas new housing on the city fringe forty years ago still had reasonable access to the centre, new housing on Sydney and Melbourne’s outer fringes is now typically much further out. As a result, the price differential between inner and outer city is increasing. And so it’s getting harder to buy a home that has good access to the places where a lot of the jobs growth is happening.

Concerns about housing affordability also reflect worries about increasing wealth divides between generations, and among generations. The wealth of older households increased rapidly over the past decade: the average household aged between thirty-five and fifty-five in 2004 increased its wealth by $50,000 a year over the decade to 2014. Wealth was boosted significantly by the rapid run-up in the price of houses and other assets. A younger generation is unlikely to get this kind of free kick.

The increasing divide between generations can easily transmit into an increasing divide within generations. If home ownership relies more on the “bank of mum and dad,” then getting a home depends more on the success of one’s parents than on one’s own endeavours. Rising house prices are also likely to boost future inheritances, which tend to transmit wealth to children who are already well off.

Finally, concerns about housing affordability may reflect concerns about economic stability. House prices are rising faster than incomes. And households are borrowing more, particularly to invest in housing. As a result, household debt in Australia is now a record 190 per cent of household after-tax income, up from about 170 per cent between 2007 and 2015. More households are exposed: in 2002, 20 per cent of households had a debt of more than twice their income; today it’s 30 per cent.

Higher levels of debt increase the risks of borrower default and thus the risks of banks getting into trouble, with all the economic chaos that would create. But overall, the risks of Australian banking instability are low given relatively few households with high leverage of loans to total assets, and robust bank capitalisation.

Much more concerning is the risk of a rapid fall in household spending. A fall in house prices, or a relatively small rise in the interest rates paid by households, would force many households to save more – and to consume less. This would probably slow economic growth, potentially increasing unemployment and further reducing house prices.

Thus, “housing affordability” includes a wide variety of concerns: less money to spend on goods and services other than housing; falling home ownership rates; worsening access to jobs; increasing wealth inequality between and among generations; and increasing risks of a housing-led economic downturn.

Responding to these concerns requires careful analysis of the underlying drivers and of the potential impact of policy changes. Not all policy changes will make a difference to the problems that really need solving. We will look at potential policy reforms in a subsequent article. But even then, policy-makers need to be honest about how there are limits to what governments can do to get the barbecue started again. •

Monday: Assessing the solutions

The post Why should we care about housing affordability? appeared first on Inside Story.

Prime minister Malcolm Turnbull says that the 457 visa has “lost its credibility.” Immigration minister Peter Dutton asserts that “the 457 brand was tarnished beyond recognition.” But temporary skilled migration will continue, so Turnbull and Dutton obviously hope they can alter the public’s perception of this complex and contentious policy area by changing the terminology from “457” to “TSS.” Good luck with that.

Both the manner of the announcement – via a prime-ministerial Facebook post – and the choice of words – “Australia first” – show that this was also an attempt to rebrand and reposition a struggling government. In the course of an interview on AM, the prime minister referred more than a dozen times to putting Australians first, putting Australian jobs first or putting Australian values first. Turnbull’s Trumpish rhetoric is aimed at reversing the voter drift to populist anti-immigration campaigners like Pauline Hanson and makes his celebration of Australia as “the most successful multicultural nation in the world” look mealy-mouthed.

Particularly egregious is the backhanded suggestion that 457 visa holders are somehow undermining “Australian values” (however they may be defined). There’s no evidence to suggest that they are doing much more than working hard and paying taxes, all without drawing on any government benefits or healthcare. They are the sort of people past conservative politicians were wont to describe as “lifters, not leaners.” The reality is less that temporary migrant workers want to undermine Australian values and more that many of them want to embrace them by becoming more fully Australian, as permanent residents and citizens. Turnbull’s cynical language promotes the divisive perception that a significant proportion of temporary migrants are here illegitimately or somehow rorting the system. In the context of increasingly assertive expressions of xenophobic nationalism, this is playing with fire in the pursuit of short-term political advantage.

Yet rebranding is far from the only thing going on here. Beyond the new nomenclature, the government is introducing a confusing welter of changes to the current 457 scheme. Some are substantial and some minor; some are belated responses to a thorough review of the 457 visa carried out when Tony Abbott was prime minister; others run contrary to that review’s recommendations. And though the government claims it is cleaning up a mess created by Labor, some of the changes actually reverse earlier Coalition initiatives.

The most substantial change is the splitting of the 457 program into two distinct temporary skilled migration streams. The first stream – described as a “short-term” TSS visa – allows for a two-year rather than a four-year stay, and can only be renewed once “onshore” (without leaving Australia). A migrant on this “short-term” visa can’t apply for permanent residency and must attest to being a “genuine temporary entrant” – that is, to having no ambition to stay long-term, as is already required of international students. The range of occupations open to “short-term” temporary migrants will be more limited than was the case for 457 visas; 216 occupations have been removed from the previous list of 651 occupations, and fifty-nine others have been restricted (some, for example, will only be available in regional Australia). Much of this is largely cosmetic, though, since many delisted occupations – such as goat farmer or antique dealer – were never used to bring in migrant workers anyway.

The second stream – described as a “medium-term” TSS visa – is valid for up to four years and, as with the current 457, is indefinitely renewable. It will be open to a narrower range of occupations, 183 in total, that have been “assessed as being of high value to the Australian economy and aligning to the government’s longer term training and workforce strategies.” This is a more significant culling of the occupation list, since some of the most frequently used 457 occupations have been excluded, including the top three: cook, restaurant–cafe manager and marketing specialist. Also cut from the list are the occupations of chief executive and university lecturer. This is the sort of detailed government regulation that could misfire badly. As ANU migration researcher Henry Sherrell writes, “Imagine being the chairperson of a Big Four bank or major law firm and not being able to offer potential CEOs a five-year contract due to visa restrictions?”

Unlike their short-term counterparts, medium-term visa holders can apply for permanent residence, although in future they will have to live and work in Australia for at least three years, rather than two, before becoming eligible to do so.

The new visa split is likely to affect the interaction between Australia’s temporary and permanent migration programs in ways that are not necessarily predictable or desirable. Since its introduction in 1996, the 457 visa has developed into a major pathway to permanent residency in what is sometimes described as two-step migration. Immigration department statistics show that around 50,000 temporary migrants on the visa made the transition to permanent residency in 2015–16, making up close to 40 per cent of Australia’s total annual (permanent) skilled migration intake. In three out of four cases, this shift from temporary to permanent status ran via employer sponsorship.

The phenomenon of two-step migration via employer sponsorship has been both a big plus and a big minus for the 457 scheme. It is a plus because it facilitates better matching of skills to positions: rather than migrants landing in Australia to fill part of an annual government quota and then looking around, perhaps unsuccessfully, for a job matching their qualifications (and potentially ending up driving a cab), employers directly recruit candidates to fill specific vacancies, initially on a temporary basis, and then sponsor them to become permanent if they prove a good long-term fit to the needs of the enterprise. The negative is that sponsorship can give employers inordinate power over migrant workers, especially when they are keen to stay in Australia long-term.

Closing the pathway to permanent residency will remove this form of leverage over future “short-term” TSS visa holders, but it will remain, and may worsen, for “medium-term” visa holders. These migrants must now work in Australia for an extra year before becoming eligible for employer sponsorship. Both short- and medium-term temporary skilled migrants will remain vulnerable to workplace pressure in other ways too, because, as with the 457 scheme, their visas are closely linked to their jobs. Temporary migrant workers are unlikely to complain about unfair wages and conditions if they fear that getting sacked means losing the right to remain in Australia. On the other hand, with the introduction of data matching – linking temporary migrants’ tax file numbers to records held by the Australian Tax Office – the government has given itself a swifter and more efficient means of combating workplace exploitation by checking whether employers are at least paying specified wage rates.

The recasting of temporary skilled migration is also likely to make the pathway from temporary to permanent status longer and harder – or, in some cases, to close it altogether. While many 457 visa holders have made a fairly quick and straightforward transition to residency, the image of “two-step” migration doesn’t do justice to the complexity of movement within Australia’s evolving hybrid migration system. Visa holders often take multiple steps, and may jump sideways rather than forwards, as they seek to establish a more stable foothold in Australia. In its 2016 report Migrant Intake into Australia, the Productivity Commission found that the average duration of a “multi-step” pathway to permanent residence was 6.4 years and involved more than three visa grants. This largely reflects the experience of migrants who first arrive in Australia as working holiday-makers or international students before moving onto a 457 visa.

The creation of “short-term” and “medium-term” temporary work visas could extend the multi-step pathway and make it more precarious. While “short-term” skilled work visa holders can’t apply directly for permanent residency, nothing appears to stop them from extending their stay in Australia beyond four years by applying for other temporary visa categories – including, perhaps, a “medium-term” TSS visa. If they don’t have an occupation that immediately qualifies them for a “medium-term” visa, then they might swap to an international student visa and upgrade their qualifications first, which could add years to their stay in Australia. Potentially, too, these temporary workers could be “recycled” – sent offshore at the end of their maximum four-year term and then brought back in on a new “short-term” contract. It remains to be seen whether such manoeuvres are ruled out in the accompanying regulations.

A measure that further complicates the pathway to permanent residency is the requirement that applicants for both of the new TSS visa streams must have at least two years’ full-time work experience “relevant” to the job for which they are recruited. A lot will hang on the definition of relevant, but this would appear to make it harder for international students to transfer to a temporary skilled work visa after graduation. The potential still exists, because an international student can theoretically gain the relevant professional work experience in Australia on a two-year post-study 485 visa. Though foreign graduates, like their local counterparts, often find it hard to move straight from university to a career-related position, this is another way in which the pathway from temporary to permanent may be drawn out.

One part of the Turnbull–Dutton package that hasn’t received much attention is the higher language hurdle for permanent residency. To qualify for a permanent visa under the main pathways of the Employer Nomination Scheme (subclass 186) or the Regional Sponsored Migration Scheme (subclass 187), all applicants will now have to prove that they have “competent” English – that is, achieve a score of six in every component (speaking, reading, listening and writing) of the International English Language Testing System, or IELTS. Previously, an IELTS score of five (“vocational English”) could be sufficient.

The creation of two temporary work streams, the requirement for two years’ relevant work experience and higher English standards for permanent residency may convince some temporary migrants, including international students, to give up on any ambition they had to stay in Australia long-term. But it is hard to predict the full range of possible responses. The government’s new combination of measures may encourage temporary migrants to develop unanticipated workarounds or to extend their stay in other ways, such as undertaking further study or moving on to a working holiday visa.

The risk here is of creating a growing cohort of migrants who are not quite Australian, who contribute to Australian society for long periods without gaining a sense of belonging or accruing any of the rights and entitlements that come with membership of the political community.

What emerges most clearly is that the split of the 457 visa into two streams moves Australia towards a two-tiered system of temporary skilled migration: the upper class visa holds out the conditional prospect that you may eventually be accepted as a full member of “the greatest multicultural nation in the world,” while the lower-class visa makes clear that we want to extract value from your labour but have no other interest in you.

The larger threatening picture painted by Turnbull and Dutton is of 457 visa holders displacing local workers. Dutton told ABC Melbourne Drive, for example, that the 457 visa has created a “big problem” of “foreign workers taking Australian jobs.” Such assertions need to be treated with caution.

There are fewer than 100,000 primary 457 visa holders in Australia, and they make up less than 1 per cent of the total labour force. Even if we include secondary visa holders (partners and children who also have work rights, but who do not necessarily work), then the total count of 172,000 would only equate to about 1.3 per cent of the workforce. It might be tempting to think that replacing all these foreign workers with locals would drop the unemployment rate by the same amount, but such equivalences are simplistic.

About 56 per cent of 457 visa workers are at the top skill level under classifications used by the Australian Bureau of Statistics – in other words, they have skills commensurate with a bachelor degree or higher-level qualification. Another 41 per cent are at skill levels 2 (equivalent to an advanced diploma or associate degree) or 3 (equivalent to a Certificate IV). While qualified locals could potentially replace some of these foreign workers, most employers do not go to the trouble or expense of recruiting migrants if suitably qualified local staff are available. Dutton’s claim that employing foreign workers on 457 visas ahead of locals has become “the default position” is unsustainable.

If there is a problem of migrants displacing locals in employment, it is more likely with working holiday-makers and students than 457 visa holders. There are far more of them – around 140,000 working holiday-makers and 400,000 students – and they more commonly take up entry-level jobs that might also be sought by young Australians. But we must always keep in mind that temporary migrants create jobs as well as take them: working holiday-makers help keep our rural industries running and international students prop up our tertiary education system and pump billions more dollars into the domestic economy through their spending. Skilled workers on 457 visas also create jobs by taking up positions that might otherwise go unfilled and keeping enterprises competitive. Many regional meatworks, for example, rely on skilled slaughtermen and boners from countries like the Philippines and Brazil to stay afloat. Without those offshore workers, they would not have the capacity to employ locals in lower-skilled positions on the production line; plants would close, taking other jobs and services in country towns with them.

Yet Dutton is correct to point out that there are problems and questionable practices in the 457 visa program – such as the extensive recruitment of commercial cooks and restaurant–cafe managers, including in the fast food industry. Together, cooks and cafe managers make up about 12 per cent of the 457 labour force; if chefs are included, the figure rises to 15 per cent. One explanation is that the difficulties in regulating the hospitality sector make it easier for employers to pay below-award wages or demand excessive hours – conditions that most Australian workers would not tolerate.

The Dutton–Turnbull package addresses this problem in several ways: some helpful, others not. First, as already noted, cooks and restaurant–cafe managers cannot be recruited for the medium-term temporary skilled visa, and while these occupations are still on the list for short-term visas, they have caveats attached to the regulations that prevent the employment of migrant workers in “fast food or takeaway food services; fast casual restaurants; drinking establishments that offer only a limited food service; limited-service cafes including, but not limited to, coffee shops or mall cafes and limited-service pizza restaurants.” The attempt to codify every class of restaurant in such daunting detail will create challenges for immigration officers, lawyers, courts and tribunals.

Another part of Dutton and Turnbull’s answer to the perceived problem of protecting Australian jobs is to strengthen labour-market testing by imposing more rigorous requirements on firms to advertise jobs locally before they can employ a migrant worker. Ironically, tighter labour-market testing has long been a core demand of the trade union movement and is detested by business as the kind of red tape that is easily evaded by the unscrupulous but entangles those who try to do the right thing. The Australian Chamber of Commerce and Industry has described it as “akin to asking employers to walk through wet cement.” Labour-market testing was part of the 457 scheme when it was introduced under John Howard, but immigration minister Philip Ruddock abolished it in 2001 because it was ineffective. The last Labor government restored labour-market testing in a more limited form in 2013 and was roundly chastised for doing so by the Coalition, which was then in opposition. In 2014, the independent Azarias inquiry into 457 visas, commissioned by prime minister Tony Abbott, recommended labour-market testing be scrapped again, but his government didn’t accept the recommendation.

The problem with labour-market testing is that it is almost impossible to police, especially in an era of online advertising. Two alternative mechanisms for ensuring that local workers get priority in employment hold out far greater promise.

One is the proposal from Adelaide University legal scholar Joanna Howe for an independent authority with its own research capacity that uses hard economic data and consultation with stakeholders to determine when an occupation is in shortage in a particular part of the country (given that shortages can vary greatly between metropolitan, regional and outback Australia). This expert body would also make recommendations on whether any shortage is best addressed through temporary migration, as opposed to other measures, such as the provision of more local training. The Azarias committee endorsed this model, and the government supported the recommendations in its response to the report, yet the resulting Ministerial Advisory Council on Skilled Migration doesn’t appear to be equipped or resourced to do the necessary work.

The second potential mechanism to ensure that local workers are the priority pick for employers is a stronger price signal. Migration expert Henry Sherrell has championed this idea for many years; he argues that increasing the fee that firms pay for employing temporary migrants would focus employers’ minds and “ensure they look to potential Australian workers first.” The extra revenue raised could be invested in local training, particularly for the young and the long-term unemployed, who struggle to break into the labour market because they lack skills. Vocational education is easily the most important and neglected pathway for getting disadvantaged Australians into jobs

The government may be moving in this direction: it has foreshadowed that the new TSS visa system will include “a strengthened training obligation for employers sponsoring foreign skilled workers to provide enhanced training outcomes for Australians in high-need industries and occupations.” The prime minister says that details of the training fund will be announced in the budget.

This is by far the most promising initiative to come out of the changes to temporary migration, and arguably has little to do with migration at all. It is all too easy to point the finger at foreign workers taking Australian jobs when the real issue may be that chronic neglect has left our domestic vocational education and training system unable to properly equip domestic workers for the needs of the economy. Let’s hope that the May budget produces a potent and effective package to revitalise vocational education, funded in part by a new training levy on TSS visas. But I wouldn’t hold your breath. •

The post The 457 visa is dead! Long live the TSS? appeared first on Inside Story.

That’s not because the Australian-born are a small minority. Two-thirds of all working-age residents of this country were born here. Yet roughly three-quarters of the growth in full-time jobs since the global financial crisis has gone to recent migrants.

Australian Bureau of Statistics figures ignored by analysts reveal that of those 474,000 new full-time jobs, in net terms, 364,000 have been filled by migrants who have arrived in Australia since 2001 – most of them since the GFC.

It is a stunning demonstration of why the Turnbull government had no choice yesterday but to flag the replacement of the 457 visa program, under which many of those migrants have arrived here. They have come from all parts of the world, but almost half are from one part: the Indian subcontinent. While only a net 74,000 full-time jobs have been generated since 2008 for workers born in Australia, a staggering 168,000 of them have been generated for workers born in India and its neighbours.

Source: Australian Bureau of Statistics. Numbers rounded to nearest thousand or 1 per cent. Recent migrants defined as those who say they have been in Australia less than fifteen years, older migrants as those who say they have been here fifteen years or more.

Some of those workers arrived here originally as students, but found ways to stay on in Australia, whether they are working as doctors and engineers or as taxi drivers, on late-night shifts at service stations or as kitchen hands in Indian restaurants. But many came here on 457 visas, brought out by employers who have been allowed to run their own immigration programs, with relatively little oversight by government.

The widespread flaws in the scheme have been meticulously documented by Bob Birrell and his colleagues at the Australian Population Research Institute, but generally ignored in the policy debate. Many on the left and centre-left seem to be uncomfortable with the idea that there can be such a thing as too much immigration.

I am unambiguously pro-immigration, but if the level and nature of the immigration are not working for us, I suggest we turn down the tap. That was the way immigration policy was run in the Menzies era. When the economy slowed, ministers turned down the tap of immigration flows, reducing numbers to avoid flooding the market. We need to do that now.

The 457 visas are only one part of the problem. Despite the clear downturn in the labour market since 2012, the federal government has maintained a target of 190,000 permanent migrants a year, two-thirds of them skilled migrants. We have more than half a million foreign students who are free to work, and at any time there are tens of thousands of visitors here on working holidays.  

But the 457 visas have been so rorted by unscrupulous employers that they are now a damaged brand. Case after case has been exposed in which workers were mistreated, were not paid the wages required by law, or were employed in different jobs from those stated. There was minimal supervision by government, and it was all too easy for workers to convert their visa into permanent residency.

Bureau figures show that in the decade to June 2015, 371,000 “temporary workers,” plus their families, arrived here on 457 visas, sponsored by business, ostensibly to fill jobs that could not be filled by Australians. Yet over that decade, only 145,000 of those on 457 visas left Australia to return home. Roughly 60 per cent of them, 226,000, stayed in Australia, mostly swapping their temporary visa for permanent residency.

They want to improve their lives, and you can’t blame anyone for that. And if there’s room for them in the labour market, and they’re not costing our own kids jobs, then good luck to them.

But analysis of the labour market data shows that’s not the case. Between 2008 and 2016, the number of Australian-born workers who were unemployed swelled by more than half, from 338,000 to 507,000. The number of them in full-time jobs grew by only 1 per cent. The number unemployed and looking for full-time work grew by 54 per cent.

In particular, between 2008 and 2016, the number of fifteen-to-twenty-four-year-old school, college and university leavers who have a full-time job shrank by a massive 214,000, or 21 per cent. Sure, many stayed longer in full-time education. But the number of education leavers in part-time work jumped by 29 per cent, while the number unemployed shot up 36 per cent. They are the victims of a system that encourages employers to bring in skilled workers from overseas rather than hire and train them here.

That sums up in a nutshell why Malcolm Turnbull and Peter Dutton had to move yesterday to pledge that 457 visas will be replaced next year by two visas setting tougher conditions, including a requirement that employers must look for workers locally before seeking permission to import them.

The key changes are that:

• A new two-tier system will be introduced from March 2018, with one class of temporary workers given four-year visas with a pathway to permanent residency, and the other allowed two-year visas with a pathway just to a second two-year visa.

• Employers will be required to advertise first for workers in Australia, unless they bring workers from a country with a trade agreement that rules that out.

• Workers will have to show they have two years’ work experience, and pass a criminal history check.

• Employers using the 457 visa scheme will have to pay a training levy for Australian workers, with the details to be announced in the budget.

There are many questions to be answered and details to be filled in before we know how the new scheme will work. While the prime minister made much of the reduced occupations allowed to use the scheme, there are still some 400 of them – and they include all the main occupations for which 457 visas are now issued. Labor points out that the 216 occupations removed from the list would exclude less than 9 per cent of current visa holders.

What labour-market testing will be required? In what ways will the bar be set higher for issuing four-year visas with permanent residency rights, compared with the two-year visas, which exclude permanent residency?

And, most crucially, what resources will be devoted to ensuring that employers are abiding by the conditions of the new visas: using their staff for the duties they nominated, paying them the agreed wage, and so on? One reason why 457 visas developed into such a rort was that the federal government failed to police them. Employers who exploited their 457 workers seemed to be more at risk of being exposed by Fairfax’s Adele Ferguson and her colleagues than by the immigration authorities.

The key occupations that dominate the program will still be allowed in the replacement scheme: cooks, chefs and restaurant managers; ICT business analysts, programmers and software engineers; and the amorphous occupations of marketing specialists, sales and marketing managers, customer service managers, and so on.

Between them, over the past two years, just twelve occupations in these three areas accounted for more than a third of the visas granted. All of them are on the new lists. What difference will the tougher conditions really make when the new system takes effect? We’ll have to wait and see. But the key changes are good ones; if they do work in the way the ministers implied they would, they would help restore a balance that has been missing in immigration policy for years.

It’s not an encouraging sign that Turnbull and Dutton yesterday played it for political ends. Repeatedly, their statements were misleading or flatly wrong. The 457 visa was introduced by the Howard government, not (as they implied) by Labor. Bill Shorten, whom Turnbull called the Olympic champion in issuing visas, didn’t issue any at all; he was not the immigration minister. Labor in office tightened the rules of the scheme to reduce rorts – a crackdown the Coalition, and Turnbull personally, opposed.

Until recently, the Coalition’s only changes to the scheme have been to weaken its controls. It rejected advice from its own taskforce to set up an independent monitor to carry out labour-market testing, and to reduce the number of occupations using the scheme. It can’t claim credit for the fall in the number of visas issued; everything it did in office was designed to increase them.

The government has gradually changed tack since Peter Dutton became minister, and yesterday’s announcement makes it much clearer. But how much difference the new scheme will really make remains to be seen.

It is important to remember that the 457 visa was designed to bring in skilled workers. Of the 94,890 visa holders at 30 June last year, 55 per cent were in occupations judged as requiring the top level of skills, and 98 per cent were in the top three levels.

Yes, there are ridiculous examples of workers being brought in on 457 visas to do entry-level jobs. But the bigger danger is that it closes off avenues for young Australians to develop careers in occupations requiring skills: in restaurants, in IT, in management, even in medicine, where, as Mike Moynihan and Bob Birrell have pointed out, the open door to migrant doctors has added to a glut of GPs in the cities without providing more than a temporary respite for the shortage in country towns.

The table below, contrasting the experiences of recent migrants and the Australian-born, highlights our predicament. By making it so easy for employers to hire their skilled workforce overseas rather than face the expense of training Australians, we have closed off opportunities for young Australians to move up the ladder and gain the skills and experience that will allow them a good future.

Source: Australian Bureau of Statistics. Numbers rounded to nearest thousand or 1 per cent. Recent migrants defined as those who say they have been in Australia less than fifteen years, older migrants as those who say they have been here fifteen years or more.

Our future depends on Australians developing the skills to maintain a high-income, technologically advanced country in an increasingly competitive world. We made a mistake in following the US model of importing skilled labour and leaving the young in the rustbelt to scrape by as best they can. There are many reasons why our migrant workers are not generating enough demand to replace the jobs they have taken: what is clear is that our current system is not working for those who were born and raised here.

Fewer than one-in-six new full-time jobs, in net terms, now go to Australian-born workers. It’s not anti-migrant, let alone racist, to say that that is an outrageous failure of policy. May yesterday’s announcement be the first step towards putting it right. •

The post Yes, there is such a thing as too much immigration appeared first on Inside Story.

The term “credentialism” is used in many different ways, some of them contradictory, but the implication is consistent: too many young people are getting too much formal education, at too high a level. This implication was spelt out recently by Dean Ashenden, who contends that “education has not just grown to meet the expanding needs of the post-industrial economy, but has exploded like an airbag.”

The claim that young people are getting too much education, and the supporting critique of credentialism, is pernicious and false. To explain this, it is necessary to disentangle a range of concepts commonly associated with the term credentialism in public debate. These include:

• Legal requirements that particular jobs can only be performed by people with a specific educational credential. I’ll call this “formal credentialism.”

• Employer preference for university graduates to fill jobs that would once have been filled by high school graduates.

• The replacement of on-the-job training by formal educational courses in specific occupations. In particular, this includes replacing apprenticeships, as a way of obtaining credentials, with classroom training.

• The problem of people with formal credentials not obtaining the jobs associated with those credentials.

• Demand for university education among young people (or their parents) who might once have gained a trade qualification.

Let’s take these points in turn. The stress on formal credentialism – the specific requirement for an educational qualification to be a member of a defined profession – is a phenomenon whose time has passed. The traditionally male-dominated professions, such as medicine, law, accounting and engineering, took their present, credentialled forms in the nineteenth century or early in the twentieth. Traditionally female-dominated professions, such as teaching and nursing, lagged a little, but the process was completed for teachers by the 1960s and for nurses by the 1980s.

In at least some discussions of credentialism, this seems to be treated as a continuing process. In reality, though, the newer professional occupations associated with the information economy, such as programmers, systems analysts and social media experts, have no such formal structure. The same is true of twenty-first-century job categories like “sustainability adviser” or “event planner.” Although plenty of courses cover such subjects, no specific requirements or standardised job definitions exist. 

Rather than obtaining formal credentials, typical new professionals combine training and experience relevant to their occupation with general skills acquired through school and university education: written and verbal communication, research skills, the capacity to organise projects independently, and so on. Job titles and responsibilities are generally fluid, and the same person may shift between a number of related occupations over the course of a career.

A more relevant basis for concerns about credentialism is the increasing preference of employers to hire university graduates to fill office and service sector jobs when a job with the same title might once have been filled by a high school graduate. The best evidence on this topic comes from the United States.

The proportion of jobs classified by the US Bureau of Labor Statistics as typically requiring at least an associate degree has risen steadily over time, and is now around 26 per cent. But the proportion of eighteen-to-twenty-four-year-olds enrolled in degree-granting post-secondary institutions is around 36 per cent.

A 2013 New York Times article dramatised this under the headline “It Takes a B.A. to Find a Job as a File Clerk,” reporting on firms that hire only people with a bachelor’s degree, even for jobs that “do not require college-level skills.” The report canvassed a number of reasons why firms might prefer to hire college graduates as file clerks, but missed the most obvious one. A file clerk today is routinely expected to have database management skills that far exceed anything that might have been asked of a similarly titled employee a few decades ago, when computers were the province of experts operating in specially air-conditioned rooms.

Similarly, as email has replaced telephone calls and face-to-face communications, office jobs of all kinds now require skills in written communication that were less important in the past. A university graduate can generally be assumed to have acquired such skills, regardless of their specific qualification. The other side of the computerisation coin is that much of the routine work (photocopying, manual data entry and so on) that used to be associated with office jobs has disappeared. 

This is one instance of a more general point. Just as the proportion of unskilled jobs in the economy has declined, the skill requirements for jobs have changed. Even where this is not recognised in a changed job title (executive assistant replacing secretary, for example), the reality is obvious. Where unskilled work in professional and semi-professional occupations has not been eliminated by technological change, it has commonly been assigned to lower-status workers. Much of the physical work once undertaken by nurses, for instance, is now done by nurses’ aides.

These processes in turn help to explain the gradual replacement of on-the-job training (“sitting next to Sally”) by classroom instruction. The viability of on-the-job training depends on the existence of simple tasks that can be performed by an unskilled new starter. The willingness of “Sally” to provide training as part of her job reflected the fact that such tasks could be handed over to the apprentice. But, as the file clerk example illustrates, the kind of routine office work suitable for an unskilled on-the-job learner has largely disappeared. In most offices, a high school graduate requiring training would be a liability rather than an asset. 

An obvious implication of this process is that much of the training that was once done on the job is now undertaken in classrooms. Someone seeking a job as a file clerk, for instance, would be well advised to acquire a knowledge of computer programs such as Microsoft Office, and an understanding of database management. This is likely to be done more efficiently in a classroom setting than by osmosis in a busy office.

The flipside of the complaint that jobs not requiring a university education are being taken by graduates is that many graduates are employed in jobs that don’t require their credential. This complaint is implicitly directed at an extreme version of credentialism, presupposing a one-for-one match between jobs and credentials. The implied policy is a system of central planning, in which the education system has been designed to ensure that there is no excess supply or shortage of workers of any given kind. Showing that this extreme kind of credentialism hasn’t worked is taken to be a demonstration that there is too much education of all kinds.

Finally, the view that people attending university might be better off getting a trade qualification is a false dichotomy. Some kinds of skilled trades provide wages comparable to those of university graduates. But they typically require a lengthy training period in which the importance of formal education, in trade schools or similar institutions, is increasing over time. The relevant choice for society as a whole is not between different forms of post-school education, but between higher and lower participation in post-school education.

Ever since the rise of the industrial economy in the nineteenth century, technological change has replaced unskilled human labour with the work of machines. Some skills have also become obsolete, but the overall tendency has been to require ever-higher levels of average skill in the workforce. The rise of information technology since the mid twentieth century has extended the process to routine information processing of all kinds, from running messages to adding up accounts. 

If the mix of skills in the workforce doesn’t change, the effect would be to increase the demand for skilled workers, and reduce that for unskilled workers, thereby increasing inequality. 

Having made this case, it’s important to reject the idea that education represents a panacea for the growth of inequality. This idea is wrong in two ways. First, the skill-biased nature of technological change means that, unless the supply of skilled and educated workers increases over time, the skill premium will rise, as it has done over the past thirty years or more. Put simply, it’s necessary to run hard even to keep still. 

Second, while growing wage inequality is important, the biggest contributor to increased inequality is the growth in the share of national income going to profits and to the financial sector. Expansion of education is not going to fix this, at least not directly. A better-educated electorate might well see through some of the spurious claims made by the defenders of inequality and elect governments committed to producing better social and economic outcomes. But at least in the recent past, the votes of the educated have not been sufficient to produce such outcomes.

An increase in average levels of educational attainment is not a sufficient condition for a more equal and productive society, but it is a necessary condition. Attacks on “credentialism” and the resulting devaluation of education serve to support an increasingly unequal society. The fact that these attacks are commonly put forward by people who have themselves benefited from education, and have no intention of depriving their own children of those benefits, only makes matters worse. •

The post In praise of credentialism appeared first on Inside Story.

At first sight, these figures provide strong evidence that Australia’s economy is weakening, despite the welcome 3.1 per cent growth in the trend level of output (gross domestic product) over the year to June. But bear in mind that statistics are not the facts we sometimes take them for. They are either informed estimates, or survey data – and both are fallible. We’ll come back to this point later.

The figures certainly add to the signals troubling policy-makers. Growth in business credit has slowed sharply; indeed, business credit has grown just 0.6 per cent over the past five months, implying that business confidence is low. Retail sales volumes are up by just 0.2 per cent over the past six months, implying that consumer confidence is low.

Housing approvals are falling, admittedly from record levels. And while business investment (other than mining) is growing, and government investment is finally climbing off the floor, their combined impact is far outweighed by the massive decline in mining investment.

Moreover, despite the Reserve Bank’s efforts to drive the dollar down, it is higher now than it was a year ago, cutting off the gains we anticipated for exporters and import-competing industries, from education and tourism to manufacturing and agriculture.

If you want to be despondent, you could add the fact that the two big uncertainties over the Australian economy – the risk of a hard landing from China’s housing bubble, and the not-unrelated risk of a crash in our own hyperinflated property market – have now been joined by a third big uncertainty: what will be the global economic impact of President Trump? Despite ridiculous claims from both sides, it will be another year, maybe much more, before we know the answer to that.

So it’s not surprising that International Monetary Fund staff this week cautioned the federal government against cutting the budget deficit too fast, and urged it to focus instead on building new infrastructure. Or that the Reserve Bank has felt desperate enough to cut interest rates twice since May, despite the evidence suggesting that the cuts are doing more to boost housing prices than growth and jobs.

For the last four years, since the mining investment boom peaked unexpectedly early, around the middle of 2012, the key risk facing the nation has been that mining investment will deflate even faster in a bust than it builds up in a boom. In the past, every time mining investment has gone bust, the Australian economy has gone bust with it. The job of policy-makers has been to try to stimulate above-average growth in the non-mining economy, so that the mining bust doesn’t drag us into recession.

By and large, the progress score is: so far, so good. The economy has kept growing, partly because the Reserve Bank slashed interest rates to unprecedented lows to stimulate a real estate boom. Australian households have played their part, adding an extra $300 billion over the past three years to what is now one of the world’s heaviest debt burdens. And of course, despite its rhetoric, the federal government has left the budget deficit as it was, spending $1.09 for every $1 of revenue it earned in 2015–16, and keeping the deficit at $40 billion.

Jobs had also kept growing – until now. That’s the worry in the figures the Bureau of Statistics released yesterday. At face value, they imply that the jobs market has gone from very strong growth in 2015 to treading water at best, or going backwards at worst, in 2016.

Taken literally, on the Bureau’s trend measure – which it urges us to use instead of the yo-yo seasonally adjusted measures preferred by bank analysts and the media – full-time jobs have fallen by 50,000 over the past twelve months, after growing by 165,000 in the previous twelve. Yet unemployment has kept falling, by 45,000 in the same year, shrinking the trend unemployment rate to 5.6 per cent in October.

Where have the workers gone? Out of the labour market. In the year to October 2016, the adult (fifteen and over) population of Australia grew by 293,000, but the number in the labour market grew by just 63,000. The rest joined the swelling ranks of those counted as “not in the labour force”: retirees, students, full-time mothers, and the ever-growing numbers of those whose lives have been too ruined by drugs, alcohol, injury, disability, personal struggles or mental illness to be able to find a job.

The collapse of full-time jobs began in January. The Bureau estimates that 70,000 full-time jobs have gone this year, mostly in New South Wales, Queensland and Western Australia. Victoria has been the standout defying the trend, but even there, on the new figures, full-time jobs peaked in August, and are now falling. They peaked in 2015 in New South Wales and Queensland, in 2014 in Western Australia and the Northern Territory – and in 2008 in South Australia and Tasmania. That picture is hard to ignore.

Yet be wary. The jobs figures come from a sample survey – a huge one, of 26,000 households, involving one in every 300 Australians – but even a huge survey can end up with an unrepresentative sample. And when our focus is not so much on the number of jobs as the change in them from month to month, the risk of the numbers painting the wrong picture is significant.

Just compare the past two years. Should we really believe that in 2015 job growth was so strong that it exceeded the growth in the adult population – whereas this year it has suddenly shrunk to a fraction of its previous level?

Should we really believe that Australia added a net 165,000 full-time jobs in the year to October 2015, then lost a net 50,000 in the year to October 2016? Does anyone believe that New South Wales added 133,500 full-time jobs in the first year, then lost 51,000 of them in the second?

Should we really believe that last year virtually all the growth in the adult population went into the labour force, whereas this year the vast bulk of it was outside the workforce?

The Bureau urges caution. It points out that, as a group, the new households surveyed in Queensland in the past two months have significantly lower employment rates – and particularly, full-time job rates – than the group of households that formed part of the previous numbers. It’s possible that the earlier numbers were too high, or the new ones are too low, or both.

Even at the national level, the households that will drop out of the survey next month had employment rates noticeably below the average of other months; there could well be a bounceback in the November figures, simply as a result of their leaving the survey.

It might be better to look at the two years together. In that time, the number of adult Australians has risen by 570,000, the number of full-time jobs by 115,000, the number of part-time jobs by 283,000, total employment by 398,000, and the numbers outside the workforce by 230,000. Unemployment is still down by 60,000, which is hard to explain. But taken together, the numbers for the two years tell a more plausible story than those for either year do by themselves.

The economy certainly appears to be slowing, and 2017 could be a harder year than this one. The combination of record household debt, low wage growth and a flat jobs market is an ominous one for consumer spending, which provides the bulk of economic activity. And, as the IMF team noted, the risks are weighted to the downside.

But whether those risks eventuate remains to be seen. Don’t take these jobs figures too literally. Don’t ignore our chances of muddling through yet again. •

The post The latest job figures: ominous or just odd? appeared first on Inside Story.

That version of the story comes from Deloitte Access Economics via Universities Australia, which commissioned Deloitte to “analyse the contribution that universities make to Australia’s economic and social prosperity.” But we’ve all heard other versions, and some of us have been hearing various combinations of lobby group spin, political guff and complaisant economic theory ever since 1964. It was then that the federal government’s Martin committee, advised by the OECD, which was itself advised by a small group of American economists, abruptly abandoned previous educational rationales and declared that “economic growth… is dependent upon a high and advancing level of education” and that education should therefore be regarded as “an investment which yields direct and significant economic benefits through increasing the skill of the population and through accelerating technological progress.”

This explanation of growth – the “human capital” argument – is not altogether wrong, as either explanation or prescription, but it is radically incomplete. What it overlooks is the incessant struggle of occupational and social groups, families and individuals to acquire government-backed credentials and the many social and economic advantages they bring. That struggle has had significant consequences for the size, shape, culture and outcomes of the education system, most of which have been concealed rather than understood by human capital theory. In other words, the relationship between education and economic growth is as much social, political and ideological as it is economic.

If we put the social and the political and the ideological back in, the whole picture changes. We can see why education has not just grown to meet the expanding needs of the post-industrial economy, but has exploded like an airbag.

Growth in student numbers at Australian universities, 1906–80, compared with growth in national population

Note: The solid line shows the number of additional enrolments over time (with a dotted section 1940–55 to smooth wartime and postwar effects); the dotted lines show the number of additional members of the national population, total and in the age group 17–22, over the same period. CRTS refers to the postwar scheme that enabled returned soldiers to enter higher education. 

Source: D.S. Anderson and A.E. Vervoorn, Access to Privilege, ANU Press, 1983.

In the thirty years from 1952 – in less than the working lifetime of a teacher, that is – the number of students in schools more than doubled, in technical education tripled, and in higher education multiplied by no less than twelve. As well as growing much more rapidly than the population, education outpaced both the workforce as a whole and the highly skilled workforce. Between 1980 and 1990, the proportion of the workforce with post-school qualifications rose from 38 to 48 per cent, while the proportion in skilled occupations changed not at all. Then, over the twenty-five years from 1989 to 2014, the proportion of the working age population with a bachelor’s degree or higher tripled, while the proportion of professionals in the workforce rose sedately, from 15 per cent to 22 per cent.

With social, political and ideological realities back in the picture we can also understand why a vastly expanded system, which has brought many benefits to many people, has nonetheless been a disappointment. We can see why governments have been on a policy treadmill, lubricated by an overweening and inadequate theory, tackling the same old problems over and again in the belief that more and yet more education will make them go away. The result is an increasingly bloated and self-serving university sector; a demoralised and marginalised VET (vocational education and training) system; stubborn inequalities in educational opportunities and outcomes; persistently high proportions of school leavers and adults who, as the euphemism goes, “lack the skills for full participation in contemporary society”; chronic grumbling by employers about the “job readiness” of new employees; and, for many of those on the receiving end of it all, an ever-lengthening educational experience of variable quality, ever-increasing competitiveness and ever-increasing costs.

ORIGINS

In August 1984, federal and state governments agreed that nurses should be trained not in hospitals but in colleges of advanced education. At a stroke, the higher education system was committed to grow by 18,000 places over a decade. Like the nurses who had agitated for change, the governments justified the new rule by pointing to the growing complexity of nurses’ work arising from advances in medical science and technological change in the health industry. These new conditions of labour, they argued, required a more extended and demanding preparation of nurses, and it could not be provided in hospitals.

In fact, the governments had bowed to pressure rather than reason, and acted against the advice of the Commonwealth Tertiary Education Commission. Under a new generation of militant leaders, nurses’ unions had turned to bitter industrial action and confrontation. But their discontent grew not out of any increase in the sophistication of nurses’ work but out of something like the obverse, a lack of change in its social and financial conditions. Nurses were tired of authoritarian hospital managers and matrons and of being treated as domestic help by doctors. Their salaries had fallen far behind those of comparable occupational groups. Huge wastage rates testified to the failure of the nurses’ representatives to defend legitimate workplace interests. The new leadership saw very clearly that the only way to solve the problem was to get credentialled.

The nurses didn’t invent this strategy. Indeed the first of many precedents was established in their own industry, by the doctors, in a complicated process that extended over almost a century from the 1850s, when the infant University of Melbourne established Australia’s first medical course. The campaign involved governments, occupational registration authorities, hospitals, employers and practitioners in both England and Australia. By its end, the medical practitioners had managed to bring together three elements to form a new molecule: the medieval institution of the guild, through which occupational groups staked out an exclusive claim to the exercise of a special skill; the newer mechanism of an educational credential, attesting to the consumption of an arcane body of knowledge; and the bureaucratic state, increasingly concerned to regulate, particularly on matters of public health and safety.

The doctors’ efforts overlapped with similar campaigns by architects, accountants, lawyers and engineers. Of these, the engineers’ was the most important and significant. Unlike architects, accountants and lawyers, but like many other occupational groups, most engineers were employed by big public and private corporations wedded to the existing “pupillage” and “workshop” system of training and the relatively modest salaries that went with it. In a campaign extending over decades, the engineers struggled to organise themselves around “the fundamental principle of definition by qualification”(emphasis in the original), as Brian Lloyd, a past president of the Institute of Engineers Australia, put it.

The engineers hounded their employers all the way to the High Court. In June 1961, a signal day in their history (and that of Australian credentialism), the court determined that “the functions undertaken in employment as a professional engineer were described unambiguously in terms of the qualifications needed to carry them out.” As Lloyd reports with satisfaction, the decision “placed the Profession of Engineering on a new and much higher plane of status and reward.”

As the engineers were slugging it out with their employers an even larger group was attempting to follow their example. The teachers’ genteel “associations” were being transformed into militant unions demanding higher education qualifications and the status and remuneration that came with them. The teachers, in turn, set an example for the nurses, and for dozens of others, including, most recently, early childhood teachers.

Apprenticeships had long provided “definition by qualification” for some working-class men; from the 1960s on, one mid- or lower-tier occupation after another joined the push for credentials, from childcare workers and private detectives to dental prostheticians and jockeys. In the late 1980s and early 1990s these and many other claims were advanced on behalf of myriad less powerful occupational groups by the indefatigable John Dawkins and his close adviser, former union heavyweight Laurie Carmichael. Dawkins’s “skills agenda” included an Australian Qualifications Framework that defined a hierarchy of occupations and matching qualifications all the way from certificates 1, 2, 3 and 4 to diplomas and degrees, and then up to the highest of ten rungs, the research doctorate.

As ever more occupations and employees got a foot on the ladder, those who were already there took care to maintain relativities. Many sought higher and/or longer and/or more specialised courses of study and qualification. Thus, the teachers claimed successively three-, four- and now five-year minimum courses of study, on top of which they became big consumers of postgraduate study. For accountants, membership of either of the two professional bodies demands a four-year degree followed by a program combining supervised employment with further study and examinations.

Many occupations have metastasised into a series of specialisations, most requiring a “post-initial” qualification. In 1957, postgraduate coursework students comprised just 3.5 per cent of enrolments; by the mid 1990s, in the wake of the Dawkins reforms, the figure had multiplied more than three times, and is now around 26 per cent. Increasingly, a second or third undergraduate degree is another route to the same destination – an existing higher education qualification has become the fastest-growing basis for admission into undergraduate courses.

The number of years of study required to acquire full professional status has increased correspondingly. To take the case of medicine again, the first graduates of Melbourne’s medical course were practising in their early twenties. Medical specialists are now often well into their thirties before they gain the coveted “membership,” and general practice has itself become a specialisation. While an identifiable and often complex group of skills and knowledge provides the grain of sand for a specialisation, it is the interests of those who control access to and use of that skill and knowledge that make the pearl grow.

Maintaining relativities also requires constant patrolling of boundaries and protection of nomenclature. Thus, the engineers have struggled against “alternative” entry routes and terminological hijackers such as “sound engineers” or even “automotive engineers.” In a moment of hubris the nurses talked about achieving parity of esteem with the doctors, a bid the doctors extinguished just as firmly as they have kept “complementary medicine” on the margins and other “health professionals” in a subordinate position. The teachers have had to fight on two fronts: against low standards of entry to mainstream courses, and against the recent arrival of an alternative to the mainstream, the Teach for Australia program. Some of the many groups engaged in this ceaseless struggle (nurses and electricians, for example) achieved the holy grail of closely regulated occupational closure. Others, such as the teachers, got close, while still others managed only nominal regulation or, as in the case of carpenters, gradually lost what closure they had.

The scramble among occupations for “definition by qualification” triggered a similar kind of scrambling among the institutions from which these credentials could be obtained, and within their constantly expanding customer base.

As in the case of occupations, the competition and elbowing among education providers and education consumers started at the top and worked its inexorable way downwards. When the second world war ended, Australia had just six universities, one in each of the capital cities. Only two decades later, there were fourteen, and these were joined by the “colleges of advanced education,” or CAEs, which swallowed up the old teachers’ colleges and technical institutes. In another blink of an eye the CAEs became universities too, which set off a scramble among the real universities.

First, the long-established universities formed the nucleus of the “Group of Eight,” with a view to staying at the top of several pecking orders: research; the professional and time-honoured disciplines; postgraduate and double degrees (rather than mere bachelor programs); and high cut-off courses for high-scoring students. Then the universities that were real but nonetheless excluded from that group formed an alliance of “innovative” universities, while the old institutes of technology became the Australian Technology Network, and the rump, mostly based on teachers’ colleges in the suburban and regional fringes, became “equity” institutions. Now they, in their turn, are pressed from below by TAFE colleges and private VET providers that have won from government the right to offer bachelor’s degrees, once the exclusive prerogative of universities.

In this lengthening, closely defined and tightly regulated pecking order, research output has become the key determinant of position. In 1938 there were just eighty-one research students in Australia. Now there are more than 60,000 of them, heavily concentrated in institutions that had a head start and which routinely siphon resources from teaching to maintain it.

There is (contested) evidence to suggest that the biggest beneficiaries of this research are not (as the universities like to say) “the economy” or “the nation” but rather the researchers themselves and the universities that whip them on in the race for a place in international league tables.

Overlaying the development of a hierarchy of institutions are more complicated patterns of positioning among courses and credentials. Here, three considerations interact: the level of the course, the status of the occupations to which the course and its credential apply, and the status of the academic disciplines concerned (“pure,” “rigorous” and old, rather than “applied,” discursive and new). Australia has developed a kind of currency that registers the net effect of these many variables at any one time. A glance at ATARs (the Australian Tertiary Admissions Ranks) – adjusted for fudging and fibbing – reveals how Murdoch stands in relation to James Cook, how law at Melbourne stands in relation to law at Flinders, how law in general stands against engineering, how physics or economics compares with sociology or business studies, and how any of these are faring now compared with a year or a decade ago.

As the number of groups using educational credentials to defend or advance their position increased, and as the numbers of providers and courses grew to accommodate them, the credential system spread its net over an increasing proportion of the population. In research conducted in the late 1970s, my colleagues and I had a privileged view of this constantly advancing frontier. Our fieldwork included long conversations with two groups of fifteen-year-olds and their parents and teachers, one group in mainstream government high schools in working-class districts, the other in high-fee private schools. In the latter we were struck by the number of girls determined to “go to uni” and by the encouragement they were getting from their schools and families, even though only a few of their mothers were themselves graduates, and most of their schools had long concerned themselves mainly with preparing girls for the marriage market. In the former, parents and students alike were acutely aware that “you need to stay longer at school these days,” but more as a form of defence against a deteriorating youth labour market than in order to “get on.” In all minds, including the teachers’, going to university was exceptional.

Now, three decades later, going to uni has a cult-like force. Ever-increasing numbers have been drawn into a single millrace via the elimination of the technical high school system and the marginalisation of the “school-based vocational programs” that were supposed to replace them, and by the articulation of VET and higher education credentials.

Upper secondary students by pathway type, mid 1990s

Created by Richard Sweet from data in From Initial Education to Working Life: Making the Transition Work (Table 2.2, page 170), OECD, 2000.

Being “first in the family” to go to uni, once rare, is now so common that in a generation or so it will be rare again. Females outnumber males in higher education, and working-class schools compete on the number of their Year 12s who achieve the dream. The ATAR is, for most young people, a brand on the forehead. For those suited to the particular form of learning in which this race is conducted, the question is no longer one of getting into uni, but one of which course in which uni. The rest must settle for second or third best, or try again later. Much the same can be said of occupational groups.

As an increasing proportion of occupations and a growing share of the population have been drawn into the competition for credentials, a vast industry has been constituted. Around seven million of Australia’s twenty-four million people are now engaged in one form or another of education and training – approximately 6.5 million school, VET and uni students, plus half a million or so teaching and administrative staff. In sheer numbers participating, education and training has a larger headcount than the four biggest industries (health, retail, construction and manufacturing) combined. It is, by that measure, more than half the size of the entire workforce.

This industry is now so large and so labour-intensive that a substantial fraction of its efforts is devoted to feeding itself. A recent projection suggests a growth by one-third in numbers of university qualifications in the ten years from 2015, concentrated in five industries. At the top is education and training, which accounts for nearly twice as many additional university qualifications as its nearest rival (healthcare and social assistance), and more than professional, scientific and technical services, public administration and safety, and financial and insurance services combined.

CHARACTER

To note that credentialism is at work in and through formal education and training is not to suggest that they provide nothing but credentials, or that they are simply the means by which individuals and groups clamber over each other in the struggle for the best seats on the gravy train, or to avoid missing out on a seat altogether. (Nor is it to suggest that education and/or credentialism are the only arenas in which such struggles are conducted.) Formal education and training does provide, among other things, economically useful skills and knowledge. It does this, of course, to widely varying extents and widely varying degrees of efficiency, as can be seen by comparing a first degree in dentistry, for instance, or a plumbing apprenticeship with a PhD in education or an MBA.

Nor is it to suggest that credentialism is simply the sum of the actions of individuals – a teacher enrolling in a PhD, for instance, or a manager studying for an MBA in pursuit of career advancement – or the sum of the activities of occupational groups in search of “definition by qualification.” As the pioneering example of medicine illustrates, occupational ambition is a crucial element in the compound, but so too are the state’s need and willingness to regulate, and the power of educational institutions to grant or withhold credentials according to the quantity of product consumed.

Just as capitalism is much more than what happens on Wall Street, so credentialism includes institutions and interests, ideas and culture. Increasingly, credentialism’s motive force has come from governments, which have not just responded to demands for “definition by qualification” but also effectively created them. They have done this by using these definitions as the key component in their regulation of many areas of work, and even intervening in the organisation of work (as the Hawke government did when it became involved in “award restructuring” and introduced the Australian Qualifications Framework).

While credentialism does contain its own ratchet-like logic of expansion, it is not independent of circumstances. Credentialism is triggered by economic and technological change, and is in constant interaction with them as well as with general levels of economic prosperity, security and expectation, and with the policies of government. Hence, the merely incremental advances in education and credentialling between the first and second world wars, and their exponential growth in the postwar years. Hence, also, very different rates of growth in education in the Fraser years and during the Dawkins boom. Credentialism is at work in most areas of economic life, but is more influential in some industries (health, for instance) than others (such as retail), in the public sector than the private, at higher-level occupations than lower, and in mid-sized and large organisations than small.

The education industry, like any other, comprises interests – sectors and levels, employers and employees, clients and providers. They often compete and sometimes clash, but are united in the claim that education is good, and more education is better. By extension, the more people engaged in acquiring more credentials, the better.

To that end, almost all of these interest groups have followed the lead provided by the Martin committee in 1964, taking economics and its human capital theory as the authoritative endorsement and vehicle of their claims. That is why Universities Australia hired Deloitte to make its case, and why that case is as it is: “universities embody social, economic and intellectual resources which combine to generate benefits on a local, national and global scale…” University graduates achieve “higher labour force outcomes” and, as is “well established,” a large part of that “is due to formal education.” Indeed, says Deloitte, Australia’s GDP is 8.5 per cent higher “because of the impact that a university education has had on the productivity of the 28 per cent of the workforce with a university education.” And while a university education “has been empirically demonstrated to be positively associated with improved health outcomes, quality of life and a range of other social indicators,” it is nonetheless “the broader society that is by far the greatest beneficiary.”

Governments are always the target of that argument, and are often – need and circumstances depending – its exponents as well. The case put by the Rudd government’s Bradley review (2008) to justify a “demand-driven” higher education system might have come from Martin fifty years before, or from any number of ministerial speeches in between. “Developed and developing countries alike accept there are strong links between their productivity and the proportion of the population with high-level skills,” it says. Australia is falling behind. If we are to “compete effectively in the new globalised economy” we must commit to “both structural reform and significant additional investment” as a matter of urgency. “We must increase the proportion of the population which has attained a higher education qualification,” it insists, well into a period (1989–2014) in which, as we have seen, the proportion of the working-age population with a bachelor’s degree or higher tripled. Credentialism has managed to make itself part of the taken-for-granted common sense of the age.

CONSEQUENCES

Credentialism is a source of many of the problems in the education and training system, and many of its limitations, but it is by no means an altogether bad thing.

Perhaps its most far-reaching benefit has been in supporting the massive expansion in numbers of groups and individuals given access to an extended education. Many of those involved in the struggle for “definition by qualification” saw their campaigns as a struggle for equality, and they were right to do so. The successful demand by teachers, nurses, engineers and many other occupational groups for higher qualifications has provided millions of young people from modest circumstances with a substantial expansion not just of opportunity but also of experience and knowledge. Not all get the best, of course, but getting an extended education is usually better than getting a short one.

This has helped to make a less mystified and mystifying society, and a less excluding one. It has helped to draw most migrant groups into the social and economic mainstream, and contributed to the entry of women into a wider world (particularly important given their virtual exclusion from trade apprenticeships). In 1950 there were just over 30,000 students in Australian universities, of whom only one in five were women (and even that was good compared with the proportion of female academics). In the course of a single lifetime, numbers have multiplied more than thirty times while the proportion of women among all higher education enrolments has almost tripled.

Credentialism also secured the link between social practice (medicine, engineering, teaching, the law and so on) and science, reason and humanism. In particular, the involvement of Australia’s infant universities in occupational training and certification ensured that they would follow the example of the English dissenting academies (notably the University of London) and Scottish universities rather than of Oxbridge. That gave the occupations concerned access to forms of knowledge that could not be generated within the occupations themselves. Again, medicine and medical training are particularly illustrative and important; as late as 1952, no less than a quarter of all university graduates were graduates in medicine.

And, finally, “definition by qualification” has provided many members of the workforce, employees and self-employed people alike, with the means by which they could exercise a measure of control over the content, and the terms and conditions of their work, and with an acknowledgement of its value. And even if that has involved a certain amount of conspiring against the public, as Adam Smith alleged, it has also provided the public with unprecedented levels of defence against incompetence, malpractice and snake oil.

Then there is the other side of the ledger.

Credentialism might be very good at expansion, but more education, and more opportunity for advancement through education, does not necessarily bring more equality. Credentialism is a zero-sum game, a striving by occupations, by educational providers and consumers, and by social groups for “positional advantage.” Those with the greatest social and cultural power are of course best placed in this struggle for positional goods. The opportunity is there for all, but it is heavily contested. In effect, those higher up the ladder tread on the fingers of those below. The position gained by one cannot be gained by another; indeed, if one individual or group or occupation or institution moves up, another moves down. Educationists and politicians like to talk about education’s ladder of opportunity, but have less to say about its snakes.

Most Australian eyes focus on the social-distributional aspects of these struggles – the extent to which where you start out determines where you end up. Thus Bradley, following a long tradition extending back through the Karmel Report (1973) and beyond, proposed special measures for “those disadvantaged by the circumstances of their birth: Indigenous people, people with low socio-economic status, and those from regional and remote areas.”

On this score the news is mixed. To the extent that the culture of a group drawn into the expanded education system is of a kind that makes its members willing and able to do what formal education institutions want them to do, they will fare relatively well. That is why women and many immigrant groups have been able to climb the educational ladder and enter the economic and social mainstream. Hence, also, the relative failure of many local-born working-class men, and some migrant groups.

Fairness of access to rungs on the social ladder via education does matter, but the length of the educational ladder, the proportion of the population to be found on its various rungs, and the learning that does or doesn’t come with each level – all these matter more. That those with at least one tertiary-educated parent are more than four times as likely to get a tertiary education as those without is bad. But that some get twenty years of the best that the system has to offer while others get ten of the worst, and that the latter are those who really need the extra help, is worse. At the top, the double-degree holders inhabit the dreams of “innovation strategies”; at the bottom, scarcely a trickle of learning arrives. As noted earlier, a recent international study of adult literacy and numeracy found that around half of Australians aged between fifteen and seventy-four struggle to use and comprehend basic writing and numbers.

What is true of educational experience and outcomes is also true of education’s other consequences. Calculating the “income and employment premium” of qualifications is a dark art, but it is clear that the relative premium attached to a university degree is much higher than to a diploma, and that in turn to a certificate. Astonishingly, in some lower-level occupations, trainees who complete their courses actually earn less than those who do not. And down there at the bottom you don’t just get a lower rung on the salary and status ladder. You fall off. It is true, as politicians like to tell unemployed or “disengaged” young people, that the way to get a job is to get a qualification, but only if you get a better one than your peers.

Credentialism both exaggerates and mystifies the competitive element in education. It compounds the tendency to give more to those who are good at formal learning than to those who aren’t. Credentialism works on the trickle-down principle, in educational opportunity, provision and outcomes, and in their consequences in the labour market and life. Its rhetoric of opportunity and individual responsibility obscures the fact that anyone can learn if they get the right help. It also obscures the fact that the “post-industrial economy” wants more skills and knowledge at the top, yet at the bottom, left to its own devices, it doesn’t even offer a job.

A second entry on the negative side of credentialism’s ledger is its impact on costs.

Increasing numbers consuming increasing amounts of education create an increasing need for someone to pay. In 1960 prime minister Robert Menzies wrote to Leslie Martin, the man he had recently appointed to chair a tertiary education review, to point out that the government was “by no means sure that this state of things – more and more students requiring proportionately more and more outlay – can proceed indefinitely.” What Menzies saw as a problem for government, subsequent governments have turned into a problem for consumers as well, first by cutting back on what the consumers get, and then by making them pay.

Between the late 1970s and the turn of the century, the annual government spend on each higher education student, in real terms, just about halved. Over much the same period, the proportion of higher education revenues coming out of (domestic) student pockets soared from nil to 11 per cent (1989) to 19 per cent (1999). HECS and its “income-contingent loans” were an inspired alternative to the reimposition of fees, but the solution is increasingly looking like a problem. Governments have steadily jacked up the proportion of course costs borne by students and reduced repayment thresholds even as the amounts of education needed to compete in the labour market have increased.

Compounding the problem is the fact that the credentialled are not getting jobs or earning as they used to. Credentialism creates a secular tendency for the numbers of credentials and credentialled to grow more rapidly than the rewards available for distribution, a reality that causes the expectations of the credentialled to fall and those of employers to rise. To take only the case of the best-positioned, the university graduates: in 1977 average graduate starting salaries equalled average (full-time male) earnings. In zigs and zags, that 100 per cent has fallen to three-quarters of average earnings. Over much the same period, the proportion of graduates finding it hard to get a full-time job rose, also in zigs and zags, from one in ten (1979) to almost one in three (2013). Calculating “over-education” is another dark art, but on any calculation it is now so marked and widespread that even that arch-apostle of educational expansion, the OECD, is getting worried.

Components of skill mismatch, selected OECD countries, 2011–12

Notes: Under- (over-) skilled workers refer to the percentage of workers whose scores are higher than that of the min (max) skills required to do the job, defined as the 10th (90th) percentile of the scores of the well-matched workers in each occupation and country. In order to abstract from differences in industrial structures across countries, the one-digit industry level mismatch indicators are aggregated using a common set of weights based on industry employment shares for the United States.
Source: OECD (2015), The Future of Productivity, OECD Publishing, Paris.

One outcome of the pincer movement of rising costs and falling returns is rising student debt. By 2012, total HECS debt had reached $30 billion, of which around $7 billon is unlikely to be repaid. Recent projections suggest that growth in debt may be closer to exponential than to linear. Such problems may be compounded by the relatively recent extension of the HECS approach to VET students.

So far as individuals are concerned, it can be argued that if the return on investment falls too far they can take their investment elsewhere. This ignores the fact that getting a credential is less an “investment” than a life imperative for most young people. It also fails to recognise that while many of those competing in and through educational credentials are “aspirationals” putting in the effort to “better themselves,” many are simply trying to defend whatever relative position they have or avoid unemployment. It’s a matter of sticks as well as carrots, fear as well as hope.

The third and most far-reaching of the drawbacks of credentialism is its role in the near destruction of a work-based learning system. Massive systems of formal education were not constructed on an empty plain. At the opening of the twentieth century most new entrants to most occupations learned on the job. Teachers began their careers as “monitors,” lawyers as articled clerks, accountants as clerks, nurses as juniors, and many engineers in articled pupillage or apprenticeships. Sometimes, work-based learning was linked to further part-time study (as in the case of occupations organised as “trades,” for example), sometimes not. The formal education system was essentially a platform under this larger system of learning, providing the literacy and numeracy necessary to work-based learning.

By the end of the twentieth century most of this system had been subordinated or demolished. The process can be traced in “intergenerational upgrading” (a term that contains an inadvertent value judgement, by the way). As recently as the early 1980s, only a quarter of young accountants had degrees, but that was two-and-a-half times the proportion of their middle-aged colleagues and eight times the proportion of the senior members of the profession. A similar pattern could also be found in pharmacy, architecture, engineering, teaching, physiotherapy, and welfare and social work. Very few, if any, non-graduates are still to be found in any of these groups.

This is not to deny that the established system of learning was in bad shape. It was not delivering the necessary skills and knowledge, and was often both oppressive and exploitative. But as credentialism gathered momentum and formal education interposed itself between the labour market and the labour process, it was conveniently assumed that the work-based system was incapable of reform and must be swept aside, despite evidence to the contrary provided by those few occupations that forced the new system to accommodate the old. As a rough rule of thumb, the more established and secure the occupational group, the more technical and arcane its expertise, and the more closely connected it is to matters of health and safety, the more that group was able to dictate terms to the new credential providers, maintain a respect for craft knowledge, and retain a viable relationship between “practice” and “theory.” Medical practitioners are at one end of that spectrum, teachers very close to the other.

In the less powerful occupations, including nursing and engineering, hostility towards the established system came to border on hatred. The nurses were explicit in their campaign against the trainee system, and did not entertain the possibility that its reform might be better than its replacement. They wanted definition by educational credential for exactly the same reasons that the engineers’ Brian Lloyd wanted it – and he was just as hostile to work-based qualification as the nurses were to hospital-based training.

One of the most influential theorists of credentialism argued that learning could be for its own sake, to get a job, or to do a job. The rise of formal, front-end education at the expense of work-based learning has seen a decisive shift away from the first and third of these in favour of the second, with substantial educational, social and economic consequences.

Learning “for its own sake” has not disappeared but it is certainly at a relative discount. Just one indicator: between 1964 and 1999 in higher education, enrolment shares in arts and humanities (on the one hand) and business studies (on the other) moved in opposite directions. Arts and humanities fell from 36.1 to 24.5 per cent of the total as business studies rose from 11.6 to 26.1 per cent. The old idea of education as an induction into a rich culture and a furnishing of the mind harks back to the days of the cultivated gentleman, but is not altogether wrong for that.

At the same time, learning in order to get a job has gained at the expense of learning to do a job. The constant pressure of credential competition is towards longer courses and higher-status (that is, more abstract and theorised) content. With that has come a cool or lukewarm engagement with study, and an extended period between childhood and fully adult responsibilities and income. More and more young people engage in longer periods of study, the purpose and use of which lie in some uncertain or imagined future. Even content that isn’t padding often feels like it because it comes before it is needed and is therefore not really understood, or is forgotten when the day of its use eventually arrives.

In the conventional economic perspective there is only a problem if the qualification-holder can’t do the job (“under-education”) or has acquired more skills than the job requires (“over-education”). This view is more interested in whether the economy is getting the supply it wants than in the process that does the supplying. Is formal education the only or best or most cost-effective way to develop skills and knowledge? Given that most formal education demands time served as well as learning assessed, and that there is only an approximate relationship between course objectives, course content, what is assessed, and what is required in the workplace, there is a strong prima facie case that extended, formal, front-end education in pursuit of a credential is typically low-productivity education.

There is an irony in these shifts. The more that education has been touted as a response to the demands of the workplace, the more separated from the workplace it has become. It is also ironic that, over the same period, the costs of this preparation have shifted from employers to governments to prospective employees, a tacit acknowledgement that the consumer is the one who really needs all that extra knowledge – not, or not only, to use in the workplace, but to stay in an increasingly intense competition to get into the workplace.

Credentialism constructs the relationship between education and the economy at the wrong point. It shifts the nexus of that relationship from the labour process to the labour market. To draw on some relict terminology, it emphasises the exchange value of education (“learning to get a job”) rather than its use value (“learning to do a job”). Education is often said to be dominated by the economy, and to an important extent it is. But it is also the creature of the economic and other imperatives of individuals, groups and institutions, often at the expense of or without commensurate benefits to the economy as a whole.

THE DIRECTION OF POLICY

There is no point in trying to stop credentialism, and certainly no need to encourage it. The task of policy is to manage it, to use what it makes possible, to do what it doesn’t, and to moderate some of what it does.

Governments should, first, regulate and shape growth in education participation. They should stop talking up numbers, and stop using spurious comparisons with the size of post-school systems in countries that have very different educational, economic and social structures, and which are in (at least some cases) just as mistaken in their policy as we have been. Some kinds of growth should be discouraged, other kinds encouraged.

Governments should, second, discourage front-end education and encourage career and training paths that get as many young people into the workplace as soon as possible and, with that, encourage learning in and by groups as well as by individuals. That approach should certainly include, but should not be confined to, most mid- and lower-tier occupations. Many tertiary education providers are attempting what amounts to a retrofit on the learning–work relationship via internships, work experience placements and other forms of “cooperative education” or “work-integrated learning,” and by developing “profiles” of “the [insert your institution’s name here] graduate.” Peak organisations have developed a “national strategy on work-integrated learning.” (The ultimate academic recognition of a problem came in 2010 with the inception of the Journal of Teaching and Learning for Graduate Employability.) Some of these developments are a mixed blessing, especially in their use of unpaid labour, and add up to a recognition of a problem rather than a solution to it. A substantial restructuring of the education–work relationship requires, among other things, long-term government commitment.

Third, the priority governments give to research in universities should be transferred to learning and teaching. It’s true that teaching has a higher profile than it did two or three decades ago, but over the same period research has become a mania. Putting an end to the subsidisation of research by teaching would be one step in the right direction. Another would be a rewards system that makes good teaching and learning as lucrative as research. And another: a sustained assault on the legitimacy and consequences of research-obsessed international league tables – perhaps by developing an alternative to them.

Fourth, learning should be redistributed, with the core focus being on the gaps between the best and the worst, and the shortest and the longest educational experiences, rather than on social group distribution. The way to kill two birds with one stone is to concentrate on the former. That would require, among other things, giving the VET sector (including school-based VET programs) the policy and funding focus currently given to higher education, and extending “education” policy into Scandinavian-style or “active” labour market programs.

Fifth, policy should tackle the conflict of interest that permits the same institution to provide, assess and credential. It should confront the fact that occupational groups involved in this arrangement seek rents as well as standards. People learn in all sorts of ways and places, the more so in a digital world, in a highly mobile labour force, and in a constantly changing labour market. Much of this learning goes unrecognised and/or unused because it was acquired outside the formal education-recognition system.

In that loss, education providers play an important part. Rather than take advantage of major advances in the articulation of occupational and other standards and in the assessment of performance and capacity, they have continued to use their power over credentials to demand time served as well as attainment assessed (and often use the former to compensate for the quality of the latter). The “recognition of prior learning” has been confined largely to the VET sector, where it has sometimes been abused by private-sector bucket shops.

Some tertiary providers have an inkling that the game might be changing. Big employers are not as shy as universities about using advanced forms of performance and capacity assessment in addition to, or even instead of, educational credentials. Digitally mediated forms of assessment and “micro-credentialling” promise a direct relationship between capabilities needed and capabilities acquired, irrespective of where or how or when they were acquired. These developments will have their effect over time, but they will battle against the entrenched power of the education sector (its universities in particular) and occupational groups. It is in the interests of government, including its budgetary interest, to weaken the nexus between formal provision and credentialling.

A sixth suggestion: policy should pay as much attention to the use of educated labour as it presently does to its production. There are few settled questions in the economics of education, but one that is close to being agreed is the view that the productivity of individuals is highly dependent on the circumstances in which they work, and the extent to which those circumstances make the most of what individuals bring to the task.

A view of the past half century that takes account of the workings of credentialism suggests that governments have exacerbated its effects rather than managed them. They have fuelled expansion of the system rather than focused on its shape and disposition, encouraged more and longer front-end education rather than work–study combinations and work-based learning, given priority to research and to the top half of the system rather than to teaching and to the bottom half, taken for granted the right of education providers and occupational groups to set the terms on which knowledge and skills will be made negotiable in the labour market, and concentrated on the provision of skills and knowledge rather than their use. The sole substantial exception to most of these rules was John Dawkins’s bold but ill-starred “skills agenda,” quickly overwhelmed by his even bolder expansion of higher education, as prompted by the OECD. To the extent that bad policy comes from bad ideas, human capital theory has a lot to answer for.

THE BASIS OF POLICY

What turned Martin into an apostle of human capital theory was a graph supplied by the OECD, and a table provided by the economists on whom the OECD relied. The graph showed two diagonal lines running from bottom left to top right, along which were scattered the names of twenty or so countries. Up in the top right-hand corner were the richest and most educated (the United States and Canada). At bottom left were the poorest and worst-educated (Portugal and Turkey). The table showed much the same thing happening to individuals. The more education Americans (men, that is) had obtained, the higher their incomes. Those with no education got 50 per cent of the amount earned by those with eight years of schooling; four-year graduates got 235 per cent.

The conclusion drawn was that this was “human capital” at work. Both individuals and economies were more productive when they had more human capital to call upon, and education provided it. Both would be wise to invest, because education offered an excellent rate of return.

The idea has intuitive appeal, but it ran into immediate and vigorous opposition, on three grounds particularly. Which of education and the economy was the chicken, and which the egg? And: do individuals get paid more because their education has made them more productive, or because it has given them qualifications that get them into the more productive jobs? And, third, even if education makes individuals more productive, is that in its turn making the economy as a whole more productive?

Economists pride themselves on empirics, but empirics were hard to come by – so hard that by 1975 the leading British educational economist of the day, Mark Blaug, summarised the many strikes against human capital theory and concluded that its “persistent resort to ad hoc auxiliary assumptions to account for every perverse result” and the resulting tendency to “mindlessly grind out the same calculation with a new set of data” were signs of “a degenerate scientific research program.” It has been dogged ever since by the difficulty in finding correlations as sweet as those that seduced Martin.

Many academic economists left the big claims about education driving economic growth to one side and got on with the more useful task of investigating when, how and why skills and knowledge are or are not used to advantage. The OECD has done much to support that work, but it also had other fish to fry. It set out to annex education to the economy (it is, after all, the Organisation for Economic Co-operation and Development), and it needed the big picture to do it. In a tireless campaign to keep the argument afloat, it engaged in one “rethinking” after another, introducing modifications, nuances and qualifications, gradually shifting the emphasis from explanation to the safer ground of prescription, but never abandoning the basic idea that education drives economic growth, and more education means more growth. And that is what governments have seized upon.

It can be argued that from the introduction of HECS in the 1980s through to Bradley’s “demand-driven system” it has been market economics rather than human capital theory that has given the expansion objective its golden run. But market economics has served mainly to clear obstacles on a course long since charted by human capital theory. It can also be argued that it’s not human capital theory that is at fault but the policy-makers. In an address to a high-end audience at a Committee for Economic Development of Australia forum, two senior policy-makers and advisers quoted with approval the conclusions of a British researcher who argued that governments have driven expansion of education on the basis of a “simple reading of human capital theory” and the misplaced assumption that it is “a sufficient basis for analysis and action.” The implication: if governments and their policy-makers read more widely and carefully, they would pay more attention to the character, quality and distribution of education.

That is certainly so, but the trouble is that it’s not just governments and politicians who use human capital theory. It is also the huge and hugely influential education industry, in which even thoughtful and critical members use “a simple reading of human capital theory” almost as a reflex. Others, including Deloitte and Universities Australia, offer it as gospel, conflating individual with economy-wide benefits; asserting that graduates are more productive and that it is formal education that makes them so; arguing that advantages enjoyed by graduates “on a range of social indicators” come from being university-educated rather than from the position in the social pecking order to which a degree gives access; failing to note that benefits to one individual may be costs to another; claiming that better economies come from bigger education systems; and resorting to weasel words (“is associated with,” “it is well established,” “it is widely accepted,” and so on) to slide past awkward questions about chickens and eggs, causation and correlation, and the gap between claim and evidence. Notably absent from Deloitte’s analysis is that core economic concept, “opportunity cost,” and the consideration it might provoke as to alternative ways of spending what is spent on universities, and more cost-effective ways of doing what universities do.

The human capital idea lends itself to this sort of special pleading. What confuses both thought and policy is the fundamental conception, the underlying imagery. Human capital theory takes just one part of the education–society relationship – what formal education does or can do for the economy – and declares it to be the main game, or even the only game. It was founded on the notion that building a healthy economy is mainly a matter of loading up individuals with portable “skills,” and has great difficulty in absorbing the fact that ways of doing things in workplaces and economies (and societies) are as much, or more, the property of groups as of individuals.

But the theory’s most damaging ingredient, responsible for encouraging governments in their myopic focus on “increasing educational attainment,” is built into the very term “human capital”: the assumption that it’s all about accumulation, right down to preposterous calculations of the total value of the “stock of human capital” and of what an increase in the Year 12 retention rate will do to GDP, another case of economic modelling gone mad. It has saturated and twisted the language so that the effects of education become “benefits,” expenditure is transformed into “investment,” and analysts of “skills shortages” forget that much of what they are talking about is the supply of holders of occupationally constructed, regulation-backed credentials, aka union tickets.

In the argument presented here, the most consequential weakness of the human capital argument is its incomprehension of the nature and effects of credentialism. A good functionalist social science, all it can see are functions performed (so long as they are performed on behalf of the economy), and malfunctions such as “over-education,” which it calls “credentialism,” a confusion of an effect with the dynamic that generated it. It would be going too far to say that the human capital idea is simply a part of credentialism, but it has served both to obscure and to advance credentialism. Economics understands some important things, but in its arrogance as “the mother tongue of policy” it does not understand that there are equally important things that it does not understand. With rare exceptions, even its discussions of “credentialism” make no reference to – much less try to comprehend – key texts in the history and theory of credentialism. And with equally rare exceptions, the economics of education knows a lot more about economics than education.

The formal education and training system is neither powerhouse nor gravy train. It is, among other things, both. Neither is an incidental by-product of the other. Both impulses powerfully influence the size, disposition, culture and effects of formal education and training. By taking the economists’ radically incomplete view of the matter, policy has had the paradoxical effect of exacerbating the impact of credentialism at the expense of the education’s economic and other contributions. Hence a seventh and final piece of advice to government: do, as advised, listen more carefully to what the economists have to say, then seek other counsel. •

Any thoughts? Comment via Disqus below...

This is a substantially revised, expanded and updated version of an article with the same title published in the Bulletin of the National Clearinghouse for Youth Studies, 7:2, May 1988. It has benefited from comments and suggestions by Mark Burford, Gerald Burke, Sandra Milligan and Richard Sweet. Needless to say, they bear no responsibility for the result.

In addition to the linked sources, the article also draws on:
• “Goodbye, Florence: The Nurses’ Struggle for Status Has Ended the Age of Florence Nightingale,” by Elizabeth Pittman, in Australian Society, February 1985.
• “Work-based Learning in Australia’s Initial Vocational Education and Training System,” by Richard Sweet, in the forthcoming European Training Foundation book, Work-Based Learning: An Option or Essential for VET?, ETF, Turin, 2016.

The post Powerhouse or gravy train? appeared first on Inside Story.

After two years in Australia as a working backpacker she was hoping to settle permanently. She had a job offer from an employer willing to sponsor her on a four-year 457 skilled worker visa and sought expert migration advice to assist with the application. Thousands of dollars later, though, she was forced to leave Australia at short notice and was banned from coming back for three years.

Pivato was a twenty-nine-year-old costume designer, struggling to find steady work in her field, when she decided to take an extended break in Australia. Like more than 210,000 other young visitors in 2013–14, she arrived on a working holiday visa. Under reciprocal agreements with nineteen countries, Australia allows travellers aged between eighteen and thirty to live and work here for up to a year, with the possibility of a second twelve-month visa if they undertake at least eighty-eight days of “specified work” (in agriculture, forestry, fishing, mining or construction) in a regional area.

When Pivato arrived in March 2013 she intended to remain only until July, when her return flight was booked. But as the months ticked by she postponed her departure. With the expiry of her first working holiday visa drawing closer, she decided to work for eighty-eight days to secure a second year’s stay. She’s far from alone in making that decision: since the option of a second visa was introduced ten years ago, the number of travellers taking it up has grown steadily, from fewer than 8000 in 2006–07 to more than 45,000 in 2013–14.

Pivato took a job packing fruit in Shepparton in central Victoria – a town, as she puts it, with “more cows than people.” At the start of the harvest season she was packing cherries, then peaches and plums, and at the end of summer apples and pears. If not for the possibility of securing a second visa, she would never have considered doing this kind of work, let alone sharing accommodation and her private life with thirty other young women. “I thought I was too old for that,” she says. She was surprised to find herself enjoying both the job and the lifestyle.

Other Italian visitors have had this experience too. “I would never have imagined in my whole life that I would be working as a watermelon picker,” says a backpacker in 88 Giorni (88 Days), a film documenting the experiences of young Italians working in Australian agriculture. In Italy, he says, harvesting watermelons would be “discredited as a job that no one would do.” Harvest work is hot, dirty, difficult and poorly paid; in Italy, as in Australia, it is largely reserved for migrants. “I now understand how foreign workers feel,” says another visa holder in the film. “Here I am the immigrant.”

Like backpackers from other countries, some of the young Italians report being abused, exploited and underpaid. “Mildura’s farms are the worst thing that has ever happened in my life,” says Antonio in 88 Giorni. A young woman remarks that if you work this hard, at least you should be treated with respect.

Yet if the interviews for 88 Giorni are anything to go by, many young Italians find their work picking pumpkins or driving tractors enjoyable, in some cases even liberating. Some, like Camilla Pivato, who also features in 88 Giorni, decide they want to settle here. “Australia opens your horizons and makes you feel incredibly young,” she says in the film. “Australia has brought out things about myself that I thought wouldn’t exist, such as the ability to adapt that I thought I didn’t have any more.”

Young Italians are not just helping to harvest produce in rural Australia, they are also staffing city restaurants and cafes. Postwar migrants who came to Australia in the 1950s and 1960s gave the Melbourne suburb of Carlton its genuine Italian flavour. As the Italian community aged, though, the Lygon Street coffee strip risked becoming a caricature of its former self, its reputation hanging by a slender thread of marketing. But thanks to the latest wave of Italian migrants, Lygon Street is getting its zip back. When I ate lunch at a self-proclaimed Gastronomia Italiana in November, a waiter told me that all the stylish young staff in the establishment were recent Italian migrants. Some (I suspect most) are here on temporary visas; others have made the transition to permanent residence.

The same phenomenon is evident in Sydney. Over dinner in a chic new pizzeria in Walsh Bay, Michele (Mike) Grigoletti and his colleague Silvia Pianelli have fun guessing by their accents which regions of Italy the waiters hail from. Both Grigoletti and Pianelli settled in Australia relatively recently, and they devote much of their time to gathering data and stories from the new wave of Italian migration of which they are a part.

Grigoletti and Pianelli formed the independent study group Australia Solo Andata (Australia One Way), which has embarked on a research project called “From Temporary to Permanent: The New Migration of Young Italians in Australia.” With sponsorship from the Fondazione Migrantes, the Italian Bishops’ Conference’s reference body on migration, they have published reports on migration issues as well as shooting and editing 88 Giorni, which is due to be screened in Rome early this year.

Grigoletti links the surge in temporary migration to Australia to economic problems in Italy triggered by the global financial crisis, which left more than 40 per cent of under-twenty-fives unemployed. He points out that Italian backpackers are, on average, at the older end of the working holiday spectrum, and that many are highly qualified university graduates unable to find work in their chosen field. “They tend to come when they are twenty-eight, twenty-nine or thirty,” he says. “This shows that they are not taking a gap year, but come because they have given up. Their spirits have been crushed.”

This was Pianelli’s experience. She had several unpaid internships after graduating from university but none that led to ongoing work. So she came to Australia on a temporary visa. “I couldn’t live in Italy any more,” she says. “It is better to pick vegetables or do whatever basic job in Australia than to stay in Italy and be told you are too young and need to learn and not good enough to get a job.”

A recent report by the Migration Policy Institute supports this assessment. It says that southern European nations like Italy have “in some ways returned to their earlier, more traditional roles, as significant countries of emigration.” The difference is “that migrants today are younger, better educated, and more skilled than past waves, with a high proportion of professionals among those leaving.”

When she arrived in Shepparton, Camilla Pivato was the only Italian in town, but after clocking up her eighty-eight days and securing her second visa, she decided to stay on. “I didn’t mind Shep at all,” she says. “It’s a simple life. Why not? It was much easier than living in Melbourne.” Pivato had previously spent four months working in a cafe in Moonee Ponds. “It was fine but people were quite fussy about their coffee,” she says.

Life was also cheaper in Shepparton, enabling Pivato to save more towards the cost of a student visa. She was contemplating a degree in business management – a course that could put her on the path to permanent residency, something that neither fruit packing nor costume design was going to do.

The owners of the fruit-packing business came up with an alternative. They offered to engage Pivato as the company’s human resources coordinator and sponsor her for a four-year 457 temporary skilled work visa.

Pivato grabbed the opportunity and started work immediately. She travelled to Melbourne to help select workers and supervised all aspects of their employment in Shepparton. “I would choose the girls, hire girls, fire girls, train them in the work in the packing shed, do quality control, look after their wages and collect the rent every Monday,” she says. (The business runs two on-site hostels for its workers.)

She was very happy with the arrangement. “It was much easier than getting a student visa,” she says. “Besides, I am thirty-one and I have already studied a lot.” She liked and trusted her employers – European migrants from an earlier generation – who she says were like family to her. But they didn’t have much experience with sponsoring visa applicants, so, on the recommendation of a work colleague, she engaged registered migration agent Dennis Allan, owner of Prestige Migration Services in Melbourne, to help with the paperwork.

Pivato says that she first met with Allan in late January 2015, about six weeks before her second working holiday visa was due to expire, and that she signed the service agreement for him to prepare the 457 sponsorship and visa applications in his presence on 2 February 2015. She jumped through the other required hoops, like passing an English language test, and paid Allan $8000 in fees. Then she returned to work in Shepparton and waited for a call to say her visa had been lodged.

No news came. Pivato says she called Prestige Migration Services repeatedly and was told not to worry. When the 19 March expiry date of her existing visa passed she became more anxious, but she says Dennis Allan told her everything was in hand. When she repeatedly asked for a copy of her visa application, though, he gave a variety of reasons why that wasn’t possible, including computer problems and alleged difficulties with the departmental website, or promised he would send the documentation the next day. Finally, on 7 May, an exasperated Pivato called the immigration department directly to clarify the status of her application. An officer told her that no documentation had been lodged in her name and that she was in Australia unlawfully. Pivato was told to report immediately to the department’s Melbourne office, where she was given a four-week bridging visa and told to leave the country before 4 June.

When Pivato confronted Dennis Allan, she says he told her that it was “just a little mistake” and tried to convince her to pay him even more money to sort it out. Pivato refused, and demanded her $8000 back. In the weeks that remained to her, she turned up at Allan’s office almost daily asking for her refund. “He kept making up excuses,” she says. “Like he shows me a receipt, telling me that he had transferred the money into my bank account, but could not explain why I did not receive it.”

Allan was not the only person who sought to take advantage of Pivato’s desire to stay in Australia. One day, Pivato was pleading her case at the Department of Immigration and Border Protection in central Melbourne. The interaction left her distressed and tearful. At that moment a stranger approached and asked her what was going on. He then encouraged her to go outside, where he identified himself as a migration adviser and offered to lodge a partner visa on her behalf – for a fee of $12,000. Luckily, she didn’t take the bait. She was in a relationship at the time, but not one that would have met the relevant criteria.

Besides, says lawyer Melinda Jackson, who represented her at the time, Pivato’s application would have been rejected outright because by the time she got in touch with the department she had already overstayed her visa by more than twenty-eight days.

“Her timing was unfortunate,” says Jackson. If Pivato had called within those twenty-eight days, immigration department staff may have been able to make allowances for her circumstances and enable her to submit the 457 application late. Once that time threshold had passed, however, she fell foul of “public interest criterion 4014” of the migration regulations, which made it all but impossible for her to obtain any other visa onshore. What’s more, the over-stay activated an automatic three-year ban on her returning to Australia on any other temporary visa.

The ban can only be waived if there are “compelling circumstances” affecting Australia’s interests or “compassionate or compelling circumstances” affecting the interests of an Australian citizen or permanent resident. In the eyes of immigration department officials, being ripped off or deliberately misled by a migration agent does not meet this test.

Jackson tried to argue that Pivato’s case does affect Australia’s interests, because it involves potential fraud committed by a migration agent working in an industry regulated by the federal government. But her closely argued twenty-page submission was rejected with a dismissive half-page response. An internal appeal to the delegate’s manager also failed. After this, Pivato and her lawyer had nowhere left to turn.

“This is administrative decision-making with no recourse to the courts,” says Jackson. “You get arbitrary, terrible decisions and can’t do anything about it.” There is not even the possibility of intervention by the immigration minister, because ministerial discretion can only be triggered by the decision of a court or tribunal.

When I was growing up just outside Adelaide in the 1960s and 1970s, I would sometimes meet my father for lunch in the city. After the meal he would invariably take me to a small Italian cafe in the ornate Adelaide Arcade, where he would order a short black and I would have a cappuccino. In those days it was one of the rare places equipped with an espresso machine. If we went out in the city in the evening, my father might indulge me with tartufo or cassata from the Flash Gelati Bar in Hindley Street. Gelato and espresso were novelties – a gift to the tastebuds of Adelaide courtesy of the postwar wave of Italian migrants.

In the years between 1947 and 1954, Australia’s Italian-born population more than tripled in size. It doubled again between 1954 and 1961 and continued to grow for several more years, peaking at around 290,000 people in the 1971 census. For at least thirty years, the Italian-born were second only to the British as the largest overseas-born group in Australia.

When Mike Grigoletti tells me that the scale of temporary Italian migration to Australia today rivals the permanent migration that changed the flavours of my Adelaide childhood, I am surprised. But when I do my own calculations, I find the numbers bear him out, although the time frame to date is far shorter, and it remains to be seen if the trend will continue.

Over the two-and-a-half decades from 1947, Australia’s Italian-born population increased by an average of about 11,000 people per year; during the peak period between 1954 and 1961, that number was 15,000. By comparison, around 13,000 young Italians have come to Australia as first-time working holiday-makers annually since 2012. A few thousand more have been granted temporary visas as international students or skilled workers. And the data suggests that, like Camilla Pivato, a significant proportion of these young Italians will extend their stay or settle – if they can.

Pivato’s lawyer, Melinda Jackson, helped her to lodge a complaint against Dennis Allan with the Office of the Migration Agents Registration Authority, or OMARA, the immigration department’s division responsible for regulating professional standards and integrity in the migration advice industry. Six months later, the only evidence of progress on Pivato’s complaint is a letter from OMARA informing her that the regulator would “shortly be sending a notice to Mr Allan under Part 3 of the Migration Act 1958 and giving him the option of making a submission in response to the notice.”

Jackson suspects that Pivato isn’t alone, and that Allan has been “doing similar things to people in similar circumstances.” She believes it is quite possible that OMARA is compiling a set of complaints against the agent before proceeding. (When I attempted to confirm this I was told that the Privacy Act prevented OMARA from disclosing whether a complaint has been made about a migration agent because this is “personal information.”)

But even if OMARA upholds a complaint against Allan, it will be largely symbolic. The regulator can’t cancel Allan’s registration as a migration agent because that lapsed on 9 March 2015, ten days before Pivato’s visa expired. The best OMARA can do is bar Allan from re-registering as a migration agent.

“It’s a pretty feeble complaints investigative body,” says Jackson. OMARA cannot even get Pivato’s money back from Allan. In its letter to Pivato, OMARA noted that “the Authority can recommend a refund, but we cannot order it.” For that, Pivato must take civil action before the courts.

With the help of Melinda Jackson, Pivato tried to go down this route too, and on 4 September 2015 the Victorian Civil and Administrative Tribunal ordered Allan’s firm, Prestige Migration Services, to pay Pivato “the sum of $8000.” Her chances of ever seeing this money are remote.

“The order itself can’t do anything,” says Jackson. “In any civil process, enforcement becomes the question.” The next step would be to launch proceedings in the Magistrates’ Court to enforce the VCAT order. But this would require Pivato to be present in Australia.

Even if Pivato were able to return to Melbourne to commence court proceedings, tracking Allan down and serving him with court papers could be a challenge. Allan did not turn up to the VCAT hearing, and the Australian Securities and Investment Commission has since given notice that it is proposing to deregister his company.

An online search for Prestige Migration Services threw up two different business addresses and two different phone numbers, both of which had been disconnected. My calls to the mobile number listed on the company website went unanswered.

I did, however, get a response to my attempt to contact Dennis Allan via the company’s online contact form. A woman called Pauline called me back and, when I explained my inquiry, she told me that Allan was “not really working at the moment.” She said she would pass on my contact details when he came back. When I asked if Prestige Migration Services was still a going concern, she said it was, and that the threat of deregistration by ASIC was “being sorted out by the accountant.” She confirmed that Dennis Allan’s registration as a migration agent had lapsed and told me that other registered migration agents were now handling the firm’s work. My follow up calls and emails seeking comment from Allan himself did not elicit any response.

With two-and-a-half years of her ban on returning to Australia remaining, Pivato is finding it hard to live back in Italy. She feels stuck, as if her future is on hold. She misses her job, her friends, even the smells of Shepparton. “It is hard to live anywhere else after Australia,” she tells me. “Australia is just so organised and clean and fair.” Then she pauses and reconsiders. “Well, I thought it was fair, but I don’t think that anymore.”

If anyone has broken the rules, it is her migration agent. “All I have done, every single paper I have signed and money I have paid is legal,” she says. “But fine, the real criminal is me, and I have been punished.”

Despite her setbacks and disappointments, Pivato is determined to return. “It’s time to settle down for me,” she says. She has embarked on a master’s degree in Italian language teaching in the hope that this will give her a qualification that is in demand here. She is even planning to do her final six-month placement in New Zealand in order to be one step closer to returning when her ban expires.

“I can’t help it,” she says. “I miss Australia a lot. My life is there.” •

The post “Australia has brought out things about myself that I thought wouldn’t exist” appeared first on Inside Story.

What these countries show, we’re told, is that far-reaching reform and budget austerity is all that will save us from stagnation and declining living standards. The content of this “reform” is rarely specified in detail, but it doesn’t need to be. Australians of all political persuasions understand that “reform” is code for harder work, lower pay and a more unequal distribution of income, and “austerity” means cuts in tax for the rich and cuts in services and benefits for everyone else.

On these criteria, we are indeed trailing most of the English-speaking world. All the advocates of reform and austerity need to do now is convince us that these countries are outperforming us on the measures that count.

This is difficult, to put it mildly. Unlike all the other English-speaking countries, Australia avoided recession during the global financial crisis – and not, as is often claimed, because of the minerals boom. The prices of coal and iron ore, our main mineral exports, plunged with the onset of the GFC; only the Rudd government’s rapid, large-scale fiscal stimulus allowed us to avoid recession.

After the immediate crisis had passed, Australia’s recovery was indeed aided by demand from China. But that is scarcely an argument for Fraser and other advocates of austerity. China’s rapid recovery was due to its own massive fiscal injection.

Having begun with a stronger stimulus, Australia also avoided the swing to extreme austerity that characterised most of the developed world, including English-speaking countries. Even Abbott and Hockey, despite talking up a debt and deficit crisis, shied away from really serious austerity measures.

The results speak for themselves, particularly in the job market. Australia’s employment–population ratio was barely affected by the GFC. Even in the aftermath of the mining boom, it has remained at 61 per cent, only a little below the pre-GFC peak. In Britain, the United States, Ireland and Canada, employment fell sharply during the GFC and has never recovered.

The country most consistently singled out as a comparator is New Zealand. Ever since the reform era began in the 1980s, Australian commentators have looked across the Tasman with envy. The ease with which the reform agenda was pushed through a unicameral national parliament contrasted sharply with the unpredictable senators and refractory state governments that hobble Australian governments.

There was a lull in this kind of commentary when Helen Clark’s Labour government held office, but it resumed with full force after the return of the National Party under John Key. Former treasurer Joe Hockey was unstinting in his praise of New Zealand’s performance; if anything, Malcolm Turnbull has been even more effusive. Most recently, New Zealand’s 15 per cent, limited-exemption GST has been cited as a model for us to follow.

The statistics quoted by the Kiwiphiles are superficially impressive. New Zealand has turned in some strong economic statistics recently, and the long-term net flow of migrants across the Tasman paused in early 2015 and may even go into reverse (assisted by the Australian government’s new hardline policy on deporting Kiwis convicted of crimes). But it doesn’t take a lot of digging to find that the reality is radically different. New Zealand’s living standards, once comparable with Australia’s, now lag significantly.

For most of the twentieth century, the New Zealand and Australian economies performed almost identically. New Zealand took a somewhat larger hit when Britain entered the European Common Market in the 1970s, but that impact has long since washed out. The real divergence came in the 1980s. Since then, New Zealand’s income per person has fallen 35 per cent behind Australia’s.

The recent period of strong growth might suggest that New Zealand is finally doing better. In fact, it mostly reflects what has been called “the advantages of backwardness.” Given access to the same technology, and with similar levels of education, poor countries will grow faster than rich ones, and will eventually converge to a similar level of income. On average, and under the conditions just stated, we should expect to see a poorer country make up around 2 per cent of the income gap each year. That means that convergence will typically take around fifty years.

Starting at about 35 per cent below Australia, New Zealand’s growth rate should be about 0.7 percentage points (2 per cent of 35 per cent) higher, according to the standard convergence estimate. If the gap is larger, New Zealand could reasonably be said to be outperforming Australia relative to the standard fifty-year timeframe for convergence. If the gap is smaller, New Zealand is doing worse than par. On this basis, the figures show that, far from catching up with Australia, New Zealand has fallen further behind.

The Reserve Bank of New Zealand’s comparison of GDP growth in three countries

Similar points may be made about migration and the labour market. The current period of approximately zero net migration doesn’t mean New Zealand’s labour market is outperforming Australia’s in any absolute sense. As a result of migration flows over the past thirty years, there are around 650,000 New Zealand citizens living in Australia, equal to around 15 per cent of the citizen population of New Zealand. The number of Australian citizens living in New Zealand is far smaller, at around 65,000.

It may reasonably be assumed that a substantial proportion of expatriates, given comparable economic opportunities, would prefer to live in their home country. So, if the New Zealand labour market offered prospects comparable to those in Australia, we would expect to see a substantial net flow from Australia to New Zealand.

Importantly, New Zealand citizens are not eligible for Australian unemployment benefits. Thus, at any time when the Australian labour market is in a cyclical slowdown, as it is at the moment, the option of moving to Australia is unattractive except for those who have strong employment prospects. Conversely, the option of returning to New Zealand makes sense for unemployed New Zealanders, regardless of their prospects at home.

This cyclical pattern of variation has been observed ever since the opening up of migration in the 1970s. Initially, it was quite common for the long-term net flow from New Zealand to Australia to reverse in response to cyclical conditions. But as the gap between the two economies has widened, the long-term trend has dominated. Even as New Zealand has recorded one of its best performances in years, and Australia one of its worst, the flow has merely paused, with no clear evidence of a reversal.

For much of the twentieth century, Australian political discussion was dominated by the “colonial cringe,” the belief that only ideas from Britain, and later the United States, were worth talking about. Apparently, all that has changed, and now New Zealand is on the list too. In reality, though, Australia has done a far better job of economic management than any of these countries. •

The post How New Zealand fell further behind appeared first on Inside Story.

In 2005 she married Jason Osborne, an IT professional who worked in a city bank, and they began planning a future with children and their own home. They didn’t even bother looking in the inner city. Alice’s friends told her “it would be six, seven [hundred thousand dollars]-plus for anything decent.”

Alice’s sister lived in Point Cook, a new suburb twenty-five kilometres southwest of the CBD. It was growing fast, with new shops, schools and childcare centres. The couple liked what they saw. They bought off the plan and in a couple of years moved into their four-bedroom home. They caught the Werribee train to work, and life was good.

Then Alice had their first child, William, and took nine months off. When she went back to work two days a week, Jason took three months’ paternity leave. After he returned to work, they enrolled William in the new childcare centre at nearby Sanctuary Lakes while Alice continued her part-time job.

The two days Alice worked were hectic. She woke at 5 am so she could get to work at the Murdoch Children’s Research Institute by 7 am. (Jason dropped William at childcare at about 8 am on his way to work.) This allowed Alice to leave for home at 3.30 pm. She was anxious to keep William’s days in childcare as short as possible.

Naturally, problems sometimes occurred. On one day, Alice left around her usual finish time to get back to Point Cook and pick up William. But at North Melbourne station she heard announcements that trains were suspended indefinitely on the Werribee line. There were replacement buses, but she was already imagining the crush to get on board. By now it was after 4.30, and the childcare centre closed at 6.30 sharp. Alice “began freaking out.” She called Jason at his CBD office. They made a snap decision to brave the traffic in a taxi. The fare cost $90.

With the birth of their second child, Lucy, Alice again took nine months maternity leave, then returned to work. Jason again took paternity leave for three months. During that time they decided that their carefully calibrated “tag-in, tag-out” arrangement was unsustainable.

They assessed options, laid out spreadsheets on the dining room table, pored over the weekly budget. Could they afford to live on one salary and keep up the mortgage? If Alice continued to work as before, Jason would have to get two kids off to childcare during peak hour. He’d probably get to work even later than 10 am. As well as it taking longer to get two kids out of the house, Point Cook’s growing population and increasing traffic congestion had by that point doubled the time it took Jason to drive to the train. He also had to park further away from the station. Would it hurt his career?

There was also the high cost of childcare, which would eat into Alice’s salary. But the logistics – the traffic, the limited public transport, the exhausting distances – proved to be the clincher. Remembering that day at North Melbourne station, the frantic taxi ride, Alice gave notice to her employer. For the foreseeable future, her career in public health was over.

She tried to keep her hand in with some university teaching, tutoring in genetics a couple of times a year. But she found it too hard to keep abreast of developments in her field of prenatal screening for birth defects. On the other hand, she was over-qualified for most jobs that came up around Point Cook.

The family lives more frugally since Alice stopped working in public health. Their last proper family holiday was three years ago, though sometimes they go camping. Two days a week Alice works at William’s primary school. She collects a half-day’s salary for teaching sewing classes, and dabbles in a sewing business from home. Perhaps she’ll consider getting a teaching qualification herself once Lucy starts school, so she can work part-time while staying close for school pick-up.

One thing they won’t do is move from Point Cook. The community spirit is strong, and Alice loves the place. But for all its positives, she is clear that if she lived closer to the city she would not have been forced into the trade-off that cut short her career.

The Osbornes are typical of millions caught on the far side of the new urban divide changing Australia and challenging longheld ideals of economic opportunity and fairness. This is the growing gap between people who live near the centre of Australian cities and those who live near the outer fringes.

The two groups experience city life very differently. For those on the wrong side of the divide, poorer access to jobs affects their ability to maintain and build a career over time, and long commutes are expensive and exhausting. In some cases, commutes can make juggling the responsibilities of home and work so difficult that some – usually women – have to give up work altogether.

Employees living furthest from the centre of Australia’s five biggest cities also get paid less. The average yearly individual income among employees living within ten kilometres of Australia’s five largest cities is a quarter higher than that of employees living more than twenty kilometres from city centres.

In Sydney, the highest-earning twenty-five to sixty-four-year-olds are clustered around the inner suburbs, Sydney Harbour and the North Shore. Typical incomes in Bondi, by the sea, and St Ives, in the north, are also comparatively high, above $60,000. Incomes in western suburbs such as Bankstown and Wetherill Park are typically below $40,000. In Brisbane, typical individual incomes are highest – above $60,000 a year – among people living near the centre in places such as Bulimba or Ashgrove, and in well-located riverside suburbs. Incomes in more distant suburbs are typically below $40,000.

The income gap between inner and outer suburbs is growing. Since the mid 1990s, income growth among people living in suburbs close to city centres – Alexandria in Sydney, for example, and Albert Park in Melbourne and Morningside in Brisbane – has been 3 or 4 per cent a year (adjusted for inflation). Incomes in the west and southwest of Sydney, the far southeast and northwest of Melbourne and in the southern suburbs of Brisbane suburbs have barely grown over the same period.

The changes are reshaping cities, the opportunities they offer and their very identity. Living north or south of the Yarra River used to be Melbourne’s biggest class marker. The working class lived in the north, the well-heeled in the east and the south. But people on high incomes have increasingly clustered in inner suburbs on both banks of the river. In Brisbane the economic and cultural divide between people living north and south of the Brisbane River is eroding, with proximity to the city centre increasingly desirable.

The pattern is less pronounced in Perth, where incomes have grown strongly across the metropolitan region, a legacy of the recent mining boom. Perth’s smaller manufacturing base also means the decline of that sector has not hit the city as hard. Nevertheless, income growth is still highest close to the city centre.

Part of the reason outer suburban residents earn lower incomes is that they are more likely to be employed casually in lower-skilled roles. Casual employees account for almost half of all sales workers and labourers in outer suburbs but fewer than 10 per cent of the management and professional jobs concentrated in city centres. The average weekly wage of casual workers Australia-wide is $538 per week, less than half the average weekly full-time wage of $1276. Almost a third of casual employees are underemployed and want to work more hours.

Differences in wealth, or assets, can give a more meaningful indication of people’s material living standards than differences in income. For example, a retiree may have a low annual income despite having accumulated extensive assets during a long career. It is difficult to get an accurate geographic breakdown of wealth in Australia, but we can use house prices as a rough proxy for wealth distribution in Australia’s big cities.

The highest property prices are increasingly found in suburbs close to the CBD. Households with the greatest levels of wealth congregate in the parts of cities with the best access to jobs and transport. The further you go from city centres, the more house prices fall. The declines in house prices as you get further from the CBD are steepest in Sydney and Melbourne, the two cities with the greatest concentrations of knowledge-intensive jobs in the inner city. They are also the cities that sprawl furthest and offer the worst access to jobs.

Of course, access to jobs and transport are just two factors in creating a person’s wealth; education and skill levels are also vital. A strong link now exists between skill levels and where people live. University graduates are concentrated in Melbourne’s inner suburbs, for example, and in some middle suburbs east of the city centre. Outer suburbs have lower shares of university graduates. And the closer residents live to city centres, the greater the number and range of high-skilled jobs they can reach by car, bicycle, foot or public transport, which better services the inner city.

There are many stories like Alice’s. In common with a great number of people who live far from city centres, she isn’t reaping the full material benefits that living in a city should bring, benefits that previous generations of Australian city residents enjoyed before the new divide set in. There are a number of ways this division can be broken down; here, we’ll focus on one key area for change.

Enabling people to live closer to jobs and transport, and to choose the kind of home they want, means that more homes need to be built – especially semi-detached terraces, units and townhouses, and low-rise flats – in established inner and middle suburbs.

Critics of greater inner-urban density sometimes conjure up images of downtown Shanghai, or of high-rise apartment towers dwarfing suburban homes. But well-designed new housing, close to jobs and transport, can be found in Potts Point in Sydney, South Yarra in Melbourne, New Farm in Brisbane and Subiaco in Perth, among other places. These are some of Australia’s most populated areas, but they are also desirable and often prestigious places to live.

The benefits of giving people more housing options are considerable. Households wouldn’t get everything they want, but a wider range of choices would make a great difference to many people’s lives. The whole community benefits, too. Enabling people to live closer to jobs would contribute to economic growth by giving people a wider choice of jobs and employers a better choice of employees. And if new housing doesn’t get built in places with good access to jobs, it will continue to be built in areas with poor access to jobs, exacerbating the growing social and economic divide.

The biggest barrier to new housing near employment centres is the system of state and local government rules and processes that dictate where and how new housing is built. The complexity and delay built into these processes can make getting permission to construct new housing expensive and uncertain, and frequently impossible. Dramatically simplifying and streamlining these processes is an urgent priority.

Less complexity shouldn’t mean lower standards, though. In fact, higher standards are essential if the community is to accept a simpler, faster and less costly system.

Local residents’ interests are protected by arbitrary barriers that slow down all proposals to build housing and make them more costly or completely unviable. A better way to achieve clearer and higher standards is through clear codes or standards that determine approval for more kinds of home development. Housing codes can protect existing residents from badly designed developments while reducing the costs of planning approval processes.

Compliance with the code could be assessed by a builder, surveyor or consultant, and permission to build would not have to be sought through an authority such as a local council. This doesn’t mean a free-for-all: buildings that are later found not to comply with the code can be demolished or modified at the developer’s expense, with substantial penalties for the professional who endorsed it. Alternatively, planning approval could be granted by an authority such as a local council, but through an accelerated process.

Codes would cover aspects of the scale and appearance of buildings and how they integrate into a street. These include height and overshadowing in outdoor areas, privacy and the appearance of new developments from the street. They would also cover internal features, such as how much sunlight can enter living areas, and the amount of private open space. Homes that comply with the relevant housing code will be well designed and respect neighbourhood character.

Some state governments are using these kinds of code already, but largely for detached houses or in limited locations. They are not yet enabling the mix of housing in the mix of locations that people want. Applying housing codes to all residential areas would make a big difference to the availability of a variety of new housing.

Sometimes governments call existing rules and processes “codes” but allow for a lot of discretion and uncertainty in practice. If codes are to offer certainty, developers and builders should not have discretion over whether to apply them. Local communities’ interests should be respected from the start by the government involving them in developing the housing code that applies to their area. In most cases communities shouldn’t need to go to a tribunal or court to enforce local rules.

Ministerial interventions in the approval process for individual developments erode the trust local residents have in the system, giving them little reassurance that their interests will be respected. Planning ministers should decide the content of the rules, guided by deep community engagement. Indeed, they have a democratic mandate to do so. But they should not be the umpire as well.

And, as the NSW Independent Commission Against Corruption points out, clarity and simplicity also reduce the risk of corruption.

To succeed, any change needs to work for existing residents of established suburbs, as well as for prospective residents and the city as a whole. Genuine engagement is essential to achieving change that ensures everyone has their interests respected, even though not everybody will get everything they want.

The first step is citywide engagement to allocate responsibility for managing population change and building new homes across the city. This should reflect the broader needs of the city and the interests of all its residents. Plans should identify where new housing will be built, and what new transport connections are required to improve residents’ access to jobs. If the plans are based on good engagement that creates a real sense of community ownership they will also help different levels of government and different organisations work in the same direction, rather than opposing developments for short-term political gain.

To turn the plan into reality, each local council must have realistic housing targets. Every area needs to accommodate its share of population growth. Housing targets can distribute growth fairly and encourage local councils not to think only about short-term benefits to local residents at the expense of people living elsewhere in the city.

Local communities can then agree on how to meet their housing target in a way that works best for their area. As in Vancouver and Seattle, local residents should decide on design guidelines that are sensitive to the existing character of their neighbourhood. Buildings that can house the same number of households can be made to look and feel very different.

The community should also be involved in deciding what mixes of housing should go where, so that different types of household can live in the area, including older downsizers, young couples, families and single-person households. Finally, issues that existing residents rightly care about – such as maintenance of privacy, minimisation of overlooking and overshadowing, and placement of garages – should be built into local codes.

State governments have a critical role to play. They have the authority to push local councils to stick to their housing targets. They can require local plans to include enough land zoned to allow new housing. They can offer praise and extra funding to those that are succeeding, while naming and shaming laggards, and if necessary applying financial penalties.

In line with citywide plans, state governments also need to ensure more housing is accompanied by better transport. Depending on the location, this could involve more infrastructure, or better ways to manage congestion and parking. These transport improvements need to be paid for and implemented, not promised then forgotten. Otherwise, geography will increasingly be destiny. •

This is an edited extract from City Limits: Why Australia's Cities are Broken and How We Can Fix Them.

The post The new urban divide, and how to deal with it appeared first on Inside Story.

Close to 18,000 of these “priority five” applicants have waited four years or more for a decision, watching in frustration while other migrants jump ahead of them in the queue. All along, the government refused to give any indication of when the visas might be granted. Now the wait is over, and it has ended in disappointment.

Cash used little-known provisions in the Migration Act to “cap and cease” the 175 (skilled independent), 176 (skilled sponsored) and 475 (skilled regional sponsored) visa subclasses. Her ministerial determination, which came into effect on 22 September, fixes the maximum number of visas that can be issued in each subclass in the current financial year. Because the cap has already been reached, any other applications in the subclasses are null and void.

The pro forma letters sent out to inform applicants of the change use language reminiscent of Orwell’s 1984. Just as Winston Smith’s role in the Ministry of Truth was to rewrite history so that certain events never happened, recipients are told their visa application is “now taken to have never been made.” The determination draws on sections 85 and 39 of the Migration Act. Section 85 empowers the minister to set a limit on the number of any specified visas that can be issued in a financial year, while section 39 requires that once a cap has been reached outstanding applications “are taken not to have been made.”

A spokesperson for the Department of Immigration and Border Protection told Inside Story that about 16,000 people would have their visa applications “ceased” and that most had “occupations that are not currently in demand on the skilled occupation list” (the federal government’s schedule of occupations in demand in the Australian economy). This meant “that they would be less likely to get a job if they migrate to Australia permanently” and so the government “has determined that it is unfair to keep them waiting in the queue for many more years without being resolved.” The spokesperson added that affected applicants could apply for “other visas for which they may be eligible.”

The federal government will refund visa application charges paid up front, but many applicants will still be left significantly out of pocket. They may have run up thousands of dollars in migration advice, medical checks, skills assessments, validation of documents and other costs.

The immigration department says the decision to cap and cease the visas was a necessary consequence of changes in the way Australia’s skilled migrants are chosen. Since 1 July 2012, the SkillSelect system has become the dominant route to permanent residency. Under SkillSelect, prospective migrants don’t lodge an application for permanent residency or pay an upfront visa charge; instead, they lodge an expression of interest including all of their details – occupation, qualifications, work experience, age, language skills, family status and so on. SkillSelect then allocates them a score under the skilled migration points test.

If prospective candidates meet SkillSelect’s pass mark, they will receive an invitation to apply for a substantive visa. Invitations are issued in monthly batches, both by the federal government and by state and territory governments, and go to the highest-ranked candidates first. A migrant with a score of seventy on the points test, for instance, will receive an invitation before a candidate with a score of sixty-five. When candidates’ scores are equal, the invitation goes to the one whose expression of interest was lodged first. Employers can also use SkillSelect like a labour brokerage by trawling the talent pool for the skills they are seeking and then offering to sponsor the applicant’s visa.

Before SkillSelect was rolled out, anyone who reached the pass mark in the points test could lodge a valid application for a visa. That contributed to a dramatic blowout in application numbers, which was exacerbated by the Howard government’s injudicious decision to link study in Australia directly to permanent residence.

In 2009, when Australia’s annual skilled migration intake was capped at 108,000 places, 170,000 people lodged valid applications for permanent residency. At one stage, the backlog awaiting processing grew to 145,000. Under SkillSelect, blowouts like that can’t happen. The government limits the number of applications it receives for points-based skilled migration by controlling the numbers of invitations it issues in response to expressions of interest. If demand for places grows, the minister can raise the pass mark and knock out lower-ranked candidates.

The government also imposes occupational ceilings under SkillSelect, restricting the number of invitations that will be issued in specific sectors. In 2015–16, for example, there is a ceiling of 2525 invitations for accountants and a ceiling of 2475 invitations for chefs.

In its explanation of the cap-and-cease decision, the immigration department says that SkillSelect limited the number of skilled migration places available for applications lodged before 1 July 2012. “Consequently,” it says, “the time taken to process affected applications has continued to increase as the demand for GSM [general skilled migration] places continues to exceed the available supply.”

In an attempt to present its decision as in some way beneficial for disappointed migrants – some of whom have been waiting more than seven years – the department says the government “has decided to end the ongoing uncertainty” for those who have been permanently stuck at the end of the queue.

Such a gloss is only likely to sharpen the anger and disappointment of those whose applications have been culled. On a Facebook page for members of priority group 5, prospective Pakistani migrant Rehana Khan vented her frustration, saying Australian authorities “have not just done injustice with offshore applicants by taking our money, making us wait and then cancelling our application but they have also taken our sponsors, who are Australian citizens, voters and taxpayers, for a ride.” (Applicants for the 176 and 475 subclass visa were sponsored by an Australian relative or a state or territory government agency). Kahn demanded compensation on top of the refunded visa charge, but maintained that “no compensation can make up for our lost chances and time.” She also called on applicants to unite in legal action in the hope of having their visas processed.

Their chances of success are limited. The cap-and-cease provisions have been used before, and provided the minister’s determination in this case was carried out properly, it is likely to be lawful. The Migration Alliance has condemned the government’s actions; writing on the organisation’s blog, migration agent Robert Chelliah described the cap-and-cease determination as an “unjust, inequitable, abuse of ministerial power.” He demanded that the professional body representing migration agents, the Migration Institute of Australia, lodge a protest, seek redress for affected clients, and “explore how the minister can be called not to abuse his [sic] power by hiding behind lawful power to gazette.”

If there is anything positive to come out of the minister’s determination, it is that it did not affect onshore visa applicants in priority group 5. These people, mostly international student graduates, have been living in limbo at the wrong end of the queue, despite already having established their lives in Australia over a period of several years. While the government is using its cap-and-cease powers to cull unwanted offshore migrants from its books, it does at last seem to be moving to clear the much smaller backlog of onshore applicants by processing and granting their applications for permanent residency. •

After this article was published, the Migration Institute of Australia contacted Inside Story to say that it has obtained expert legal opinion that the legislative power Senator Cash used to cease and refund the visa applications is not valid. According to this opinion, Section 85 of the Migration Act 1958 only allows the minister to determine the number of visas that will be granted in a financial year. Remaining applications are usually “queued” for allocation in later years. The Explanatory Statement to the Minister’s Determination attempts to convert the unallocated applications to the status of “never being made” using section 39(2) of the Act. The legislative authority under section 85 does not have the power to “kill” outstanding applications. To have this effect, the section 39 power to “cap and cease” needed to be expressly stated in the Ministerial Determination (which it was not). As a result, the MIA believes that the minister will have to make a new legislative instrument if the government wants to cease outstanding visa applications in the affected subclasses.

The post Immigration’s disappearing visa applicants appeared first on Inside Story.

Celebrations in Canberra followed the pattern – office workers downed pens, shops shut, schools closed and crowds congregated in the Civic Centre to sing and dance. Although beer supplies ran out during the afternoon, the festivities resumed at the Manuka oval and continued long into the evening. On the following day Chifley and members of the diplomatic corps attended a thanksgiving service at the War Memorial.

The staff of the Department of Post-War Reconstruction were not present at the service because the director, H.C. Coombs, had called a meeting for early that morning to consider their most urgent tasks. One of those summoned was Trevor Swan, the young economist who had developed the statistical procedures that guided the War Commitments Committee’s deployment of manpower. Another, still younger, was Noel Butlin, who had been taught by Swan the year after this gifted but highly strung prodigy graduated at Sydney with the university medal.

Butlin would recall how a chain-smoking Swan prowled Coombs’s office that Thursday as he enumerated the concatenation of circumstances created by the abrupt end of hostilities and the measures needed to deal with them: “demobilisation, protection against immediate displacement consequences, training and retraining, expediting readaptation of factory production, restoration of infrastructure and housing, capital issues control, monetary and fiscal measures to cope with expected inflationary pressures.” The others present – Coombs, economists John Crawford, Gerald Firth and Arthur Tange, political scientist L.F. Crisp and Butlin himself – contributed to the discussion, “but it was undoubtedly Trevor in the starring role” and by the end of the day “measures to deal with the immediate transition from war to peace were in place.”

As these public servants worked out the sequence of steps needed to throw the vast machinery of the war economy into reverse, the country’s leaders moved to dampen expectations. Chifley warned that the sudden ending of the war so much earlier than expected presented both the government and the people with a challenge. Although the steps necessary to effect “a smooth and rapid transfer from war to civil production” had been worked out, the pace of their implementation would depend on ready cooperation and goodwill. A broadcast that evening from the governor-general reiterated that the tasks of reconstruction required Australians to “work hard together for the good of all.” “Let no one suppose,” he warned, “that we can slacken now, or that peace will bring a utopian state of rest and benefit for all.”

Expectations were high, and understandably so since the government had built them up as an inducement for the sacrifices it demanded. Now, after six years of effort, it was anticipated that peace would allow normal patterns of life to be resumed in the improved circumstances the victory made possible – better homes with superior amenities, more secure and rewarding jobs, greater social protection and a higher standard of living in a prosperous and progressive society. Chifley had good reason to ask for patience since he knew the changeover would be difficult. The governor-general, who had only come to Australia at the beginning of 1945, was astonished by the country’s backwardness and neglect.

While Australians were celebrating and even before the economists gathered at Acton to expedite the plans for reconversion, Coombs had chaired a meeting of the Standing Committee on Demobilisation to bring forward the scheme for discharging members of the armed services. This committee reported directly to the War Cabinet and included representatives of the three armed services, but the Department of Post-War Reconstruction guided demobilisation from its inception. Despite criticism from the parliamentary opposition, there were compelling reasons for having the department direct such a complex undertaking: an orderly return to civilian life bore directly on the plans for industry, employment, housing and much else.

The scheme cabinet approved in March 1945 envisaged a discharge from the forces at a rate of 3000 persons per day, a rate that was expected to facilitate their absorption into employment. The order of the discharge was to be determined by age, length of service and family responsibilities: servicemen would be given two points for every year of age at enlistment and two points for every month of service, or three for those with dependants, while a servicewoman (who was assumed to have no dependants) would receive three points for every year of age and one for every month of service. After ready reckoners were distributed in camps and bases to help recipients calculate their tallies, a war correspondent on the island of Morotai described how “points scores and probabilities of departure are studied and discussed like form guides.”

Coombs and his department had to devise a process that combined various formal requirements with assessment of eligibility for benefits and assistance. They did so by creating an integrated dispersal centre in each of the state capitals – a vast establishment with a series of booths staffed by representatives of the various specialist agencies, and behind them typing pools where the necessary forms were completed and documents produced. The centre at the Sydney Showground had 140 doctors and more than 1000 other officials, with a telephone switchboard of 250 lines to speak to prospective employers. Progress along this human assembly line began with a health check and ended in the issue of a final service pay cheque along with a rail pass back to the place of enlistment, street clothing and a tobacco allowance. If the assembly line made for efficiency and expedition, the human dimension demanded a sensitivity to individual circumstances not normally associated with bureaucracy.

The dispersal centres were still being set up when Japan surrendered and the earliest they could be made ready was the beginning of October. The government therefore decided that demobilisation would proceed in stages: an initial reduction of 200,000 from 1 October to 31 January in the current strength of 554,000 men and 44,000 women, and then a further 200,000 by 30 June 1946. The delay was only six weeks but it exacerbated the frustration of troops waiting to return to prewar occupations and employers who were keen to restart them. The cabinet had already begun an early release from the services for men with five years of service and others on compassionate or occupational grounds, but these discharges were suspended to allow preparation for the general demobilisation. The opposition accused the government of bungling the process, the deputy Liberal leader Eric Harrison even alleging that the government had postponed it so that trade unionists put off from war industries could find jobs first.

The delay was particularly irksome for the 244,000 Australians stationed abroad. Lieutenant Clive Edwards, who volunteered for the AIF in 1940, served in the Middle East, married while on leave in Perth and was now on duty at Morotai, assumed he had the points for an immediate discharge. His platoon, “doing absolutely nothing all day and every day,” was to return in September but then learned that all available shipping was needed to transport prisoners of war back to Australia and occupation troops to Japan. He wrote home to vent his frustration: “Again it appears that our government has made wild schemes which they have no hope of fulfilling.” As Christmas approached, 1500 soldiers at Morotai marched in protest against the delay.

“The times ahead will be difficult for the Party,” the Melbourne barrister and Labor insider John Vincent Barry wrote to his Sydney counterpart, Bill Taylor, two days after the end of hostilities. With shipping under American and British control, the repatriation of military forces serving abroad would inevitably encounter “irritating delays.” Since the press was likely to distort the difficulties and exacerbate resentment, radio provided the best means of explaining the task and Barry urged Taylor to persuade his friend Chifley to use it. The prime minister, who had a horror of the airwaves and declined to make a broadcast, could nevertheless see the need to allay discontent and flew to New Guinea and the Solomons to spend Christmas with the troops. It was characteristic that he spurned formality, simply sitting himself among soldiers in the messes he visited and saying, “I’m Chifley, who are you?” and just as characteristic that he threatened heads would roll if publicity was given to his trip.

“Is the federal government doing enough for ex-servicemen?” Australian Public Opinion Polls asked in July 1946, nearly a year after hostilities had ended. Fifty-nine per cent of the respondents answered no. There was no lack of publicity given to the re-establishment of service personnel: 600,000 copies of the fifty-six-page booklet Return to Civil Life were produced, along with additional publications on training, re-employment, housing, pensions and other benefits. The government provided special funds for an “enlightenment campaign” aimed at “removing ignorance on the part of civilians,” countering “uninformed criticism” and helping the families of servicemen and women understand what was being done for them. John Dedman, the postwar reconstruction minister, broadcast frequently, albeit with some acknowledgement of the difficulties: “No plan of demobilisation will ever meet with the approval of everybody.” Coombs appeared on a weekly ABC radio program to answer queries from ex-servicemen and women about their entitlements – and was accused by Eric Harrison of pushing the government line.

Demobilisation went remarkably smoothly. After problems in Brisbane caused by the need to complete the centre at Redbank, a steady stream of men and women passed through all six dispersal centres and out into civilian life. The goal of 3000 discharges a day was soon exceeded and by the end of January 1946 more than 249,000 had been released. With the completion of the second stage in June 1946 the number approached 450,000 and 80 per cent of all those in uniform at the ceasefire were back home by the anniversary of V-J Day.

Yet grumbling continued, fanned by instances of neglect that were taken up by the Returned Sailors’, Soldiers’ and Airmen’s Imperial League of Australia, or RSL, and publicised in scandal-rags such as Smith’s Weekly. Woe betide those with ministerial responsibility. The dutiful army minister, Frank Forde, who rejected all pleas for early release from the army, lost his seat at the 1946 election, as did the hapless repatriation minister, Charles (“Hoar”) Frost. His successor in the portfolio, Claude Barnard, a courtly politician of the old school, was turned out in 1949.

One reason for the discontent was that many who completed service were not ready to make the transition to civilian life. As they arrived back in Australia they were given leave to return to their family homes for a “living out” period so that they could begin the adjustment and make plans for the future before reporting to the dispersal centre. Some struggling with the traumatic effects of fighting were unwilling – or unable – to respond to what was on offer. Others simply wanted a longer break. A journalist spoke to soldiers of the 7th and 9th Divisions, who were among the first to return from New Guinea and Borneo, and found that “everyone’s first plan is to get a holiday.” Sergeant G.M. MacFarlane said that “for a while all I want is three good meals a day and a good bed”; then he would return to his job at a gas company “but it will take a bit of getting used to.” Sergeant Norman Hadley intended to find a new job but was in no hurry: “I’m not going to begin working again until after Christmas.” Warrant Officer Charles Scott stated simply, “I’m going to have a good time first.”

The women were more practical. When a journalist asked members of the Women’s Army Service passing through the Redbank centre in the middle of November about their intentions, one replied, “To hunt me a man.” Many anticipated marriage and planned to undertake training in domestic skills, but others sought further options. Hence Miss M.V. Hibdon would take a short holiday before beginning a part-time course in dressmaking. Private Heather Gleig-Scott thought she would resume her job as a telephonist but learn dressmaking and typing in case she wanted a change. Sergeant M. Shepherd from Cairns had been a clerk but life in the army had given her “a new outlook” so she would “find a job where she could move around and meet people.” Another army woman used to be a governess but “the army has cured me of that” and she proposed to complete her matriculation and become a librarian.

Notwithstanding their apparent readiness to get on with life after the war, the ex-servicewomen aroused concern. They had left homes and set aside domestic duties to undertake new tasks, an experience that broadened their horizons yet enclosed them in military discipline. One concern was whether younger women would be ready for household management and how they would cope when released from the routines of institutional life. “Leaving the WAAF was rather like leaving school,” one who enlisted as an eighteen-year-old recalled; “my life in the service had been completely organised, there was no need to worry about what to wear, what to eat, where to live – it was all laid down for us, all that was necessary was to do as we were told.” A further concern was whether these women would want to return to domesticity, for their service entitled them to retrain and pursue civilian careers.

Conscious of these divergent expectations, Coombs decided quite early to appoint a senior officer to guide the re-establishment of ex-servicewomen and “assist in reconstruction matters affecting women generally.” His extensive search led to the appointment of Kathleen Best as assistant director of the Re-establishment Division of his department. Best was a matron in the army nursing service, decorated for her courage during the evacuation from Greece, and subsequently the adjutant-general of women’s services at military headquarters in Melbourne.

Kathleen Best in 1944, shortly before she took up duties with the Department of Post-War Construction. Australian War Memorial

A newspaper profile at the time of the appointment in August 1944, when Best was still in her mid thirties, described her as an enthusiast with a “quiet, yet forceful personality” – and she would need those qualities as she pressed for recognition of the special needs of women. Like Coombs, she thought that women should be able to choose whether they wished to pursue employment or leave the workforce. In either case, she stressed the assistance they would need to help them cope with the tasks of adjustment to civilian life. If they wanted to retrain, they should enjoy the same entitlements as men. If they chose to become mothers, then that vocation needed no less support.

The difficulties of securing support are illustrated by the proposals Best took to an interdepartmental meeting in early 1945. It was called by Coombs to consider “The Problems Concerned with the Re-establishment of Women and the Needs of the Community,” and included female representatives of the departments of Social Services and Health, with a mixed team from the Manpower Directorate and two men from Treasury. Best wanted retraining and assistance for women in their domestic roles, with special support for new mothers. As she explained the need for domestic aides, day nurses and emergency housekeepers, one of the Treasury officials observed that the field “apparently had no boundaries at all,” and Treasury’s resistance stiffened in the absence of the director-general from subsequent meetings. Coombs wrote to his minister in June to recommend that this expanded range of services be raised at the next Premiers Conference. Treasury informed him that Chifley would not do so. Re-establishment stopped short of the home.

The fear of unemployment had lain dormant during the war. It revived at war’s end, and with it the memories of the humiliation and hardship that had soured the 1930s. A poll conducted in September 1945 asked Australians what they thought about the prospects of employment “in the next few years”; only 31 per cent expected there would be jobs for all, with 39 per cent anticipating some unemployment and 28 per cent fearing it would be extensive.

The fears proved groundless. Of 435,000 demobilisation forms collected up to June 1946, 336,000 recorded immediate placement in employment. Another 57,000 had deferred placement, while others were training, did not seek work or were prevented from doing so by disabilities. Just 22,000 of those wishing to rejoin the workforce were not placed within a fortnight of discharge and it was clear that the great majority of them had since found work as only 6800 persons were on unemployment benefit. It was the same with the war workers. Anticipating that as many as 60,000 of these would be displaced, the government provided a special transition allowance to supplement their unemployment benefit, but the numbers claiming it were negligible.

Far from a surplus of labour, there was a shortage – the Commonwealth Employment Service recorded unfilled vacancies for 22,000 men and 31,000 women in June 1946. While the shortages included some types of skilled labour, they were most pronounced in manual occupations that called for “heavy and unpleasant work.” In the case of men, these included mining, building and construction, and the production of building materials such as bricks, tiles and timber; apart from the consequences for the housing program, the short supply in these basic industries created bottlenecks in the rest of the economy. The vacancies for women were in textiles, food processing, laundries and other traditionally female occupations.

The shortfall of women was greater because they were leaving the workforce. In the last year of the war there were 745,000 in civilian occupations and 46,000 in the forces. Two years later the number employed had fallen to 639,000. The reasons for withdrawal are deceptively obvious. Those who had earned good wages in munitions factories were not prepared to work for much lower ones in textile mills and canning factories. Those who came out of uniform and wanted to work were looking for more attractive options; office duties, hairdressing, dressmaking and catering were popular choices and the number of female working proprietors increased. Besides, there were powerful expectations that women should make way for men to resume their customary role as breadwinners.

But the testimony of those caught up in the change both confirms and complicates these explanations. A West Australian study found that while women undertook war work as a patriotic duty, many were only too glad to give it up. One munitions worker recalled that she was travelling to her morning shift when she heard of the Japanese surrender: “I went down to workshop and I said ‘that’s that!’… I could think of nothing better than not having to go to work.” Full employment for men did not prevent such women from earning wages; rather, it obviated the need for them to do so.

The reluctance of servicewomen to enter the civilian workforce was especially marked. Writing in the army newspaper Salt of her conversations on the subject, a correspondent said that “the majority intend that Home Sweet Home will be their post-war job.” A WAAF declared she was “breaking her neck to get out, get married and have children. And most of the girls in my unit feel the same.” Only a small minority of the 50,000 women who passed through the discharge centres took advantage of the centrepiece of the government’s re-establishment program, vocational training.

Despite its prosaic title, the Commonwealth Reconstruction Training Scheme, or CRTS, is recalled fondly in the memoirs of the war generation and still appears in obituaries of those who went on to notable careers. It is rightly hailed as a device that unlocked the talent of many who could not have gained a higher education without it. But the 38,000 men and women who commenced university courses under the CRTS made up only a small portion of the trainees – the great majority pursued vocational training in industrial trades. That program provided 230,000 ex-service personnel with training but it was beset by difficulties, with serious consequences for the supply of skilled labour on which the government based its plans.

The CRTS was designed to be open to all who had enlisted before their twenty-first birthday and served for at least six months. Applicants would be assessed for their capacity to undertake the course and its suitability. Those accepted would receive free tuition and a living allowance for up to three years, with an allowance for travel expenses and supplementary allowances for books and equipment.

From the outset, there were arguments over the conditions of eligibility, the methods of selection and the allowances. The Ministry of Post-War Reconstruction would have preferred the CRTS to include workers in war industries; though Treasury blocked their inclusion, it was opened in 1945 to merchant seamen and members of the Women’s Land Army. The rules of selection were formulated to give the ministry maximum discretion, which it used generously – very few members of the armed services with a genuine interest were turned away. The schedule of allowances made provision for married men (at ninety-six shillings a week it was the same as the basic wage in 1945) but the lower rate for women (fifty-five shillings provided they were not living at home) worried Coombs. He convened a special meeting of the committee at which senior officers of the women’s services declared the amount was inadequate, but was unable to win parity with men until November 1945.

The design of the CRTS left unresolved differences of purpose. Was it a benefit owed to those who had served, and if so should it be provided sparingly or generously? Or was it a form of training to serve national objectives that should override the preferences of beneficiaries? Was it an instrument of re-establishment or reconstruction? These questions found one set of answers in the universities, another in the trade schools.

Those who nominated for university study were able to enrol in the course of their choice – arts was the most popular, followed by economics, engineering, law, science and medicine – and commence (or resume) with minimal delay. Others who demonstrated aptitude could complete their secondary education before enrolment, and a smaller number was allowed to undertake postgraduate study here or overseas. Some 33,000 men and 5000 women commenced university studies under the CRTS and more than two-thirds of them completed degrees or diplomas.

Even though the demand was far higher than expected, there was no attempt to restrict enrolments. Moreover, the Universities Commission interpreted the principles of selection liberally. It was a training system, so the test was whether there was a vocational demand for graduates with the qualification that the course of study provided, but without judgement of its utility or any reference to workforce priorities. More than 3000 CRTS university trainees studied music (most of them part-time) and nearly 800 theology (almost all full-time). The CRTS provided four of the country’s six Rhodes scholars for 1949: an agricultural scientist, a linguist, a historian and a theologian.

Technical training was the troubled arm of the CRTS. It was conceived from the outset as meeting the needs of industry and used subcommittees made up of employer and union representatives to determine the numbers required in particular trades. Initial estimates were that between 60,000 and 80,000 ex-service personnel would seek full-time places and they were to be trained until they achieved a level of proficiency that would enable them to begin work and then complete their course by night study. The state technical colleges would be expanded through a Commonwealth building program and supplemented with additional facilities at former munitions factories.

The plans went quickly awry. In the first year there were 63,000 applications for full-time and 105,000 for part-time technical training. The technical colleges had their own training obligations and could offer only limited space; the additional buildings remained unbuilt; the Munitions Department insisted that its factories were to be handed over to private enterprise; and there was a lack of instructors, textbooks and even tools with which to run the classes. In contrast to the university scheme, those who applied for technical training waited months for selection, some for over a year before a place became available. More than a quarter of those who were accepted withdrew before commencement and a high proportion dropped out before completion.

The problem was exacerbated by arguments in the industrial subcommittees. Still dubious that full employment would last, some unions feared that the employment of trainees with part proficiency (the employer paid that proportion, the government made up the rest of the wage) would undermine the apprenticeship system. Some employers preferred to recruit fully trained hands. Since both parties had to agree on the CRTS intake, several of these subcommittees ground to a halt.

“The trainee scheme has broken down,” alleged Eric Millhouse, the national president of the RSL. His organisation was a persistent critic of the CRTS, its demand that the scheme be run by a dedicated ex-service authority in stark contrast to Dedman’s insistence that training was a vital component of reconstruction. So too Chifley’s reply to Bob Walshe, the president of the New South Wales Council of Reconstruction Trainees, which was agitating in the increase of allowances: “the CRTS was not a reward for service but an integral part of the Government’s policy of full employment.” But if that was the case, asked Walshe, why were the trainees put on “a pension scale” of allowances? Walshe campaigned for parity of the allowance with the basic wage, which increased to 106 shillings a week in 1946 and 129 shillings by the end of 1949, when the maximum training rate for a married couple with two children was 116 shillings and subject to income tax.

Although we still lack a proper analysis of the CRTS’s beneficiaries, the limited studies that are available suggest a strong appeal to former private school boys of modest means who might otherwise have settled for office jobs; half of a sample of 166 former students of Trinity Grammar School in the middle-class Melbourne suburb of Kew undertook university studies under the scheme. Even so, substantial numbers who had attended government schools also took advantage of the unprecedented opportunity. The Universities Commission supported them with additional tuition and advice from guidance officers, and their academic performance was better than that of the other students.

Australia was not alone in assisting those who had gone into uniform to obtain higher education. The United States had its GI Bill, and similar arrangements were introduced in Britain, Canada and New Zealand. In each case they brought substantial enlargement of university enrolments, setting the universities on a course of growth that would continue for the next quarter-century. They opened up new possibilities for men and women from families with limited means who had previously been shut out of further study. And in doing so they augmented their countries’ professional skills, with lasting results for economic development and national life. •

This is an edited extract from Stuart Macintyre’s latest book, Australia’s Boldest Experiment: War and Reconstruction in the 1940s, published in June by NewSouth.

The post This glorious moment appeared first on Inside Story.

No recession since 1974–75 has done less damage to the Australian economy in the short term. Yet, amazingly, the recession of 2008–09 has knocked the economy off its long-term track more damagingly than any other downturn for more than half a century.

And now Reserve Bank governor Glenn Stevens is pondering aloud whether this marks a permanent downward step in Australia’s potential growth rate. His thoughts are more than a little confusing, though, as the variety of media interpretations attests.

It might be best if we start by looking at what has actually happened.

First, the recession. You didn’t know that Australia, too, went into recession in 2008–09? No problem: “recession” doesn’t have a precise definition. The theory that two quarters of negative growth make a recession is a newspaper invention. In the United States, a committee of wise economists issues authoritative but inevitably subjective rulings on when the American economy enters and exits a recession. We have nothing comparable here.

But the noun “recession” comes from the verb “recede.” It means “going backwards,” which, to my mind, is exactly what happened to Australia in the wake of the global financial crisis. In just over a year, a net 200,000 people became unemployed. A net 240,000 others became underemployed: mostly because their full-time jobs suddenly became part-time.

The unemployment rate rose from 4.1 per cent in early 2008 to 5.8 per cent by mid 2009. The underemployment rate rose from 5.9 per cent to 7.8 per cent. Close to half a million extra people either had no work or not enough. If that’s not “going backwards,” what is?

On the national accounts’ bottom line – the trend measure of output, or gross domestic product, or GDP, per head– Australia went backwards for three consecutive quarters. The total fall was less than 1 per cent, whereas in Greece, so far, the slide has been 25 per cent. But our economic performance clearly receded, which is why it seems to me a recession.

But it is what followed that really matters.

As the graph shows, this downturn, although the shallowest since the 1974–75 recession that doomed Gough Whitlam, has been followed by the weakest recovery Australia has seen since quarterly national accounts began in 1959.

The latest national accounts, those for the March quarter, show that since the pre-GFC peak in June 2008, our output per head – a pretty rough measure of economic living standards, but the best we have – has risen just 5 per cent over a period of almost seven years.

That is less than half the average growth recorded in the same period during and after the previous three recessions. Back in the Fraser years we thought the recovery was hardly worth the name, yet at this stage of that revival, GDP per head was already 9 per cent above its pre-recession peak.

After the 1980s recession, GDP per head had recovered by this point to almost 12 per cent above its pre-recession peak. Even the 1990s recession, which was protracted by poor policy decisions, saw output per head up 10.75 per cent by this time.

Over the thirty-five years before the GFC, despite three recessions, Australia’s output per head grew on average by 1.9 per cent a year. Since the GFC, almost seven years now, it has averaged growth of just 0.7 per cent. That is a sharp change.

But hasn’t Australia grown faster than just about any other developed country over the past few years?

Nope, that’s a well-recycled claim, but it’s a myth.

It is true that Australia was one of just a handful of developed countries to record positive growth in 2009, yet the economy grew less (1.6 per cent) than the population (2 per cent). Our living standards still went backwards.

Because our population keeps growing far more rapidly than most, ministers and officials usually focus on the raw growth figures, not the per capita ones. Why? Because we look much better that way, and to the sales team, presentation matters more than performance.

The International Monetary Fund estimates that between 2007 and 2014, Australia’s per capita GDP grew 6 per cent, which puts us just tenth among the thirty-six countries the IMF groups as “advanced economies.” You’d rather be tenth than twentieth or thirtieth, but we’re not world leaders.

The East Asian tigers were way out in front: Taiwan’s per capita output grew 21 per cent in that time, and South Korea’s 20 per cent. Even Germany, in the heart of the eurozone, marginally outpaced us, its output per head growing 6.4 per cent.

Similarly, Australia’s unemployment rate of 6 per cent is around the middle of OECD countries: equal fourteenth out of thirty-four members. Among the larger Western economies, we are actually in the worst half for unemployment: it’s 5.5 per cent in the United States, 3.3 per cent in Japan, 4.7 per cent in Germany, 5.4 per cent in Britain, and 3.9 per cent in South Korea.

In the southern German states of Bavaria and Baden-Württemberg, which together have a population similar to Australia’s, unemployment is now less than 3 per cent. Don’t let anyone tell you that we have full employment when unemployment is 5 per cent.

Our employment-to-population ratio is a little better: 71.6 per cent of Australians aged fifteen to sixty-four have a job, the twelfth best of the thirty-four OECD countries. But that is partly because of our extraordinarily high rate of underemployment – what the OECD terms “involuntary part-time employment.”

The recent OECD Employment Outlook 2015 shows Australia in 2014 had the fourth highest underemployment rate in the OECD, 8.6 per cent, behind only the disaster cases of Italy, Spain and Ireland. It is stunning that 11.6 per cent of all women with a job, or one in nine, were forced to work part-time because they could not find full-time work.

We escaped the GFC more lightly than most Western countries. But almost seven years on, we have experienced our most prolonged period of weak growth for eighty years. In the past three years, despite the population growing by 1.1 million, or 1.6 per cent a year, our GDP growth has averaged just 2.4 per cent, way below the 3.5 per cent we might have expected with such rapid population growth in the pre-GFC era.

Is that why Reserve Bank governor Glenn Stevens warned last week that our “normal” growth rate might be lower now than it used to be?

Possibly. Frankly, I’m not sure what he meant. The speech appeared to me and others to make the case for all actors in the economy – politicians and others – to focus on the need to lift our rate of productivity growth. But in question time, he declared himself optimistic about future productivity gains.

The speech approached the issue via an apparent anomaly in the statistics. In the past year the labour market seems to have picked up, with employment up sharply and unemployment down slightly, even though GDP growth has been coughing along at little more than 2 per cent growth. How can this be?

The Guv posed four possible explanations:

• The jobs and unemployment figures might have overstated the real strength of the labour market.
• The GDP figures might have understated the real strength of the economy.
• Our unprecedented low wage rises may have encouraged business to hire more workers despite the weak economy.
• Something has happened to lower our potential growth rate.

Most of his speech focused on the last option, but we should not rule out the first two as likely contributors.

First, anyone addicted to studying the labour force figures will know that they tend to move in surges: one year will record what seems like unrealistically high jobs growth, the next year it will seem unrealistically low. From 2011 to 2014, the figures showed three years of very weak jobs growth; maybe the data understated the reality, and some of the jobs created in those years have shown up in the figures just now.

Second, national accounts junkies know that the Australian Bureau of Statistics revises the growth figures up more often than it revises them down. At one point, it almost revised away the 1990–91 recession. It wouldn’t surprise me if it concluded that our growth rate over the past year was a bit higher than the 2.25 per cent shown in its March accounts.

Stevens’s third possible explanation – that employers are taking on more workers because of low wage rises – seems unlikely. Three-quarters of Australia’s GDP growth is now coming from exports, mostly mining exports, which employ few workers. The bulk of us work in the domestic economy, and domestic demand grew by just 0.6 per cent in the past year. While consumer demand is doing better, there's not much incentive to hire.

But our GDP growth per head since 2008 has been less than half of its traditional pace. Does that mean our sustainable growth rate has changed?

Possibly. Economic growth is produced by increasing productivity and/or increasing the total working hours of the population. Since the GFC began almost seven years ago, total working hours have grown just 0.7 per cent a year, compared to an average of 1.75 per cent over the previous thirty years. That almost exactly matches the slowdown in growth in GDP per head.

The reverse has happened with labour productivity. Since the GFC, the value of output produced by each working hour has grown by 1.7 per cent a year, an increase on its long-term average of 1.5 per cent.

The contrast is sharpest if you exclude sectors where our output is mostly not sold on the market – healthcare, education, government, etc. Since the GFC, hours worked in sectors competing in the market have grown just 0.3 per cent a year, whereas output per working hour has swollen 2 per cent a year. Work intensification? You bet, and that’s why Glenn Stevens said labour productivity is not a long-term problem. He’s right, but it makes it hard for this little head to understand what his real point was.

Population growth is not the issue. Since the GFC, it has averaged a bustling 1.7 per cent a year, causing problems for the four cities where most of it is happening, but not for the economy. It has slowed recently, but is still above its long-term average of 1.3 per cent.

An ageing population is gradually slowing the potential growth of the labour force, but there is still lots of spare capacity, an immigration tap that can be turned up if needed, and increasing willingness by older people all over the Western world to keep on working. (In the past decade, despite the shortage of jobs, the number of over-sixty-fives in the workforce has more than doubled from 178,000 to 419,000.)

It was an unusual speech for Stevens, who has spent most of his long period as governor trying to avoid saying anything that treasurers might see as unwanted advice on how to do their jobs better. Possibly he is becoming bolder before his retirement next year, or possibly, like the rest of us, he is just fed up with the degradation of public debate under the Abbott government, and its aversion to doing anything politically hard to achieve long-term reform.

The bottom line is that we could be doing a lot better. I would just respectfully ask the Guv to be a bit clearer about exactly what we need to do better. •

The post Our smallest recession, our weakest recovery. Has Australia’s potential growth rate shrunk? appeared first on Inside Story.

Given the financial pressures many of them face, this is hardly surprising. Living costs are higher here than in their home countries; student fees amount to thousands of dollars annually; and international students don’t have access to Austudy and other forms of government assistance.

What might come as a surprise is the fact that exploitation of international student workers is widespread. A 2005 study based on 200 interviews with international students found that 58 per cent of interviewees were paid below the minimum wage, earning between $7 and $15 per hour. A recent survey of more than 200 international students by a union, United Voice, found that 60 per cent earned less than the national minimum wage ($16.37 per hour), with a quarter of respondents receiving $10 or less per hour.

Official recognition of the problem is almost non-existent. In 2008, the Victorian Equal Opportunity and Human Rights Commission documented the racism and discrimination suffered by Victorian international student workers for a Victorian government inquiry. The number and significance of complaints from migrant workers in general prompted the workplace enforcement agency, the Fair Work Ombudsman, to establish an Overseas Workers’ Team in 2012. Meanwhile, the problem persists: when we interviewed twenty-one international students working in Melbourne cafes and restaurants last year, we found that all but one of them had been underpaid or not paid at all in at least one of their jobs.

What lies behind this exploitation? The primary factor is the vulnerability of international students in Australian workplaces. Like other newly arrived employees, they lack local knowledge, language skills and familiarity with labour laws, and they experience discrimination especially on the basis of race and ethnicity. But they also lack access to the rights and entitlements enjoyed in these workplaces by Australian citizens and permanent residents. The visa limit on their hours of work – presently forty hours per fortnight during term time – can also be a source of vulnerability: employers can use the fear of the consequences of a breach, including potential deportation, to impose abusive working conditions.

But that vulnerability is only part of the story. It is no coincidence that many of the sectors in which international students work – cleaning, retail and taxi-driving, for instance – are poorly paid, precarious and plagued with breaches of workplace laws. The hospitality sector is perhaps the best example of how the vulnerability of international students interacts with employer practices in hazardous industries. Currently the focus of a campaign by the Fair Work Ombudsman in response to the serious incidence of non-compliance, employers in the hospitality sector have repeatedly been found by courts to be in breach of working conditions.

Why, then, despite the publicly available evidence and frequent media coverage, have governments done so little? Two (unsatisfactory) reasons seem to discourage official action. First, international students are typically seen only as consumers (or, as some critics put it, “cash cows”) in Australia’s education market, not as members of the local workforce. Second, and related, government policies to regulate temporary migrant employment have overwhelmingly focused on workers employed under 457 visas and other dedicated temporary labour schemes.

A current Senate inquiry presents an opportunity to break this silence. The Senate Education and Employment References Committee is examining the impact of Australia’s temporary work visa programs not only on the labour market but also on temporary visa holders themselves. The inquiry is broad, extending well beyond the 457 visa program, and has an important focus on exploitation and mistreatment. We hope that this inquiry seizes the opportunity to acknowledge the acute problem of the exploitation of international student workers, that it affirms the entitlement of these workers to workplace justice, and that it begins the process of ending the exploitation that appears to underwrite key industries in this country and the higher education sector. •

The post Taking a taxi ride to an inhospitable workplace appeared first on Inside Story.

A barney is already brewing over the working holiday visa program, and it could get a lot worse. A Senate inquiry is looking at temporary visas; Four Corners has investigated exploitation of backpackers; and the union movement has been running campaigns about the impact of temporary migrants on job opportunities for Australians. Four Corners in particular attracted many responses and was extensively, and deservedly, covered in other media.

So it was surprising to hear that the government has decided to tax working holiday visa holders in Australia at 32.5 cents in the dollar from the first dollar earned. By changing their status to “non-residents for tax purposes,” this measure will reportedly raise $540 million over the forward estimates. Shadow treasurer Chris Bowen says Labor supports the change.

Apart from the question of whether it’s fair, the fact that this proposal has failed to draw the same amount of airplay and outrage as the Four Corners revelations shows the disconnect that eats away at the heart of certain policy areas.

This new tax rule will create a bunch of incentives that will drive behavioural change among migrants. It will do more than any other policy measure in this area to create an environment in which exploitation thrives, while placing downward pressure on existing wages and conditions.

This, in turn, will reduce the incentive to work. That might be viewed as a positive if you are concerned about jobs going to Australian-born residents. But if you operate a tourism or agricultural business – particularly in regional Australia, where there is an incentive to work under current working holiday regulations – then this is a negative. Not many Australian industries are wholly reliant on migrant labour, but these two come closest.

Reducing work incentives is particularly critical for regional Australia, where over 40 per cent of all working holiday visa holders are employed. As of December 2014, there were about 161,000 working holiday visa holders in Australia; an estimated 70 per cent of them are working, which means that more than 45,000 people employed in regional labour markets will be affected by the new rule.

More importantly, the bigger tax take will reduce the incentive to work legally. An increasing number of employers will offer working holiday visa holders the opportunity to work off the books and be paid in cash. The temporary workers themselves will ask for this, tipping more employers into the black market for labour. By moving to cash, wage expenses for employers will be reduced while net wages for working holiday visa holders will, in many cases, be greater than their taxed rate.

A 32.5 per cent tax rate is a steep marginal rate from the first dollar earned. If the piece rate on a strawberry farm works out to about $16 per hour, for example, a tax take of $5.20 per hour means that $12 per hour cash in hand is a revenue-maximising measure for the visa holder. I know what I would do.

This is not a small change; it is potentially very significant. Let’s assume working holiday makers earn $25,000 on average over a twelve-month period in Australia. In 2014–15, an Australian citizen or permanent resident will pay $1347 on income of $25,000. For a non-resident, the tax figure will be $8125.

Citizens and permanent residents face long-term incentives to work within the law, even if it reduces their net income. They get the safety of legal employment and all the benefits that this entails. But for working holiday visa holders, the pressure is much less tangible, given they can only work for a total of six months with any one employer. Even more strikingly, they can leave Australia at nearly any point with very little consequence.

All of this is compounded when you consider exactly which industries working holiday visa holders work in. The top two occupations are regional farm workers and waiters in urban centres, which accounted for over a third of all labour activity in the most comprehensive survey of the program, undertaken in 2009. Unfortunately we do not know more current trends however I'd be surprised if those proportions have changed.

Regional agriculture and urban hospitality combined with poor incentives for workers to comply with taxation laws? I wonder what could go wrong? This story almost writes itself.

Yet I have seen virtually no discussion of the implications of these changes. A couple of articles skirted the central issue and profiled a few migrants who mused about their feelings.

The increased risk of exploitation, drastic underpayment and erosion of wages and conditions of other workers is the cost of raising an extra $540 million of revenue over the budget estimates, a figure that will quietly fail to materialise. But chances are you wouldn’t know this because there simply has not been any discussion about these issues.

When a real policy change comes along that will have these effects, in the middle of a series of campaigns on the very same topic, there is something wrong with how we evaluate and discuss policy. But that’s a characteristic of the way immigration policy moves in this country. •

The post A story that writes itself: working holiday visas, tax incentives and illegal labour appeared first on Inside Story.

Half a decade later, in the three years to December 2014, Australia’s working age population grew by just over a million people. Yet this time the number of jobs grew by only 385,000. For every one hundred extra adults, in other words, we generated just thirty-eight new jobs. Compared to the ninety-four new jobs created for every one hundred extra adults just before the global financial crisis, that’s some shift.

Sure, the labour market did better in 2014, but only slightly. Last year, there were forty-six new jobs for every one hundred new adults – and just twenty-eight of them were full-time.

These figures are another warning that the Australian economy is not doing as well as the cheerleaders claim. If they were right, we would be seeing something like normal growth in jobs. But for six years now, job creation has been nothing like normal; and it still isn’t.

Nor, despite an upturn in job advertising, is it likely to be normal any time soon. The big plunge in mining investment is still ahead of us: it will happen over the next three years, at the same time as the car industry shuts its doors and our main customer, China, struggles with the looming bust of its huge, oversupplied housing market.

We don’t analyse labour market statistics well in this country. Financial commentators focus on the monthly zigs and zags of movements in the seasonally adjusted jobs and jobless numbers, as if they mean something. Usually they don’t. The Bureau of Statistics monthly survey, big as it is, is not big enough to stop the static created by different random samples from drowning out the music of what is really going on.

For twenty years, the Bureau has been telling us to focus on its trend estimates. They iron out the monthly volatility to try to come up with a truer index of what is happening in the labour market. I follow its advice, and those are the figures being quoted here.

Similarly, when you look at the labour market’s performance over longer periods, you get a better understanding of what’s happening than you get by focusing on monthly movements. And when you look at the very long-term data – such as average movements over thirty years – you get a benchmark of what is normal, against which you can judge what is happening now.

What is “normal” jobs growth, as defined by the past? Well, although the thirty years to mid 2011 saw two recessions and three slowdowns, those years still averaged, in net terms, 690,000 new jobs for every million people added to the working age population – or sixty-nine new jobs for every one hundred new adults.

For every one hundred adults Australia added between 1981 and 2011, in net terms, thirty-six went into full-time jobs, thirty-three got part-time jobs – mostly by choice – three became unemployed, as the Bureau defines it, and twenty-eight either left the workforce or never entered it.

You might think this is a poor outcome. But it wasn’t bad at all, considering that the official definition of “working age” includes everyone aged fifteen and over, including schoolkids, carers and people in their seventies, eighties and nineties who we would not think of as “working age.” And their numbers were growing fast.

Employment climbed from 57.7 per cent of all adults in 1981 to 62.1 per cent in 2011, although almost half that growth was in part-time work. Unemployment fell from 5.7 per cent of the workforce to 5.1 per cent.

Two areas were of concern, though. First, hundreds of thousands of men in their prime years dropped out of the workforce completely. Some were homeless, disabled or suffering from a disabling addiction, or living in areas with no job prospects. In the 1960s, just 2 per cent of men in their prime years (twenty-five to fifty-four) were outside the workforce; now 10 per cent of them are. They are not even looking for work; they have dropped through the cracks.

Second, more than 70 per cent of the unemployed want full-time jobs, but even between 1981 and 2011 almost half of the jobs created were part-time. The Bureau figures imply that 8 per cent of all job growth in that period went to people who took part-time jobs because they couldn’t find full-time work. What it calls underemployment soared from 2.8 per cent of the workforce in 1981 to 7 per cent in 2011.

But what made those thirty years good was that despite an ageing society, workforce participation climbed from 61.2 per cent of the adult population in 1981 to 65.4 per cent in 2011. That was mainly due to the long surge of female employment, which swelled at all ages over twenty-five, with dramatic growth in jobs among older women.

The same has been true for older men, as more and more of us choose to work on into our sixties and beyond: in the year to last June, 26 per cent of Australians in their late sixties – almost 300,000 people – were still in work. Even more surprising, perhaps, 125,000 people in their seventies or eighties were still working. Roughly one in thirty of Australia’s workers are now sixty-five or over.

But far more Australians retire completely in their sixties, and life expectancy among older Australians is rising at startling rates: for men aged sixty, life expectancy is expanding at the rate of nine years in every half-century. That success story is creating headwinds for the economy and the job market, and they are growing stronger each year.

We could be doing a lot better than we are. In the past three years, job growth has been barely half of its long-term average. Let’s look at the numbers to see how the last million Australians to enter adult life (in net terms) have fared, compared to those in the previous generation:

These figures show how much the economy has failed since 2011 to keep up the momentum of the past.

Australia is simply not creating jobs – especially full-time jobs – at anything like the pace needed to regain full employment. Labour-intensive industries such as manufacturing and retailing have struggled or shrunk; and as profits go, jobs go. Manufacturing has lost almost 150,000 jobs since 2008; retailing has added fewer than 20,000 jobs in that time.

Mining construction was the main driver of growth in 2011 and 2012, and it is a capital-intensive activity, creating few jobs. Mining exports have been the main driver of growth in 2013 and 2014, and modern mining requires very few workers, operating very large machinery.

That’s why only 38 per cent of the growth in the adult population has found its way into new jobs. Almost two-thirds of our population growth has ended up swelling the numbers outside the workforce.

The Abbott government has tried to punish the unemployed by making it harder to get the dole – all $36.83 a day of it – and imposing more onerous reporting requirements. But it is clear that they are the victims of the economy’s failure to create enough jobs for those who want to work.

On top of that, most jobs created since 2011 are part-time, yet most unemployed workers want full-time work. The lack of jobs has seen unemployment grow to its highest level since 2002. But because most jobs being created are part-time, the Bureau estimates that the rate of underemployment – mostly, people wanting full-time work, but forced to take part-time jobs – has shot up to a record 8.5 per cent of the workforce.

More than a million Australians are now underemployed, with profound effects on household finances, spending, happiness and general wellbeing. The Bureau estimates that the number of underemployed workers has swollen by 205,000 in the past three years, while the number in full-time jobs grew by 145,000. If someone tries to tell you how well the economy’s doing, just remind them of that.

There’s a third problem. The biggest growth in the adult population is not among those who are employed, or unemployed or underemployed, but among those who are not in the workforce at all.

In the past three years, in net terms, for every one hundred extra people of working age, forty-seven either left the workforce, or never entered it. Some of that loss, maybe half, is unavoidable: it reflects an ageing society, which itself reflects good healthcare. The impact of ageing on jobs is now intensifying as the demographic bulge of the baby boomer generation moves into its sixties; in the weak job market, even employment rates among workers aged fifty-five to sixty-four are now falling.

In four years, the number of adult Australians not in the labour force grew by 650,000. The number in work grew by just 481,000. The number in full-time work grew by just 209,000. That is not a sustainable trend.

These three problems – unemployment, underemployment, and people dropping out of the workforce – essentially reflect a weak economy. But they are intensified by the impact of an immigration policy inappropriate for an economy in low gear.

There are two key differences between Australia now and the Australia of the previous thirty years. The rate of population growth has lifted sharply: in round figures, from 1.25 per cent a year to 1.75 per cent. And that is because the net migration rate has doubled, from 0.5 per cent to a bit over 1 per cent.

Growth of 1.75 per cent means the population is growing by almost 400,000 each year, and by a million every two-and-a-half years or so. It means that when the economy is growing by 2.7 per cent a year, as it is, growth per head (the real bottom line) is less than 1 per cent a year. And it means that an economy our size needs to create more than 200,000 jobs a year – about 150,000 of them full-time – just to stop things getting worse, let alone make up the ground lost since 2011.

A net migration rate of more than 1 per cent means that each year Australia is adding between 200,000 and 250,000 more migrants than it is losing. I have no problem with that, if there is enough work around to employ new and old Australians alike. But the jobs figures make it clear that there isn’t.

The problem is exacerbated because a growing proportion of migrants are being brought here, on section 457 visas and other means, by employers to do specific jobs, rather than employers training Australians to do them. This inevitably means fewer job opportunities for existing workers.

This shortfall could be made up if the temporary workers spent enough money here to employ the existing workers they displace, but that is unlikely. The Bureau does not measure remittance payments – a serious omission in its database – but it is clear that many temporary workers are here precisely because they plan to send much of their earnings home to their families.

In good times, there’s nothing wrong with that either, but these are not good times. Immigration policies need to fit society’s needs; running a high immigration program amid low job demand is bad economic policy. The Menzies government knew better; it controlled the immigration tap to keep the long boom going. We should learn from our past successes.

The result of our employer-driven policy is that people born overseas took almost three-quarters of the net growth in full-time jobs in the two years to April 2013. In net terms, people born overseas gained 97,000 more full-time jobs, while Australian-born people gained just 34,000.

That means the economy created only one new full-time job for every ten Australian-born people aged fifteen and over who joined the notional workforce. That is clear policy failure.

Take all the figures together, and it is clear that the labour market is doing far worse than the trend unemployment rate of 6.2 per cent suggests. The Bureau estimates that its broader measure of labour force underutilisation, which includes the underemployed, has risen to 14.8 per cent. And it does not include the rapidly growing numbers entirely outside the labour force.

Why Australia’s labour market failed so badly after early 2011 is another story, for another day. Poor policy choices must take a lot of the blame. The international environment was unhelpful, but successive governments and the Reserve Bank made bad calls, for which our jobseekers are now paying.

We need to focus more on how we create an environment that will generate the jobs Australians need. •

The post Australia today: a million new adults, just 385,000 new jobs appeared first on Inside Story.

Indeed, la vita is not so dolce at all for the film’s protagonist, Branko (Branko Zavrsan), a middle-aged Bosnian schoolteacher turned long-distance lorry driver for an Italian logistics firm. We follow him on his long journeys throughout Europe, transporting mainly agricultural produce, seemingly without end. He is away from his wife, adult child and grandchild for long periods – but the salary, at three times his wage as a teacher, seems to make it worthwhile.

The daily drudgery is well-represented – perhaps too well-represented for some of my fellow cinema-goers. But Branko’s story also reveals some deeper truths about the state of contemporary Europe, and particularly the reality of working life for the continent’s low-paid and often exploited migrant workers. Indeed, Branko is asked to work illegally long hours that his Western counterparts would be likely to refuse. Will he fall asleep at the wheel, all for a few extra euros, while his wife back home is trying to convince him to return to the school for a better quality of life but a much-reduced salary?

Meanwhile, Italian truck drivers, increasingly displaced by their Eastern counterparts, are striking for better wages and conditions. It’s a taste of the race-to-the-bottom working conditions that the European Union’s expansion, as well as generally pervasive neoliberal policies and the exploitation of migrant labour have brought to the continent.

Tir also gives a hint of the futility of the endless transportation of goods – potatoes, apples, pigs – from one European country to the next. Implicit is the time, energy and human cost involved in this transportation, as well as the prevalence of low-paid (and sometimes horrendously brutalised) migrant workers in agricultural industries.

While far from light entertainment, Tir is an important film showcasing the reality of life in Italy today, away from the holiday playgrounds and cultural clichés that tend to dominate the country’s portrayal. •

The post La vita difficile appeared first on Inside Story.

LAST MONTH the leader of the United Kingdom Independent Party, Nigel Farage, was criticised for hiring his German wife as his secretary. Farage, whose political stock-in-trade is anti-migrant rhetoric and Euroscepticism, frequently claims that foreign workers are taking British jobs.

Asked if this wasn’t also true of his wife, he replied: “No, because I don’t think anybody else would want to be in my house at midnight, going through emails, getting me briefed for the next day. Nobody else could do that job. I don’t know anybody who would work those kinds of hours.”

Farage’s office was quickly flooded with job applications from people willing to be paid to do just that.

Beyond the hypocrisy, this story encapsulates much of the contentious debate over migrant workers. Over the past two decades, the proportion of migrants working in OECD countries has increased substantially, and they are now an integral part of the labour market.

In Australia, the 457 visa program has been the focus of debate. In many respects it is among the best-designed programs of its kind, but opportunities remain for exploitation and abuse.

At the end of 2013, about 100,000 holders of 457 visas were working in Australia, and between them they had around 70,000 dependants. More than 30,000 Australian businesses, universities, government agencies and not-for-profits employed 457 visa holders, and even the odd union has used the program in the past. They staff hospitals and clinics, work on mine sites, carry out research, administer offices and cook meals.

Since the 457 category was introduced in 1996, temporary migrant workers have become an integral part of the migration program and labour market. Yet public anxiety about the program remains high, encouraged both by political opportunism and by media coverage of abuses perpetrated by a small minority of employers who find ways to exploit the system.

Now, previously unreleased evidence from a comprehensive survey of 457 visa holders, together with information provided by the immigration department to Senate estimates, can help give us a better understanding of how the 457 visa program operates and where the true problems lie. The timing couldn’t be better: the Abbott government has commissioned another review of the integrity of the 457 program, which is due to report on 30 June.

What this new information reveals about the 457 visa program is emblematic of Australian public policy in general. In large measure the program meets its objectives, but at the margins there are issues that need to be tackled.

In the survey of visa holders, carried out in 2012, 76 per cent of respondents reported that they were satisfied with their current wages and 88 per cent were satisfied with their employer. Only 5 per cent of migrants thought their employer breached obligations under the program. These results counteract the impression that all temporary migrants are powerless and exploited in the workplace and support business claims that the vast majority of employers do the right thing.

But immigration programs should also be judged by what happens on the margins, to those who are vulnerable. And the best proxy for vulnerability is income. For some time the department has reported average salaries in a detailed statistical breakdown; the 2012 survey confirmed departmental statistics that show a median salary for 457 visa holders of between $75,000 and $80,000.

Unlike the departmental data, though, the new survey data allows for a more detailed income breakdown. It shows, for example, that 11 per cent of 457 visa holders surveyed had a salary equal to or below $50,000. This is right on the edge of the “salary threshold” – the minimum salary payable under the scheme – at that time, which was $49,330. (The salary threshold exists because temporary migrants are denied most kinds of government support, including Medicare, and must be paid a sufficient sum to support themselves.) It’s true that the majority of employers paying migrants $50,000 or less are likely to be complying with program rules because migrants who arrived in periods when the income threshold was lower were included in the survey. But it seems almost certain that some workers within this cohort are being underpaid.

Perhaps more concerning is the fact that 21 per cent of those surveyed did not receive any pay increase after working for longer than twelve months, and this is most evident at low-income levels.

Percentage of 457 visa holders without a pay increase, by months of employment

Of those surveyed who earned under $50,000, a full 55 per cent had not received a pay increase despite being in Australia for more than a year.

Holding pay steady erodes the purchasing power of migrant incomes. While the data in the chart above shows that the number of workers whose pay is stagnant falls over time, an identifiable minority had received no increase in income, regardless of how long they had been working.

The Rudd government introduced major reforms in 2009 designed to create pay parity between 457 visa holders and Australians performing the same job. This is know as providing a “market salary.” Formerly, employers could hire migrants at any salary above the threshold, which meant that migrant pay could be substantially out of step with what other workers were earning.

Although the market-salary requirement has helped increase migrant wages, it only applies at the time the visa is first issued. There is no requirement for wages to keep pace with prevailing market salaries, and so some workers find themselves slipping further and further behind. As this new survey data highlights, if all 457 visa holders are to be paid at the same rate as Australians, the scheme needs adjustment.

BUT INCOMES are not the most contentious aspect of the 457 program. The biggest debate is about whether temporary migrants are displacing Australians in the labour market.

When I worked in the immigration department, an earlier version of the chart below was the evidence of choice for refuting claims of displacement. Until mid 2011, the close correlation of job vacancies and 457 visa applications was offered as evidence that employers would use the program more in periods of strong demand for labour, and would use it less as job growth softened. The 457 visa holders were seen to be supplementing Australian workers, not substituting for them.

ANZ job advertisement series and 457 visa primary applications lodged to January 2014

Unfortunately for program advocates (including me), this story appeared to take a wrong turn during 2011. This up-to-date version has only been released in response to Senate estimates questioning; the department stopped using the chart in external presentations around the time the pattern broke down.

Does the divergence between job vacancies and 457 visa activity provide evidence that temporary migrants are indeed “stealing” Australian jobs? The short answer is no. The stolen jobs argument runs counter to the established understanding of how immigrants affect the labour market: labour economists are in near-universal agreement that immigration has a minimal impact on either domestic wages or job opportunities.

In 2006, the Productivity Commission found immigration had a “small yet benign” impact on local incomes, hurting the high-skilled and helping the low-skilled. A comparison study of OECD countries shows Australia is one of three countries where average wages increased by more than 1 per cent between 1990 and 2000 as a result of immigration policy. All of this increase is accounted for by the effect on low-skilled workers, whose incomes on average increased by 4.5 per cent over the decade because of immigration, offsetting the negative impact on highly skilled workers. This extensive research agenda supports the role of migrants as complementary participants in the labour market.

In my analysis, the primary reason for the divergence between job vacancies and visa applications is that migrants are applying for jobs they already hold. Around 50 per cent of 457 visas are now granted “onshore” to temporary migrants who are already in Australia. This share has increased significantly over the past five years, and roughly coincides with the divergence on the graph. These people include international students, working holiday-makers and people already on 457 visas. The vast majority of these people already work in the job they “apply” for. In fact, there was no job vacancy.

Opponents of the 457 visa program argue that these positions should be advertised so Australians can apply for the jobs. But it is unlikely an employer is going to fire a good worker simply because he or she is a migrant who needs a visa renewal. A requirement forcing employers to advertise vacancies – as was introduced recently – will be ineffective in reducing the number of unemployed Australians. A more effective method would be a greater price incentive, such as a higher fee for the employer to use the 457 program. But the fact remains that employers will keep employees whom they deem best able to perform the duties, as Nigel Farage’s case indicates.

Another reason for the divergence of job vacancies and visa applications may be the anomalous surge in visa grants for the hospitality industry. The number of visa applications lodged by companies providing accommodation and food services has quadrupled in a short time – from 2540 in financial year 2010–11 to 10,480 in 2012–13. The main occupations sponsored by this sector are cooks, chefs and cafe or restaurant managers, and they make up more than 10 per cent of the 457 program.

With job growth in the industry comparable to the labour market as a whole, there is nothing to indicate that demand for restaurant workers is as strong as this surge suggests. Given that the sector also has the lowest median income of any industry in the program, something is clearly amiss. Yet in a recent response to a Senate estimates question, the department stated it “does not have any concerns” about this issue. I wouldn’t be surprised if media stories about 457 visa workers being mistreated in this industry begin to appear over the next twelve months.

On the whole, though, the 457 visa program is highly effective. While still a niche labour market program – at less than 1 per cent of the total labour market – it plays a critical role for employers filling skilled vacancies. At the margins, however, there are signs of emerging problems. Low-income migrants appear likely to be at a disadvantage regarding pay increases, and some employers in the hospitality industry are probably not using the program as intended.

As the Abbott government prepares to cut the public sector, it should remember that if the immigration department lacks the resources to enforce its regulations, exploitation will inevitably increase, and will be unearthed by media that thrives on stories of Aussie jobs. Poor regulation and a lack of enforcement will undermine public trust and support for migration in general, and for the 457 program in particular.

If this comes to pass, the anti-migrant populism of Nigel Farage is more likely to find refuge here in Australia. •

The post Temporary migration: the pressure points appeared first on Inside Story.

AT AN ANNUAL cost of around $40 billion, the age pension is the federal government’s largest single social security program, and age pensioners account for around half of all Australians receiving social security benefits. So it’s not surprising that the speculation about cuts in welfare spending has focused on this payment, and specifically on the possibility that the qualifying age could age rise to seventy and that future increases in pension rates might be linked to prices rather than wages.

The treasurer, Joe Hockey, has argued that the pension age “was set at that level in Australia in 1908 when life expectancy was fifty-five… Now life expectancy is eighty-five and as of today, it’s still pension age sixty-five.” But would raising the pension age be fair – and, just as importantly, would it be a practical and effective means of meeting current and future budget challenges?

The budget challenge

A common way of looking at the budget implications of an ageing population is to consider changes in the “age support ratio” - the ratio of potential workers to people of pension age. According to Treasury’s most recent Intergenerational Report, the age support ratio is projected to fall over the next three or four decades. In 2010, there were five people of working age for every person aged sixty-five and over; by 2050, says Treasury, that figure will have fallen to 2.7.

Everything else being equal, this means that the cost of financing any given level of pension payment will be greater. A halving of the support ratio, for instance, implies that the taxes required to fund age pensions would roughly double for each person of working age at that point in the future. (For the moment, we’ll ignore the fact that these future workers are likely to be better-paid than current workers.)

If the government wishes to achieve and maintain a budget surplus, total taxes would need to increase (the cost of age pensions is already more than 10 per cent of total Commonwealth tax revenue), spending on other budget items would need to fall or the level of age pension per recipient would need to be cut.

Population ageing also has implications for other parts of the federal budget. Older people are likelier to use the healthcare system, and if they are eighty-five or older they are much more likely to need long-term care. On that basis, the Intergenerational Report estimates that spending on health is projected to rise from 4 per cent to 7.1 per cent of GDP by 2049–50 and aged care is projected to rise from 0.8 per cent of GDP to 1.8 per cent.

Would increasing the pension age be fair?

The attraction of increasing the pension age is that it has the potential to adjust both sides of the support ratio simultaneously. If people stay in paid work rather than claiming the age pension, then the numerator (people in work) rises, while the denominator (people on pensions) falls, achieving a double whammy. If people spend more time in paid work they are also likely to save more through the superannuation system, raising their living standards in retirement.

It is for these and related reasons that bodies like the OECD and the European Commission have been arguing for increased labour force participation for older workers for a number of years.

Any assessment of the fairness of a policy proposal, however, should take into account how a specific reform proposal compares with other options. As Daniel Nethery has pointed out, the changes to the indexation of pensions canvassed by the treasurer would cause pensions to fall relative to community incomes. Over a thirty-five- to forty-year period the difference in future retirement incomes would be very large, eventually approaching a 50 per cent cut in payment levels relative to current indexation, with significant implications for poverty in retirement. Australia would then face the same problem with pensions that we currently face with Newstart – people reliant on pensions for their main income source would become increasingly impoverished compared to those in work.

Increases in the pension age need not have a direct impact on pension incomes. But they may reduce the period over which age pensioners receive the payment, and thus reduce what the OECD calls “future pension wealth,” which it defines as the ratio of the “lifetime flow of retirement incomes” to average earnings. In these circumstances, pension wealth is cut even if the amount received per year is unchanged.

Would this reduction in pension wealth be fair? In this context, one of the most important factors to remember is that life expectancy varies across the population and the majority of people don’t actually live as long as “average” life expectancy would suggest.

In the case of the United States, Barry Bosworth has estimated that there is a gap of roughly ten years in life expectancy at age fifty-five between rich and poor for both men and women born in 1940. In other words, men and women born in 1940 who were in the richest 10 per cent of the population in the middle of their working career could expect to live to just over ninety years, while life expectancy for men and women who had been in the poorest 10 per cent of workers would be around eighty years. This would mean that if the retirement age was increased to seventy then rich Americans could expect to collect social security pensions for twice as long as the poor.

Astonishingly, Bosworth’s study finds that life expectancy for the bottom 40 per cent of women in the United States actually declined between those born in 1920 and those born in 1940.

Research by the Office of National Statistics in England and Wales concluded that inequalities in male life expectancy caused by socioeconomic circumstances increased during the past twenty-five years despite improvements over time for all classes. At age sixty-five, the life expectancy of males classified by occupation as “higher managerial and professional” was 18.8 years, compared with 15.3 years for those assigned to occupations classified as “routine.” At the same age, the life expectancy of females classified by occupation as “higher managerial and professional” was 21.7 years, compared with 18.5 years for those assigned to occupations classified as “routine.” While the gap increased more rapidly for women, there were improvements in life expectancy for all income groups.

In Australia, the most striking discrepancy is between Indigenous and non-Indigenous life expectancies. In 2005–07, according to the Australian Bureau of Statistics, life expectancy at birth for Aboriginal and Torres Strait Islander males was 67.2 years, 11.5 years less than that for non-Indigenous males (78.7 years). For Aboriginal and Torres Strait Islander females, life expectancy at birth was 9.7 years less than for non-Indigenous females (72.9 years and 82.6 years respectively).

On average, in other words, Indigenous men couldn’t expect to reach a new pension age of seventy and Indigenous women would receive the age pension for less than a quarter of the time that non-Indigenous women would. (A good deal of the difference in life expectancies is due to the fact that Indigenous men and women aged sixty-five or less have much higher mortality rates, so that even now a significant number don’t live long enough to claim an age pension.)

Across the population as a whole, the Australian Institute of Health and Welfare found differences in life expectancy between major cities and very remote regions in Australia of nearly seven years for men and six years for women – although most of this is due to differences in the share of people who are Indigenous.

A recent Australian study by Philip Clarke and Andrew Leigh found that at age sixty the difference between life expectancy for those in the highest income quintile and the lowest income quintile was five years for men and 5.4 years for women, with men in the lowest quintile expected to live to just over seventy-eight years and women in the same income group to eighty-three years.

These differences are significantly less than the figures for the United States, although this is at least partly because the American estimates are broken down into smaller groups (deciles) and thus pick up more of the disparities at the top and bottom of the income distribution. Comparing the second and eight deciles (rather than the poorest and richest) would reduce the US disparities to about seven years for both men and women, still greater than in Australia.

On the surface, this suggests that higher-income groups in Australia could get a pension for about half as many years again as would lower-income groups if the pension age was increased to seventy. But there is one factor – unique to Australia among rich countries – that would offset this: we are the only OECD country where the public pension is income-tested and excludes most of the highest-earning 20 per cent of people over sixty-five.

The effects are also likely to be less severe in Australia than in the United States in particular because differences in life expectancy do not appear to have as steep a gradient with income, and because Australia’s income-tested pension system distributes public spending on pensions more progressively than many other countries’. The relative disparities in pension wealth are much more significant in the case of Indigenous people, however, although possibly the better way to think about this is to ensure that we become much more effective in reducing the life-expectancy gap between Indigenous and non-Indigenous Australians.

To sum up, increasing the pension age potentially has an adverse effect in equity terms. An increase in the pension age reduces the pension wealth of lower-income groups proportionately more than it reduces the pension wealth of higher-income groups.

Would increasing the pension age be effective?

Apart from the equity problems, it is equally important to ask whether increasing the pension age is an effective way of addressing current and future budget challenges.

In terms of immediate fiscal concerns, it would have no effect on the current budget deficit because the rise is unlikely to commence during the next eight years. As part of the 2009 pension reforms, the Rudd government announced an increase in the pension age from sixty-five to sixty-seven, starting in 2017 and fully phased in by 2023. If the pension age were raised to seventy at the same rate, the change would not be fully effective until 2032. It’s possible to increase the pension age at a faster rate – say by six months every year – but this would still not see the pension age reaching seventy until 2029; this means that most of the baby boomers born before 1959 or 1962 (depending on the speed of increase) would not be affected. Increasing the pension age is not a solution to current problems; it is a contribution to meeting challenges in the 2020s and 2030s.

It has been argued that if Australia lifts the pension age to seventy, Australians will have some of the oldest workers in the world. According to the most recent edition of the OECD’s Pensions at a Glance, seventeen out of the thirty-four OECD countries have legislated for increases in pension ages above sixty-five. Only Iceland and Norway are currently at sixty-seven, but Australia, Denmark, Germany and the United States have plans to match them, and Britain has announced an increase to sixty-eight.

Most OECD countries have provision for early retirement, however, including Australia, which allows access to superannuation from sixty years of age. So it would be important to consider increasing the superannuation preservation age, which allows those with sufficient super to retire at sixty and potentially avoid the effects of an increase in the pension age. And to the extent that higher-income people are able to run down their super during this period of early retirement and then claim some or all of the age pension, concerns about fairness become more salient.

In considering the effects of pension rules, however, a better measure is what the OECD calls the “effective age of labour market exit” – the average age at which workers are no longer participating in the labour market. (This is estimated over a five-year period for workers initially aged forty or over.) Australia currently has the twelfth-highest effective exit age for men, at 64.9 years, while for women Australia ranks sixteenth-highest, at 62.9 years.

Many of the OECD members with higher effective exit ages are lower-income countries, including Mexico, Chile, Korea, Portugal and Israel, though in Japan the average exit age for men is over sixty-nine years and for women it is close to sixty-seven years. This suggests considerable scope for Australia to increase effective ages of labour force exit, if it aimed to match Japan.

Would increasing pension ages be effective in increasing employment at older ages?

Part of the objective is to have an indirect effect earlier in people’s working lives. If people now in their forties or early fifties know that they won’t be able to claim an age pension until they are seventy, they may adjust their retirement planning and savings behaviour and extend their working lives. For any such effect to occur, however, it would be necessary to have complementary policies that support people in balancing their work and caring responsibilities, in particular.

But it’s important to recognise that there appears to be little correlation between official and effective ages of retirement. Norway, for example, already has a higher official pension age than Australia but a slightly lower effective age of labour force exit. The vast majority of countries with low effective ages of labour force exit have the same official pension age as Australia currently has; at the extreme, Luxembourg has a pension age of sixty-five but an effective exit age for men of 57.6 years.

Specific national experiences do suggest, however, that increasing the pension age can have a significant effect on employment at older ages and also on how many people receive social security payments. New Zealand increased its age of eligibility for its public pension scheme, National Superannuation, from sixty to sixty-five years between 1992 and 2001. Research by the Melbourne Institute found that there was clear increase in employment rates in this age group due to the policy change. But it also noted that only 40 per cent of middle-aged couples in New Zealand had private or employer-sponsored superannuation at the time, with a low median value of $30,000 – meaning that there were limited alternatives for many people approaching pension age. Earlier research also suggested that the effect was due to the fact that older workers who already had jobs stayed in employment.

Closer to home, Australia increased the age pension age for women from sixty to sixty-five years between 1995 and 2013. According to the ABS, the labour force participation rate of women in this age group increased from 16.6 per cent to 45.6 per cent in this period. Research at the University of Sydney found that an increase in the pension eligibility age of one year for women induced a decline in the probability of retirement of approximately 10 per cent, but also increased enrolment in other welfare programs, especially disability pension, or DSP.

While the number of women aged sixty to sixty-four who received the DSP increased very significantly over the period, the net effect was a very large fall in receipt of social security payments, from around 60 per cent of women in the age group in the mid 1990s to around 20 per cent currently.

This experience might suggest that raising the pension age could potentially have a major impact in restraining welfare costs, but there are reasons to be cautious about whether past trends are necessarily likely to have the same effect in the future.

As shown in the chart below, disability is strongly related to age. Although it remains around 10 per cent of the population up to the age of forty-five years, it increases rapidly to more 40 per cent by the age of seventy. Overall DSP rates fall between the two prevalence rates shown here, being closer to the rates of profound or severe core limitation than to overall disability rates. Nevertheless, it is clear that a higher proportion of those aged sixty-five to sixty-nine years could be expected to have a disability than among those aged sixty to sixty-four years, suggesting that future increases in the pension age are likely to have diminishing returns compared to past reforms.

Chart 1: Prevalence of disability by age, Australia, 2012

Source: ABS, Disability, Ageing and Carers, Australia: Summary of Findings, 2012.

Which crisis?

Increasing the pension age is likely to be just one part of any set of reforms to address the challenges of population ageing. While it could be expected to have a positive impact on the budget balance it is implausible that it could fill the gap by itself. Many complementary policies will need to be considered, including a requirement that superannuation be taken in the form of lifetime annuities to ease the pressure on age pensions. New ways of financing long-term care would also appear to be essential in preparing for population ageing.

Moreover, as recently pointed out by Veronica Sheen, obtaining and maintaining employment in later life is not straightforward. The loss of a job, and difficulties finding another, tend to precipitate a decision to retire. Age discrimination barriers are significant and need to be addressed. Work-life balance issues become more sharply defined with age.

Increased workforce participation among older people also has potential costs in other important areas of social life. Women’s lower participation in the labour force partly reflects their greater family responsibilities (looking after elderly parents, for example). Workforce practices that allow these responsibilities to be more effectively shared between men and women will need to be developed.

More fundamentally, it isn’t clear that the federal government’s budget challenge is primarily caused by the level of spending on age pensions. Australia currently has the fourth-lowest level of public pension spending of any OECD country and is projected by 2050 to have the third-lowest level of pension spending.

Where Australia is unusual is that it has by far the highest level of tax concessions for private pensions in the OECD, at four times the OECD average, and people of pension age pay much lower taxes than workers at the same level of gross income.

A fair and effective approach to the challenges of population ageing would involve much more than increasing the pension age. •

The post Work till you drop? appeared first on Inside Story.

DURING the last two federal election campaigns the Coalition promised new measures to tackle long-term unemployment. That pledge has found its way into legislation that would create two new payments to encourage people to rejoin the workforce. Labor has largely supported the bill, which is currently before parliament, but the precedent it sets for New Zealanders living in Australia has inflamed opinion across the Tasman.

The first of the new payments is a Job Commitment Bonus. Job seekers aged eighteen to thirty who’ve been on benefits for twelve months or more will receive a tax-free payment of $2500 if they remain in “gainful work” (and off welfare) for at least a year. After two years, they’ll receive an additional bonus of $4000. The second – with its less catchy title, Relocation Assistance to Take Up a Job – replaces the existing Move 2 Work program and offers unemployed people payments of up to $6000 (more if they have dependent children) if they need to move house to find work.

Although Labor MPs supported the bill in the House of Representatives, they argued that, by failing to create jobs or increase skills, it doesn’t go to the heart of the youth unemployment problem. They were also concerned about the expanded penalties in the relocation scheme: anyone who quits a job “without a reasonable excuse” within six months of receiving a payment will be barred from receiving any benefits for twenty-six weeks. (Under the previous scheme the non-payment period was twelve weeks.) Overall, however, this is not a particularly contentious piece of law-making.

Why, then, is the prime minister of New Zealand being questioned about the bill in parliament in Wellington, and why has he directed diplomats at the New Zealand high commission in Canberra to register his government’s concerns with the Australian government?

At issue is the fact that the bill redefines what it means to be an “Australian resident” in an unprecedented and highly specific manner. As a result, New Zealanders are excluded from the new job commitment bonus, regardless of how long they have lived in Australia.

Here, a bit of history is required. New Zealanders enjoy the right to live and work indefinitely in Australia – a right that was formalised under the 1973 Trans-Tasman Travel Agreement – and for a long time they were essentially treated as permanent residents. That changed when the Howard government amended the definition of “Australian resident” in social security laws to exclude New Zealanders. The Howard changes were prospective – they only applied to those who crossed the Tasman after 26 February 2001. So while newcomers couldn’t receive many government welfare payments (including unemployment, youth and supporting parent benefits), Kiwis already settled in Australia still could.

This division – between pre- and post-2001 New Zealanders – is expressed in the arcane bureaucratic language of visa categories. New Zealanders who arrived before the changes are deemed to hold a “protected special category visa”; their compatriots who arrived after the changes hold a “non-protected special category visa.” Of the half a million or so New Zealanders settled in Australia, about 200,000 are estimated to fall in the unprotected category, and their numbers are continuing to rise.

Regardless of the inequities involved – and there are many – the distinction between these two categories has, until now, remained completely clear. The new bill, however, qualifies “Australian resident” to exclude anyone who holds a special category visa – protected or unprotected – from eligibility for the job commitment bonus. As the bills digest prepared by the Parliamentary Library comments, this is “an exception to the usual practice in Australian social security law” and “a change without precedent in the entitlements offered to this group.”

Since the job commitment bonus is only payable to long-term job seekers aged between eighteen and thirty who find gainful employment for at least twelve months, the changes will not affect a large number of New Zealanders. Those who arrived after 2001 would be excluded anyway, as would many who arrived earlier (because they would be too old to be eligible). No doubt there will be some individuals who will be denied the payment – a New Zealander who arrived in 1990 at age two and is now twenty-six, for example, despite being an Australian resident under any common sense understanding of that term.

Given the focus on one very specific payment, it is hard to understand why the provision has been included at all. The cost savings are likely to be tiny. Given the intention of the bill – to encourage the long-term unemployed to become independent of government payments – it would make sense to include “protected” New Zealander welfare recipients in its scope.

This has led New Zealanders on both sides of the Tasman to interpret the provision as a signal that further changes are on the way – that, far from acceding to persistent and growing demands for fairer treatment of Kiwis who arrived in Australia after 2001, the Abbott government may be preparing to head in the other direction. On this reading, the entitlements of all New Zealanders – including those who settled before the 2001 changes introduced by John Howard – would be at risk.

This seems a reasonable interpretation of the explanatory memorandum to the bill. Under its statement of compatibility with Australia’s human rights obligations, the memorandum says that protected visa holders “will be treated like other New Zealand citizens” for the purposes of the Job Commitment Bonus.

This sets a “very dangerous precedent,” says advocacy group Oz Kiwi. It suggests that the entitlements of “protected” special category visa holders are not protected at all, and can be diminished “however and whenever” the government wishes. Oz Kiwi says the Australian government is “using its poor treatment of post-2001 arrivals to justify stripping rights from pre-2001 arrivals in the name of equality.”

Whether or not this is the intention will only become clear in future legislation. If it does, there may not be much that New Zealanders in Australia or the New Zealand government can do about it.

Of the thirty-one speeches during the second reading debate over the bill only two – by Labor MPs Jim Chalmers and Julie Collins – raised concerns about its treatment of New Zealanders. After scrutinising the bill, the Parliamentary Joint Committee on Human Rights resolved to seek clarification from the employment minister “as to why it is considered necessary to exclude protected SCV holders from accessing the Job Commitment Bonus, and the basis for considering that their inclusion may jeopardise the goals of the measure.” The reality, however, is that New Zealanders resident in Australia don’t vote and don’t carry much clout.

Official protests from New Zealand may not have much impact either, even with the marked change of tone. In his answer to the question put to him in parliament, prime minister John Key used the terms “discriminate” and “discrimination” to refer to Australia’s treatment of New Zealanders – stronger language than he has been known to use previously. Existing restrictions on New Zealanders’ entitlements in Australia are, however, evidence of diplomatic battles fought and lost in the past. •

The post New ways to dud Kiwis appeared first on Inside Story.

IN THE first week of March, Julia Gillard promised “to stop foreign workers being put at the front of the queue with Australian workers at the back.” Her speech in Western Sydney provoked a testy and at times unsavoury national debate about whether temporary migrants on 457 visas were “stealing Aussie jobs.” Less than three weeks later, the federal government quietly changed the rules of another visa in ways that will enable thousands more temporary migrants to work in Australia for up to four years.

Alterations to visa subclass 485, the Temporary Graduate Visa, will make it easier for international students to stay in Australia after successfully completing their studies. The changes, which took effect on 23 March, allow students to obtain a two-year work visa if they study in Australia for at least sixteen months and complete either a bachelor’s degree or a masters by course work. Students who complete a masters by research can qualify for a three-year visa, while those who complete a doctorate get four years.

This is a significant increase on the previous limit of eighteen months. What’s more, applicants no longer need to be qualified for any of the jobs on the Skilled Occupation List – the government’s list of job categories deemed to be in short supply, which is currently dominated by health and engineering professions. Any graduate can get the 485 visa if they are under fifty years of age and have competent English, as long as their first visa to study in Australia was granted on or after 5 November 2011.

Introduced in 2008, the 485 visa was originally designed to allow international students graduating from Australian courses “to gain skilled work experience or improve their English language skills.” While that is still an aim, the broadening of the visa also serves to make studying at an Australian university more appealing in a competitive global education market.

The government promised to expand post-study work rights in September 2011, in response to a review of the student visa program by former NSW Sydney Olympics minister Michael Knight. The government commissioned the review after a sharp fall in international enrolments at Australian tertiary institutions, partly caused by the high Australian dollar and a series of violent attacks on overseas students. Also important, however, was a change in policy that broke the near-automatic link between studying in Australia and the right to permanent residency, which had been established under John Howard. With that carrot removed, enrolments fell as students went elsewhere.

Expanding temporary work rights was an attempt to regain lost ground. Knight stated plainly that an expanded work visa was essential to “the ongoing viability of our universities in an increasingly competitive global market for students.” Vice-chancellors also made the connection explicit. At the time, Glenn Withers, chief executive of Universities Australia, said that Knight’s “breakthrough” proposal was as good as or better than the work rights on offer in Canada and the United States.

With about 240,000 international students enrolled at Australian universities and colleges, it would be interesting to know whether there has been any modelling of the anticipated demand for the expanded 485 visa. The visa was proving popular even before the work rights were expanded: annual visa grants grew from about 15,000 in 2009 to around 38,000 in 2012, and by the last year there were some 38,000 graduates in Australia on the post-study visa.

It’s likely that tens of thousands more graduates are waiting for their 485 visas to be issued. If the current processing time of twelve months persists then the two-year post-study entitlement is, in reality, valid for three years, since graduates can live and work in Australia on a bridging visa while applications work their way through the system.

The 457 and the 485 visas have many features in common. In both cases, temporary migrants must have private medical insurance and are not eligible for any government benefits. But there are also some big differences, and these could make the 485 visa even more contentious if numbers continue to grow fast.

Unlike skilled workers on a 457 visa, international graduates do not need a firm offer of work from an employer. Nor must they find a job related to their qualifications or requiring a certain level of skill. While 457 visa workers must be paid at or above prevailing market rates, the temporary graduate visa has no minimum salary requirements.

If 457 workers are retrenched, they have just one month to find another employer to sponsor them into a skilled job at a similar level; otherwise, their visa expires and they have to leave the country. A 485 visa remains valid regardless of whether a temporary migrant is in or out of work.

So while the stated intention of the new policy is for international graduates to gain experience in their professional area of study, there is nothing to prevent them working in any job, anywhere. While the economy and the labour market are strong this may not be much of an issue. If unemployment were to rise sharply in a downturn, however, attitudes might well change – particularly if leading political figures start talking about foreigners stealing "Aussie" jobs.

As a backgrounder from the parliamentary library puts it, the effect of the new rules on the job market will be worth monitoring. •

The post We know about the 457. What about the 485? appeared first on Inside Story.

“AMERICA’s university-based teacher preparation programs,” declared US secretary of education Arne Duncan in a much-quoted remark, “need revolutionary change — not evolutionary tinkering.” We could use a revolution here too. In fact, we know what it could look like as well as knowing that it’s needed. But it seems almost certain that we’re not going to get it.

The need is almost scandalously obvious. When new teachers are asked to rate their pre-service course, about a fifth say that it was not much help in learning how to “develop a unit of work,” a third report that it didn’t help them “work effectively with other teachers,” around four-in-ten don’t feel helped in “knowing how to engage students in learning” or in “handling a range of classroom management situations,” and two-thirds or more say the same about “teaching literacy,” “understanding and catering to student differences” and “working with students from different cultural backgrounds.” Another, less comprehensive survey found that three-quarters of new teachers declined to say that they felt “very well” or even “well” prepared for “the reality of teaching,” and a third survey found that between 20 and 40 per cent felt unprepared in a number of areas of practice. Yet more surveys find, over and again, that new teachers complain about the weak links between theory and practice in their pre-service courses, the lack of relevance of much of the “theory,” and poor or no liaison between school and campus.

Principals agree with them. Asked much the same questions, they give new teachers even lower ratings than the new teachers give themselves. In one survey, nearly half of principals scored new teachers as “well prepared” in just eight or fewer of fifty-nine areas. International comparisons are no more encouraging. The OECD’s Teaching and Learning International Survey found that more than a third of new teachers in Australia are regarded by their principals as lacking “pedagogical preparation,” putting Australia seventeenth in a field of twenty-two. Only Mexico, Turkey, Italy, Spain and Lithuania did worse. At the other end of the scale, only one in ten Danish or Norwegian principals expressed such concerns.

How bad is that? Pretty bad. Unlike graduates in fields such as pharmacy, architecture, law, accountancy and medicine, who must complete one, two or several years working under supervision and/or in further training, with salaries to suit, teacher education graduates are passed off, employed, and paid as self-sufficient professionals. Many are not.

Everyone in and around teacher education knows that there is a problem, and many are trying to do something about it. In 2008 COAG, the Council of Australian Governments, signed off on a “National Partnership Agreement on Improving Teacher Quality,” which commissioned the development of national standards for teachers and for teacher education programs, and proposed national harmonisation of teacher registration requirements, “engagement” with teacher education providers to improve pre-service teacher education, and new “alternative pathways” into the teaching profession.

Serious money provided under the agreement provoked a hive of activity down on the ground, often guided by developments in Britain and the United States, and often complemented by state-level reviews and strategic plans. Most take aim at the weakest link in a tenuous chain, the “practical component” of teacher education. Two Victorian programs, with the University of Melbourne playing a key role in both, are generally regarded as setting the pace: the masters in teaching, or MTeach, and Teach for Australia, or TFA.

The former revolves around extended “practicums” in “school centres for excellence” supervised by “teaching fellows,” all operating under “school–university partnerships.” TFA, much more strongly based in practice, offers an “alternative pathway” into teaching via a six-week residential course followed by two years as an “associate” in a school catering to disadvantaged communities. There, they have four-fifths of a full teaching load and support from “clinical specialists” (from the university), “teaching and leadership advisers” (from TFA headquarters), “mentors” (from the schools), and perhaps most important of all, each other. Efforts along similar lines can now be found in most states and territories and in a number of universities, often drawing on the “clinical practice” of the medical profession and the idea that selected schools should serve the same function as teaching hospitals.

These are, in sum, exciting times in teacher ed. But they are depressing times too, and not just because this kind of high-energy educational innovation so often gets thinner as it spreads wider. The really disheartening thing is that the main effort is not going into doing things differently but into more of the same, and it’s the innovators themselves who are driving it that way.

THE big resources are going towards increasing the length of all pre-service programs, and doubling the length of postgrad teacher training from one year to two. In April 2011 state and federal ministers of education endorsed a recommendation from the Australian Institute for Teaching and School Leadership that the last of the old one-year programs must be gone by 2017.

This is a spectacularly bad decision. We could ask some awkward questions of the institute, about why programs supposedly designed to deliver its new professional standards for teachers need to be of fixed duration, for example. Shouldn’t students move though their programs in as little or as much time as they need to reach those standards? And if we need two years to get graduates up to scratch, how is it that an “alternative pathways” program gets people into schools — with classroom responsibilities — in six weeks? But the real problems with the two-year rule are that it costs a lot, and it won’t work.

We know that it won’t work because we’ve been there before. In the 1960s primary teachers did two-year courses. The drive to improve teacher preparation and to make teaching a profession pushed courses out to three years by the 1970s and four by the turn of the century, with consequences noted above. In fact four-year-trained primary teachers generally give their courses even lower ratings than do the degree-plus-one-year secondaries. And if it is hard to detect gains in teacher effectiveness (or gains for the end-users, the school students), gains to the profession are even more elusive. Its status, salaries, and standards of entry remain as low as ever. This near-invisible progress was purchased at very considerable cost, which doubled and then some because the longer programs are taught in universities rather than in the old colleges of advanced education or teachers colleges, and the universities set aside two-fifths of each teacher educator’s time for research.

The case for doing the same all over again rests on the same old arguments: the work is more complex, and teaching must become a true profession. As the influential 2010 Queensland review of teacher education put it, pre-service programs must be longer and at a higher (graduate) level because “the status of the profession itself must be raised” and because “meeting expectations for school education in the twenty-first century demands unprecedented levels of knowledge and skill.”

We can accept the premises about the status of the profession and the nature of teachers’ work without accepting the conclusion that yet more time in university-based courses will or can provide what is needed. To the contrary: those and other demands on teachers and teaching can only be met by doing a lot less of the same and a lot more of the new. What Arne Duncan’s revolutionary talk implies is this: university-based teacher education programs are taught by the wrong kind of people in the wrong place at the wrong time.

THE crucial thing in teaching is knowing how to survive and thrive in the classroom. Most of what teachers do is still done in the classroom, and most of what they do there still depends on reflexes and intuition. It is a craft. Learning it is like learning to bat or ski or swim, only more so. Because teaching is so person- and context-dependent you don’t so much learn to teach as become a teacher, in the way that an actor becomes an actor (the two occupations have much in common), per medium of a self-customised, erratic, idiosyncratic process. It takes time, practice and help.

Much of the help required to get people through the process as well and as quickly as possible is feedback rather than “input,” and iterative contributions to long cycles of try–review–think–try again. Some get it very quickly, some slowly, some never get it at all. The only way to find out whether they have got it is by seeing how they go in the actual doing, over extended periods.

Craft knowledge is crucial, but not the whole deal by any means. Teachers need expertise in “subject matter,” and ease with abstract modes of thought, and they need what might be thought of as technical knowledge — knowing how best to move a student through the early stages of reading, for example, or recognising learning disorders and difficulties, or being able to use standards-referenced assessment. As teaching becomes less a solo performance in the theatre of the classroom, as it becomes more technology-rich, and as the relationship between teaching and learning becomes more explicit and accounted for, teachers will need more and more technical expertise.

But that doesn’t mean that expertise is best acquired either before or away from work and the workplace. Here the analogy is learning to become a musician. Musicians need both theory and practice, but they don’t learn one before the other. They don’t even learn them in parallel. They learn them in interaction, and so should teachers.

The difference is that would-be musicians can be provided with everything they need, up to and including real-life performance, at a conservatorium. There is no equivalent for teachers. Only the school can provide beginners with what they need to become pros. More exactly, only the school in the right kind of cooperation with a university. Teachers are used to going to uni. What the new practice-strengthened and practice-based “alternative” programs suggest is that it’s better for the university to go to the teachers.

An early evaluation of the MTeach is promising. It reports around 90 per cent of graduates feeling well-prepared for teaching, more than double the score of mainstream programs. The TFA program seems to be doing even better. There have been teething problems, of course, getting logistics and coordination sorted particularly, but every school involved rates the “associates” more highly than the mainstream newbies, and every school wants more of them. The schools worry about the whole thing being too demanding; the associates say bring it on. Retention rates, for very small numbers (forty or so per cohort) at this early stage, seem to be no worse than for the mainstream, although it must be allowed that those are not very high.

Taken together with experience of overseas programs these early results suggest that the whole of graduate and much of undergraduate pre-service teacher education programs can and should be based in schools.

MANY of those involved would agree but struggle to see how that can be done or afforded. Cost certainly seems to be an issue. Like other two-year programs, the MTeach gets double the subsidy from government and students (via their HECS payments) — around $32,000 rather than $16,000 for the old one-year courses — and gets a special supplement of $5500 per student per year on top of that to pay for the teaching fellows and other work in the schools. TFA is even more expensive. Early estimates suggest a per-graduate cost of around $216,000 against $140,000 for the mainstream (a calculation which, it should be noted, may have been done in a way that minimises the gap between the two).

At first glance those figures do seem to suggest that the “alternative pathways” will have to remain alternative, and that the mainstream will be battling to replicate the MTeach. But the question is worth a much closer look.

For one thing, both the MTeach and TFA are small, high-focus pilot programs with correspondingly high unit costs. More important, there has been no attempt to find offsets. If we consider using the same money in different ways it may even be that the sums already spent on teacher education are just about enough to do the job.

Consider the following “model,” just one of many ways of mixing and matching tools and techniques drawn from the new practice-based programs and beyond, from Australia’s apprenticeship programs, and from “distance ed” and the growing “massive open online courses” movement — to provide a quite different pre-service education of teachers.

First, free up a large quantum of resources and at the same time improve the quality of “theory,” by consolidating existing graduate-entry teacher education courses — 145 of them (there are another 272 first-degree programs), offered by thirty-seven universities and eleven other providers — into a small number of online programs, say three versions of each of the main specialisations so as to provide choice (for users) and the spur of competition (for providers).

Then convert some of the 40 per cent of academic time set aside for conventional “research” to “clinical practice” and school-based R&D, not for all teacher education academics, but for many. Some in universities would see that as an unacceptable loss. It would be better seen as a transformation, not as “losing research” but as shifting effort and attention from one form of knowledge production and distribution to a better one. At least some teacher educators would be excited by the prospect of joining a new corps of clinicians, providing that it was properly rewarded and recognised.

Third, replace two-year campus-based programs with three-year internships (or nominally three-year, as detailed below), with a one-to-two theory/practice split. Spread two years of teacher salary ($110,000) over the three-year internship at, say, $30,000 for the first year, $35,000 for the second and $40,000 in the third, and have $5000 left over to use elsewhere. Schools would need to get two years’ worth of work from each three-year intern, but they already do that in TFA. Small groups of interns would be based in schools geared up for the purpose (as they are in the MTeach and TFA) so that they could learn from each other, and so that the work of clinical staff could be efficiently done. Clinical staff responsibilities would include providing tutorial support to the internet-delivered programs.

Fourth and last, new and emerging techniques of assessment and appraisal could use standards developed by the Australian Institute for Teaching and School Leadership to determine both point of entry to the program (what is often referred to as RPL, or recognition of prior learning) and rate of progress through its stages. These could be three in number, with the typical expectation of achieving full graduation and teacher registration at the end of three years, but perhaps a year or so less or more, depending.

Of course a reorganisation of activity, resources and responsibilities on that scale could not be done overnight, or without opposition. There would be conversion costs, including redundancies, retraining (of clinical supervisors and school staff), development of online courses, and new facilities in schools. There would be problems of coordination, cooperation, and territorial possession. Universities’ research output would be reduced.

Against this can be set many possible and probable gains. Internships offering a liveable wage from day one would be attractive to many graduates, and might well lift the quality of entrants to the profession. The long, slow mutation of the school into a place of learning for teachers as well as for students would be encouraged, as would the development of long-foreshadowed career–study pathways. Online courses with in-school support would boost instructional quality and help schools learn how to use the internet for their own purposes. Teachers would have a new career option. A reduction in universities’ education research output would be offset by the development, testing and application of new and more valuable forms of knowledge and expertise. Above all, evidence from the new practice-based programs suggests, it would work. New teachers would actually be able to teach.

There is a necessary element of hypothesising and conjecture about all this, including likely costs and effectiveness, although every element of the “model” sketched above already exists in pilot form or better. Back-of-the-envelope calculations suggest that there would be significant transition costs, but that ongoing unit costs, while greater than for one-year programs, would be lower than for two.

No doubt others could find better ways of assembling the same jigsaw, but the real question is this: why has no one tried? Why, in fact, when teacher educators were offered the opportunity — indeed, when they were prodded towards the task — did they indignantly reject it?

IN 2010 the Productivity Commission commenced a review of “the schools workforce,” including teacher preparation. It soon discovered what everyone in the industry already knew: teacher education doesn’t work very well. It also discovered that several very promising reforms, including those described above, were both dwarfed and negated by the two-year proposal.

By the time the commission had published its interim report in November 2011, the horse had bolted. Acting on the recommendation of the Australian Institute for Teaching and School Leadership, the ministers assembled had made two-year programs mandatory.

That decision looked bad enough for the commission to suggest in decorous but unmistakably firm tones that it be rescinded. The commission could find almost nothing in the decision to recommend it. It worried that prospective teachers would be deterred, and that problems of supply (particularly of hard-to-get maths and science graduates) would be exacerbated. But what it really worried about were high costs and low effectiveness. While supporting longer and better practicums, the commission could not see why making not-very-effective programs twice as long would work, and suggested that evidence offered by the institute and others in support of the move was “mixed.”

But the costs! The commission pointed out that every student doing an extra year adds $10,000 to the government bill, and is even more expensive for students, doubling their HECS liability from $6000 to $12,000 and increasing by around $50,000 income foregone. Surely, the commission pleaded, there must be a better way to improve teacher preparation? Better induction, mentoring and ongoing professional development, for example?

The Productivity Commission’s interim findings and suggestions provoked a small torrent of dissenting submissions. One faculty of education declared that a minimum of two years was “vitally important.” The Queensland College of Teachers quoted that state’s review of education in support of the two-year move, without considering that the review itself might be vulnerable to the commission’s line of reasoning. The national union of non-government school teachers declared that it “rejects outright” the commission’s views, citing societal change, demands on teachers, and an expanded professional knowledge base. The Australian Institute for Teaching and School Leadership thought the question important enough to commission a special review of the international evidence, conducted by an expert who happened to be the lead author of the Queensland review.

None of these submissions discussed previous experience with doubling the length of pre-service programs. None mentioned costs. All missed or ignored the Productivity Commission’s central point, arguing at length that two years are better than one, which proposition the commission at no stage questioned. None attempted to answer the commission’s pivotal question: since two-year programs cost twice as much, couldn’t we find a better way to get the same result at lower cost? Or extract better value for the same outlay?

Unsurprisingly the commission found nothing in these protesting submissions to cause it to change its mind. In its final report, released in April 2012, it restated its arguments and concerns, and repeated its suggestion that the decision be rescinded. The ministers subsequently fretted about problems arising from transition to the two-year regime, including teacher supply; but, advised by the Australian Institute for Teaching and School Leadership rather than the Productivity Commission, the decision stood.

IN THEIR own defence the teacher educators could say that shifting teacher education from campus to school, from theory-based to practice-based, is just too hard. There are too many institutions, interests and agencies to be lined up: nine governments, two main teacher unions, three school sectors, countless “professional bodies,” and no fewer than thirty-seven universities. Worse, the “system” has no coordinating agency or supervening authority; efforts ranging from Whitlam’s Schools Commission to Gillard’s COAG partnerships have failed to herd the nation’s education cats.

In which case, why not have a go in one of the big states? Why, for example, did the Queensland review of teacher education not even consider whether the “alternative” might not become the mainstream? Perhaps more striking, why has there been no such move in Victoria, where most of the creative rethinking and experimenting has been done?

One explanation is that it would not be in the interests of the universities to do so. Doubling the length of postgraduate courses represents a substantial increase in demand for the services of teacher education faculties and in resources available to them. It is good for business.

Teacher educators are hardly the first interest group to find a happy coincidence between their own interests and those of their clients and the wider community, of course. But teacher educators are unusual in their capacity to shape these wider views. Many “outside” organisations have inquired into, reviewed and reported on teacher education, but all of them, up to and including the Australian Institute for Teaching and School Leadership (and even the Business Council of Australia), have relied on the advice, research and argumentation of teacher educators. The exception is the Productivity Commission, and it proves the rule. It brought its own brains to the task and reached its own radically different conclusions.

There is an unsavoury aspect to this otherwise commonplace interaction between interests and ideology. Academic research is usually disinterested; the researcher is independent of the researched. In this case, however, the researchers are the beneficiaries of their own work. They come close to a conflict of interest. Even stronger language might be used to refer to the fact that those asking for more bear none of the costs, and that most of those new costs are borne by the student who wants to be a teacher, the poorest and least powerful player in the whole game.

Universities are not the only group for which the term “stakeholder” is all too apt. Teachers, too, have a very large stake in the game. The idea of a “graduate profession” is just another step in a long campaign to improve the status, salaries and standards of entry to teaching by pushing up the length and “level” of its credentials.

Professionalisation is not the wrong idea (although teaching would do well to stop hankering after some of the paraphernalia and pretensions of the “true” professions), but it has been pursued by the wrong means. Teaching’s knowledge base and practice are comparable in complexity to those of other professions, but very different in form. Teaching does need and deserve a high-end credential backed by government. But trying to get it by serving ever-longer periods before getting anywhere near the job does not suit the kind of work teachers do or the knowledge they have, and it doesn’t deliver the industrial goods either.

For one thing, teaching’s pay and conditions make it a weak competitor in the market of credential-seekers, particularly as opportunities for women have broadened. That has the counterproductive effect of pushing entry standards down and forcing providers to develop “alternative pathways” and “flexible entry.” These in turn give the lie to the claim that a longer and “higher” education is necessary.

Worse, extended university-based programs split “theory” from “practice,” expand the proportion of time, attention and esteem given to the former, and denigrate and subordinate the latter. That is why teacher education doesn’t work.

The way to make teaching’s credentials work for both the performance of and rewards to the profession is to base them in practice and in genuinely usable knowledge, and to guarantee them per medium of new and emerging forms of assessment and appraisal.

Costs are not an insuperable problem. The claim for yet more resources is based less on reality than on a way of thinking about reality. Teacher educators are not used to shifting effort around in pursuit of better results, and they do not use the underlying idea of “cost-effectiveness,” a reflection of the intractable institutions which form their main subject matter. Research into productivity and cost-effectiveness in education comes from those few education researchers with training in economics. It is rare, rarely used, and even more rarely understood.

Between 1979 and 2005 there were no fewer than thirty-nine reviews of the national system of teacher education or aspects of it, and forty-one more at the state level. One review of these reviews was aptly titled Two Decades of “Sound and Fury” but What’s Changed?. The really troubling thing is not the time taken to tackle a manifest problem, but the belief in policy-making as “evolutionary tinkering,” a cumulative incrementalism viewed by most of those involved as muddling through, getting us there, bit by bit, eventually. Recent efforts at reform in teacher education and elsewhere suggest the contrary. New problems and new tasks and new costs are piling up faster than improvements. The case for the “revolution” whose broad shape is now clear is not just that it would produce better results at lower cost but also that it is necessary.

The place to start is with ways of thinking, and the place to start on that is with the application to education of economics and its paradigm-busting idea of productivity. There is much that economics does not and cannot know about education in general and teacher education in particular, but what it does know is crucial, and revelatory. We can only hope that the unprecedented appearance of the Jolly Roger of the Productivity Commission in one of the outposts of the empire of education is a sign of things to come. •

The post Evolutionary tinkering in revolutionary times appeared first on Inside Story.

The most compelling feature of People on Country is the testimony of the Indigenous participants in “ranger” or “caring for country” programs designed to give employment and natural resource management responsibilities to custodians of traditional lands. Many of these Indigenous communities are truly asset rich and income poor, owning vast lands yet offering vanishingly few opportunities for employment and little incentive for a younger generation to pursue education and employment. As a result, many remote Indigenous communities have become diabolical poverty traps, replete with damaging social dysfunction. Ranger programs, often underwritten by welfare payments, are one of the few bright spots on an otherwise bleak horizon. Outdoor activity, including ranger work, has also been proven to make a significant contribution to improving the chronic ill health of Indigenous people.

Yet Indigenous engagement in natural resource management throws up deep philosophical issues that invariably collapse into conflicts over ideology and values. Indigenous people have a customary right to hunt and fish on their traditional lands, for instance, but should such wildlife exploitation be a key component of Indigenous nature reserves? And what about the question of animal rights and ethics; should the funders of Indigenous natural resource management programs turn a blind eye to traditional methods of killing wildlife (and feral animals) that may be considered cruel by non-Indigenous people? Indigenous people also have a fundamentally different perception of risk in the bush, so there is a profound mismatch between mainstream occupational health and safety – safety boots, for instance – and the reality of Indigenous bush life, where walking bare-footed is second nature.

A greater challenge for ranger programs lies in the fact that many Indigenous people combine invaluable local knowledge with very low levels of educational attainment. How should this mismatch be reconciled so that traditional ecological knowledge is recognised as a key attribute that deserves financial reward? The reality is that natural resource management programs depend on numerous non-Indigenous participants who can navigate the shifting sands of bureaucratic and academic terminology, make sense of the steady turnover of government programs with mind-numbing acronyms, and attract and acquit funds.

People on Country highlights these tensions between the Indigenous and non-Indigenous participants. The chapters by the academic protagonists are clearly written to impress, and in some cases chide or even shame, their fellows in the academy and the bureaucracies. As a consequence, the reader is introduced to the esoteric debating points, drawn from the social and ecological sciences, inherent in Indigenous natural resource management “discourse.” This kind of highbrow writing jars with the plainer language of the Indigenous testimonies.

This mismatch in style and approach is inevitable given the genesis of the book; essentially it is the accountability step of a number of research programs funded by government and philanthropic foundations. As a consequence, there is a narrow focus on the Australian National University–based research group’s achievements, which has been sharpened by their decision not to attempt a comprehensive review of the literature generated by others working in this field.

The book is also a work of advocacy, which is fair enough, but that tends to compromise the depth of scholarship and therefore limits its shelf life. There is no certainty that the hopes outlined in this book will translate into the dominant mode of existence for remote Indigenous communities. Indeed, the authors repeatedly allude to the competing, and currently ascendant, vision of Indigenous development that places an uncompromising emphasis on integrating the next generation of Indigenous people into the mainstream economy, with the consequent pressure for children to meet national education standards. Funding is being directed to building this capacity in more economically efficient regional hubs rather than sustaining the remaining remote bush communities where Indigenous traditional life persists tenuously.

Discussion about Indigenous land management often focuses on northern Australia. But the majority of Indigenous people live in southern Australia, where they face greater challenges to gain rights, or even access, to land than do their counterparts in the north. As an interesting counterpoint to the situation in northern Australia, People on Country describes the challenges faced by Indigenous people in more densely populated New South Wales in trying to gain rights to land and to build the capacity to manage natural resources. In contrast to the north, Indigenous natural resource management groups in New South Wales have fewer assets and greater administrative challenges, and must often compete with existing natural resource managers. Forging enduring partnerships to get access to and manage traditional lands, let alone becoming major players in natural resource management more broadly, remains a critical challenge. Achieving this demands higher levels of education, improved administrative capacity, greater financial resources and greater respect for traditional rights.

The authors know only too well that funding, and especially enduring funding, is a critical challenge for Indigenous natural resource management. It is true that the private sector and the non-government nature conservation organisations are interested in partnering with Indigenous landowners, yet these arrangements are neither straightforward nor free from external priorities and performance targets that may prove unworkable in the future. Concerns about the carbon economy might ultimately override other views about the way land should be managed, for instance, and nature conservation agreements may preclude traditional harvests of wildlife. The sustainability of non-government funding is also uncertain.

Ultimately government funding will remain pivotal for bush Indigenous communities. According to one argument advanced in People on Country, it is the moral responsibility of government to help restore the condition of traditional lands degraded through inappropriate management by settler Australians. This moral claim can be countered by the moral imperative to improve Indigenous health, employment and education dramatically. The authors ignore the fact that governments are generally losing interest in substantial natural resource management expenditure, which is compromising the functioning of nature reserves throughout Australia. There is serious talk of de-gazetting “under-performing” national parks in some jurisdictions, and of outsourcing management to NGOs. It is a bad time to be seeking substantial and long-term government funding for Indigenous lands.

Nevertheless, this is a valuable book that can be read in many ways: it is useful for those interested in contemporary natural resource management and Indigenous development politics, and it highlights the dilemmas inherent in researching in cross-cultural settings. Indeed, as a document it can be deconstructed to illuminate the changing ways contemporary Australian culture is attempting to reconcile with its deep Indigenous past. •

The post Shades of green, black and white appeared first on Inside Story.

For Standing, it is the absence of these forms of security that defines a new class, the precariat. In this book, he explores the spread of neoliberalism and the labour market dislocation and increased casualisation that followed as part of the collateral damage wrought by globalisation. Working on a broad canvas, Standing sketches the spread of insecurity across many countries and into many corners of society.

Precariousness is at the heart of the book, providing its title and structuring its contents. After introducing the precariat as a class, Standing ranges across its growth in recent decades, focusing on the young, the old and migrants. He also looks at changes in working time under global capitalism, as well as the restructuring of leisure and the growth of a culture of surveillance. (There is also an amusing commentary – presumably based on personal experience – about the disruptive effects of constant email checking.)

Standing’s discussion of migrants is particularly sobering. He introduces the new “denizens,” millions of people who have been denied citizenship and thus left vulnerable to exploitation in the labour market and open to persecution by right-wing politicians. Recent examples here include Sarkozy’s ejection of the Roma from France and the attack on African migrants in Calabria during 2010. Across the Atlantic Arizona introduced draconian anti-immigration laws, which highlighted the potential for authoritarian abuses once racial demonising of “outsiders” was made legitimate. This example quickly brings to mind our own record of demonising outsiders – in our case, “boat people.” Australia crops up in this chapter for another reason: our use of temporary overseas workers is seen as typical of global patterns in the abuse of migrant workers. Indeed, as Standing points out, Australia has provided a blueprint, in the form of its points system for assessing migrants, for countries like Britain as it seeks to restrict citizenship.

Globalisation is a focus throughout the book. Standing’s time with the International Labour Organization clearly provided him with many insights into the links between global capital and temporary precarious labour forces. In the 1980s Standing visited multinational factories in the export zones of Malaysia, for example: “Thousands of young women from the kampongs were housed in shabby hostels, labouring for incredibly long work weeks and then expected to leave after several years, once their health and capacities had deteriorated. Many left with poor eyesight and chronic back problems. Global capitalism was built on their backs.” Today, Standing observes, the story is still the same but the locations are now in Bangladesh, Cambodia and Thailand.

Standing’s insights into China’s capitalist development are also illuminating. The flow of workers from rural to urban areas, typical of most developing countries, is given an interesting twist by the Chinese experience. Denied proper residency rights in the coastal cities where they labour in multinational factories, these workers have become migrants in their own country as “de-citizenised” or de facto denizens. Their precarious existence and their exploitation underpin the cheap products that Western consumers now take for granted. The sheer size of this phenomenon – some 200 million rural workers have moved into the new industrial workshops – has created a global labour market unlike any in the past. Together with changes in India and other parts of low-wage Asia, these changes have engendered a constant downward pressure on wages across the globe, something Western workers grimly face as they watch their jobs relocate to Asia.

THE strengths of Standing’s book, however, are also its weaknesses. It is broad-ranging and illuminating, but the reader is left wondering: is it too broad-brush and perhaps too stark? A favourite conceptual device of historians is the “change and continuity” couplet – the idea that various social and economic developments may exemplify change, but in the background continuity is also to be found. In Standing’s book, though, everything is change: the world is being rapidly transformed and there is little sense of the continuity. At one point he observes that many young people who reject employment drudgery also reject “the labourism of stable full-time jobs stretching out into the distance.” Yet it has always been thus: studies of the youth labour market in the 1950s, and again in the 1980s, frequently made the point that young people were restless and impatient during their formative years in the labour market and had no tolerance for such drudgery. The broad brush is also evident in another of Standing’s bald and unsupported assertions about young people: “In former bastions of unionism, such as Spain and Italy, youth bitterly reject unions.”

To ground his thesis of major transformation, Standing selects statistics and case studies from around the world. But there is a methodological problem with this approach to analysis: what about the evidence against the thesis? If one were studying a single country in a given period, for example, one could assemble all the data that pointed in favour of change and then assemble all the data that suggested continuity. A reasoned judgement of the balance between change and continuity might emerge. But if the data being assembled is drawn from many countries, and spans many years, and is solely employed to point in the same direction, how does one make a reasoned and critical judgement?

As the reader encounters all this rich and diverse material, nagging thoughts arise. Can all these different bits of evidence really be piled together to make one story? Is it legitimate to draw one example from Germany, another from Britain and then throw them together with an example from Japan? What if an example from India, or France, pointed in a different direction? How is that to be integrated into the story? And is the evidence really comparable across different countries or different time periods? Should evidence from newspapers and television documentaries be given the same weight as evidence produced by academic researchers? When one finds Standing being careless with his statistics, for example mixing youth unemployment rates with teenage unemployment rates, warning bells ring. Where else, one wonders, are disparate or incompatible sources coerced to argue the same case?

Australia features throughout and Standing’s analysis will resonate for many Australian readers. Developments here also reflect the wider global labour market, of which Standing sketches a depressing picture. The current ACTU inquiry into insecure employment in Australia, being conducted by former Labor deputy prime minister Brian Howe, is bringing to light many examples consistent with Standing’s analysis. At the same time, however, Australian “exceptionalism” should not be overlooked. Casual jobs here pay a “loading,” a legacy of past union campaigns to curtail this form of employment. The Australian experience has also generated another unique phenomenon: the oxymoronic “permanent casual.” Many casuals remain in the same job for many years, and industrial tribunals can deem them to be “permanent” for various purposes.

Overseas, the story is different. Temporary work, also called contingent employment, generally provides no wages premium, nor any kind of tribunal protection. These jobs are not only precarious, but also often highly exploitative. In Australia, casual workers face a lack of job security and income security, an inability to get bank loans, uncertainty about their future and few prospects for building a long-term career. But casuals here do earn higher hourly rates and do have some degree of protection from arbitrary treatment. More importantly, many casuals are not condemned for life to this precarious existence.

While the debate about whether casual jobs are a “bridge” or a “trap” is inconclusive, it is the case that a certain proportion of casuals – between about a fifth and a third – do end up in permanent jobs the following year, and the proportion continues to rise in subsequent years. The casual labour market in Australia is also the domain of university students, many of whom will have lifetime trajectories pointing in a different direction, such as professional careers. The accountancy student won’t be flipping hamburgers all her working life.

WHEN it comes to political implications, Standing’s book is a disappointment. This partly arises from its underlying theme: that precarious workers form a precariat, a new social class. Undertaking a class analysis of developments in the labour market is often a fruitful way of exploring how individuals who share a structural location – what Marx called a “class-in-itself” – come to engage in collective forms of action and thereby constitute themselves as a “class-for-itself.” In other words, a shared social and economic situation can lead to workers becoming conscious of their common experiences and shared aspirations. A crucial element in such a transformation is the experience of engaging in collective action. Anyone who saw the film Made In Dagenham, based on the women’s strike for equal pay at the Ford Dagenham factory in 1968, will recognise this process.

As the structural locations fragment, however – which is increasingly common in the age of neoliberalism – such collective action is increasingly difficult and less frequent. That’s certainly been the case in Australia, and in many other Western democracies. But in developing countries the story is quite different. Acute observers of the Chinese scene, for example, will have noted the widespread expressions of collective rebellion by the Chinese working class since that country embraced capitalism.

Standing is aware of this tradition of class analysis, and comments that “the precariat is a class-in-the-making, if not yet a class-for-itself.” But should we take this claim seriously? Are retail workers in Australia’s supermarkets, or bar attendants in hotels, on a par with impoverished African or Asian migrant workers dispersed across southern Europe? Do under-employed university graduates with limited career prospects have anything in common with the Mexican “illegal” workers picking strawberries in California? Certainly, all share in insecurity. But is that enough to constitute a class?

Standing equates the “proletariat” with the traditional working class engaged in permanent employment and seems to have forgotten that for much of the history of capitalism the proletariat has been mired in insecurity as part and parcel of its exploitation. Until the coming of the welfare state in the 1950s few workers enjoyed any of the labour market securities now taken for granted. The current transformation of work, with its increased insecurity, the pressure to work faster and harder and greater levels of exploitation, is more of a reversion to form than a radical new departure. By distinguishing the precariat from the traditional proletariat Standing is also creating the political space to distance himself from “labourism,” with its agenda of full employment. Indeed, Standing lambasts “social democrats and labourists” who advocate job guarantees and the right to work.

In place of what he sees as an outdated political agenda, Standing proposes a “politics of paradise” based on social solidarity and universalism. It is a politics, he observes, that is “mildly utopian and proudly so.” A crucial element of this is rescuing work from jobs and labour, so that all forms of work – such as unpaid caring work – are equally respected. Another plank is a call for a “basic income,” a payment to all citizens irrespective of their employment status. While such a scheme might appear attractive, critics like University of Newcastle academics Bill Mitchell and Martin Watts have shown how the basic income approach undermines the politics of full employment. Certainly, many readers will regard Standing’s rejection of both “labourism” and the need for full employment as a backward step. Essentially it condemns political action to an accommodation with neoliberalism on the latter’s own terms. Yet the answer to so many of the problems that Standing documents lies in the decisive rejection of neoliberalism and the restoration of a politics of full employment.

Ultimately, Standing’s precariat category is what Marx would have called a “chaotic abstraction,” and is a source of confusion rather than illumination. In practice, it’s a particularly slippery concept. At times it’s an economic category, based on insecurity in the labour market or super-exploitation in the workplace. At other times, it’s a subjective category, composed of people who feel alienated, dispossessed or without a future. Sometimes, these various groups are said to be “in” the class, at other times they are said to be “linked” to it. Were other researchers to try to employ such an elusive category in serious empirical work, the result would most likely be a prolonged headache.

If Standing had been content simply to pursue the extensive abuses of global capitalism, as he does so well in his chapter on migrants, then the book would have hung together nicely. Instead, we have chapters on time and leisure and the growing culture of surveillance that read more like journalism than serious research. Indeed, Standing’s notion of the precariat as a new class, and his alarmist subtitle – the dangerous class – suggest that the journalist in Standing has trumped the researcher. It would be a pity if the critics dismissed this book because of its dystopian “future shock” feel. It deserves a wide readership because it does highlight the profound challenges posed by global capitalism, challenges which the current crop of politicians have barely comprehended, let alone confronted. •

I am grateful to Caroline Alcorso, Murray Goot and Humphrey McQueen for comments on an earlier draft of this review.

The post A world built on precarious foundations appeared first on Inside Story.

— Former finance minister, Lindsay Tanner, speaking at the State Library of Victoria on 30 July 2008

ABDULKADIR SHIRE and Ali-nur Duale are masters of disguise. The two Somali men, now in their fifties, have spent more than thirty years between them applying for jobs in Melbourne. Their tactics have ranged from the shrewd (omitting their nationality and native language on their CVs) to the downright devious (“de-Arabising” their first names by replacing them with initials). But their real skill is one that not many people would think of bringing to the job market: making themselves look unintelligent on paper.

They call it “downskilling”: cutting from their resumés any hint of a qualification or achievement that might make them appear too smart for the jobs they’re applying for. In Duale’s case, that means hiding a PhD in applied entomology and a distinguished career developing crop protection programs for farmers in Africa and India. In Shire’s case, it’s a Masters in petrochemical engineering and a diploma from Victoria University that don’t get mentioned.

But both men have given up that battle. Last October, after seventeen years and more than 300 failed job applications, Shire packed his bags and moved to Brisbane, where he is now helping his wife start a family daycare business. Duale is resigned to continue working as a casual interpreter for a refugee translation service.

“People say, ‘Why can’t you get a decent job, with all your qualifications and experience?’” says Duale, who is often described in his community as the most qualified Somali in Australia. “And I have to lie and tell them I just want to do something to help my own people. I’ve even told my children this untruth.”

No one has calculated the loss of allowing so many of our best and brightest residents to work as drivers, translators, cleaners or security guards. The “PhDs driving taxis” headlines have come and gone, but hundreds of experienced doctors and accountants and engineers are still driving cabs and doing menial part-time jobs on hourly wages to sustain their families and relatives overseas. Hundreds more have given up entirely, resigning themselves to a perpetual life in the slow lane.

Africans, the newest, most foreign group in our cultural melting pot, are invariably suffering the most. Some say it’s always been this way: the waves of Greeks, Italians, Lebanese, Vietnamese and other migrant groups who arrived between the 1950s and 80s all struggled just as hard to find sustainable jobs. But the evidence strongly suggests otherwise. As an Englishman who was offered his first professional job within two weeks of landing in Australia, the stories of Duale, Shire and dozens more Somalis I’ve met have forced me to reassess my opinion of Australia as a place where opportunity is guaranteed for new arrivals.

WHEN Lindsay Tanner, former finance minister and federal member for Melbourne, resigned last June, many members of Victoria’s African community felt they had lost one of their own. Not only was Tanner a critic of the hardening of Labor’s asylum seeker policies, he was also the most visible and vocal of the country’s pro-African “champions” – a regular guest at community events, and a loud advocate for greater training and job opportunities among the country’s least-employed migrant communities. Just a week before his resignation, Tanner launched a report by the Australian Human Rights Commission that found evidence of anti-African sentiment in virtually every sphere of Australian public life.

Of course, you don’t give up such convictions easily. Within weeks, Tanner was back to assisting two Melbourne-based projects he is particularly close to: the Corporate Leaders Network’s African-Australian Project, through which ten high-profile companies – including the National Australia Bank, IBM, Australia Post, BHP and Telstra – have committed to develop training and placement opportunities for African-Australian graduates; and the Horn-Afrik Employment, Training and Advocacy Project, a homespun initiative with 250 “Horn of Africans” – migrants from Eritrea, Djibouti, Ethiopia and Somalia – on its books.

The next year or two could be make-or-break for both projects. The Corporate Leaders Network has promised to “ramp up” its focus on African jobseekers, and after two job-training workshops in which black faces were notably absent it has reserved a third of the thirty-five places at its next workshop for Africans. The Horn-Afrik project, run by a Somali-Australian out of a dingy room in a tower block in Carlton, has secured federal funding for two more years; yet this project, the only African-run initiative linking the Victorian government and industry to support professional jobseekers, has found jobs for only seventeen people in the past three years – and ten of these have since returned to the taxi ranks.

As Australia grapples with increasingly polarised views about our multiracial future, such scoresheets challenge what Immigration Minister Chris Bowen recently called “the genius of Australian multiculturalism.” Conservative commentators continue to portray African communities – and particularly Somalis and Sudanese – as hotbeds of criminality and covert fundamentalism, while popular media outlets stir perceptions of their members as gang members and dole bludgers. But what few people have yet broached are the obvious links between fathers who struggle to find work and children for whom job satisfaction is a concept from another planet.

“If we’re losing the fathers, we will lose their sons,” warns Horn-Afrik’s project officer, Omar Farah. “They will drop out of school, live on the dole, and some will go into crime. If your husband is unemployed, your father is depressed, your parents are talking about going back to Africa – how can you expect that family to be striving to adopt ‘Australian values?’”

Spending a few days with Farah is an object lesson in conviction and its perpetual battle with its evil twin, despair. As the brains behind Horn-Afrik, and a regular adviser to the Victorian government and the Victoria Police, this genial fifty-one-year-old enjoys the unique perspective of being the only African-Australian formally employed to find professional jobs for his compatriots. But his raison d’être – that there are plenty of jobs out there, and colour-blind employers with them – has been tested virtually every day of the twenty-three years he’s called Australia home.

“When I walk down the street in Melbourne, I’m black, I’m probably involved in crime, I’m certainly un-Australian. When I’m out with my family, we’re seven refugees just arrived from Africa (even though all our kids were born here in Melbourne). Back in Somalia, I was the son of the respected Mohamed Farah Dhollawa and any adult in the community could discipline me, which led to a feeling of being protected and looked out for. But there’s none of that expectation, that comfort, here.”

Lindsay Tanner, who has become a close personal friend of Farah, also sees this lack of “familiarity” as the principal challenge – the ultimate fitting-in quality that only time will provide, just as it did for his own Greek forebears. “It won’t be long before the majority of Somalis in Australia are born here – maybe another ten years,” he says. “The real question will be, are those born here having the same opportunities and standard of living and capacity to be part of our society?”

Tanner believes – or hopes, at any rate – that they will. But a growing number of Australians who work closely with the country’s African communities are not so sure. Reverend John Evans has had a front-row seat in the inner Melbourne suburb of Carlton, where his Church of All Nations backs onto a sprawling housing estate where nearly half the 3000 residents are African. “Africans are still not welcome in Lygon Street, fifteen years after they first came here,” he says, referring to the gentrified shopping precinct a stone’s throw away. “They’re just so different from other ethnic groups here. It’s part of that fear of the unknown that defines our society. It’s not orchestrated, it’s not about hate groups or anything like that. It’s just this unfamiliarity…”

In the meantime, the one thing that nearly everyone in government, academia, industry and the community agrees will make a migrant family feel most at home – a decent full-time job – is being withheld by a conspiracy of personal prejudice, professional apathy and persistent media bias. Somalis consistently rank as the least employed of any race in Victoria, with anywhere between 32 per cent and 47 per cent out of work. The conspiracy has become a self-fulfilling cycle. While Asians and other “visibly different” migrants occupy ever more prominent positions in our hospitals, schools, courtrooms and police stations – places associated with legitimacy and trust – the almost total absence of black faces in such venues speaks volumes about our confidence in Africans’ values and abilities.

More than twenty years after Somalis started arriving in Australia in significant numbers, government policy is still geared towards humanitarian refugees, fresh from the refugee camps of northern Kenya, without the money, language or tools to begin their new life in the West. Through a concerted program of support – housing, schooling, healthcare and lots of English classes – these people have gradually found their feet in a new and unfamiliar world. It’s a program that Australians truly can be proud of. But for those Somalis who came under the skilled migration program, who gained their credentials in university halls and government offices, who speak excellent English – those who arguably have the most to offer their new home – one of the world’s most generous humanitarian hosts has little room left in its heart.

IN towns and villages across Somalia, the older men traditionally gather after prayers on a Friday to drink tea and swap wisdom on everything from the timing of the next harvest to the motives of their latest political leaders. It’s a far cry from the urban spill of Point Cook, on the western fringes of Melbourne, where the city’s fastest-growing conurbation is springing up on the seaweed-strewn shores of Port Phillip Bay. But on Sunday afternoons, at one of the little coffee shops in Point Cook’s Main Street, you’ll find at least one of Somalia’s traditions alive and well on the southern edge of Julia Gillard’s electorate.

Here, a dozen or more Somali men gather to discuss everything from plans for a new community centre to personal recipes for encouraging children to learn the Somali language or rebellious teenagers to show more respect for their teachers. The subject of their own employment is, of course, never far from the conversation. A couple of the men are part-time lecturers or have small businesses, but the majority here have never had a full-time job in Australia.

Abdirahman Kulmiye is a newcomer to the group, but his story is all too typical. A highly erudite and well-spoken marine scientist in his late forties, Kulmiye arrived in Australia in early 2007 with high hopes of landing a professional job. This is a man who should get a job in any country with a coastline – let alone one surrounded by sea. His resumé (undoctored, he’s at pains to point out) includes extensive work with the UN’s Food and Agriculture Organization, management of the Fleet Department at Somalia’s largest seafood factory and, for three years, a posting as chief technical adviser to the country’s Ministry of Fisheries. Like Ali-nur Duale, Kulmiye is a PhD holder whose numerous academic papers – including several on the spiny lobster, a sister species of Australia’s sea crayfish – have been cited the world over.

But after dozens of applications for scientific and research postings, and not a single letter of reply, a dejected Kulmiye sent a note back to his old colleagues in Africa – and was immediately offered a job by the Swiss NGO Vétérinaires sans Frontières. Despondent and running low on money, he eventually acquiesced and took up a consultancy role with the organisation in Nairobi.

“The main reason I haven’t been able to get a job in Australia is the catch-22 situation that employers want to see local work experience before they’ll give you any themselves,” says Kulmiye. “I don’t really understand this endless focus on local experience, especially if you have worked for governments or managed international projects at the highest level. Why doesn’t anyone pay any attention to that?”

Berhan Ahmed, a University of Melbourne lecturer who runs the refugee advocacy organisation African Think Tank, has no doubt why. “It’s institutionalised racism, pure and simple,” he says. “Africans use Anglo-Saxon names to get called for interviews, and when they see they’re black they get sent home.”

While I was writing this article, several African job-hunters told me stories that beggar belief about the reception they’ve received from Australian employers. (In every case, they either requested I withhold their names, or called me afterwards to ask me to withdraw their stories; such is the residual fear of authority among even our permanent African residents.) Two experienced accountants told me separately of attending interviews for professional positions in Melbourne, only to be offered jobs as drivers. One articulate research scientist described flying to Queensland to meet a potential employer, who “was very surprised to see a small black man at the airport – so surprised that I knew right away I wouldn’t be getting that job.”

“You get used to hearing the same questions time after time from employers and recruitment agencies,” says Duale. “They ask, ‘Are you sure that African universities offer PhDs?’ or ‘Do you speak the African language?’ Even when I’m interpreting for the government, they’ll be processing a refugee from Southern Sudan and they’ll say, ‘Are you sure you can’t speak his language? Is that not an African language?’”

Ahmed, a former Victorian Australian of the Year, says African Australians are victims of an enduring “anti-black” corporate culture, which – as in colonial times in Africa – generalises black people as lazy, arrogant and unreliable, and invariably winds up costing them jobs. He points to the starkly differing experiences of white South Africans, whose “connections” have carried them to the very top in major businesses.

It’s a situation Lindsay Tanner believes will only begin to be addressed when black Africans start getting “runs on the board” in corporate Australia. “I remember as a young lawyer, I felt I was surrounded by the children of judges and law firm partners, and all those people knew that world and understood its rhythms, even before they set foot in it,” says Tanner. “If you have only the formal academic learning but have had no access to the informal networks, you’re at a huge disadvantage. The idea of mentoring is supposed to break that down. Once you have a few Somali kids who prove stars at NAB, who are given full-time jobs, the knock-on effects should be significant.”

It’s an open secret that hundreds of African migrants have done bridging degrees or supplementary exams to bring their qualifications up to Australian-scratch – only to return to the dole queue or the taxi rank. “Politicians and academics across the country must be asking themselves: where are all these Africans that our unis and TAFEs have prepared?” says Abdulkadir Shire. “If fifty qualified people are applying continuously for two years and not one of them gets an interview, either their applications weren’t received or the employers are looking for another kind of people. There’s no proof it’s racism. It’s such a damaging word; but the reality is that employers are looking for something else.”

There’s nothing like the R-word to get researchers scribbling, politicians ducking and employers vigorously defending themselves. Yet numerous studies have conclusively shown that jobseekers with foreign names get nowhere near the same “go” as other applicants. A 2009 study by the Australian National University, which sent out 4000 fictitious job applications, showed that candidates with Chinese or Middle Eastern (Arabic) names had to send out 68 per cent more resumés than those with Anglo-Saxon names to get a response from a potential employer.

Farida Fozdar, who has spent much of the past decade studying discrimination against migrants at Murdoch University’s Centre for Social and Community Research, says the situation is far worse for African Muslims, who suffer the “double jeopardy” of being both racially and religiously different. Fozdar told me about meeting experienced African doctors who were literally begging hospitals to take them on as unpaid interns. “For these professional, accomplished people, there are huge issues of self-esteem and dignity among their families and their children – and they’re not even being allowed to do volunteer work!”

Fozdar’s latest study made much the same recommendations as those in last year’s Human Rights Commission report: a more streamlined system for approving overseas qualifications; subsidised bridging courses to bring them up to speed; greater jobseeking services, mentoring and work experience opportunities for skilled migrants; and more equitable employment legislation. Both reports also emphasised the need for specific education for employers on the benefits –for both workplaces and bottom lines – of employing senior staff from different cultural backgrounds.

National Australia Bank’s deputy CEO, Michael Ullmer, is one executive who no longer needs persuading. After attending a lecture by Lindsay Tanner at Melbourne’s State Library in July 2008 – a moment credited with waking up corporate Australia to the issues faced by professional Africans – Ullmer made it his mission to do something to help. The result was a “workplace development program” that has provided paid six-month placements to twenty-three Africans with business and accounting degrees – with another fourteen joining the company in March.

Ullmer says the program has been a boon for NAB: his department heads are reporting “overwhelmingly positive” responses to their new African staffers, who bring different approaches and problem-solving skills, not to mention a potentially profitable connection with their own communities. Of the twenty-three candidates to date, sixteen have stayed on at the bank after their placements. “There are many things that we as an organisation can learn from their commitment and drive,” says Ullmer. “We have a responsibility… to address this issue of underemployment among African Australians, rather than pretending it doesn’t exist.”

Former IBM Managing Director Glen Boreham also helped to initiate a workplace training scheme that provided paid placements to three African graduates in 2009 – one of whom stayed with the organisation. But other business leaders have been slower to rally to Tanner’s call. The Corporate Leaders Network, which links socially conscious companies with migrant service providers, established its African-Australian Project early in 2009, specifically to help professional Africans into work. But despite some early gains – for example, getting companies to review web recruitment channels that automatically bar those with no Australian experience – convener Leigh Purnell says that in a tough economic climate companies have found it harder to create room for new employees.

“Here in Melbourne, there’s very active CSR [corporate social responsibility] among the big corporates, but there are limits,” says Purnell, a former Australian Industry Group director who also served as an adviser to former immigration minister Chris Evans. “One thing employers cannot compromise on – and we do not want them to compromise on – is the technical requirements of their jobs.” Purnell is putting great store in the Corporate Leaders Network’s third training workshop in May, which will, however, be limited to candidates who have graduated over the past two years

There are, of course, dozens of vital training programs, internships and mentoring schemes, and vocational courses run by the state-funded Adult Multicultural Education Services, charitable organisations like Jesuit Social Services and the Brotherhood of St Laurence, and numerous conscientious city councils, many of which are making a real difference to the lives – and work chances – of thousands of “new Australians.” But like the research and funding on which they are predicated, most of these schemes focus on younger migrants or refugee communities in regional areas.

Meanwhile, the Horn-Afrik project, the Corporate Leaders Network’s African-Australian Project and a few other pioneering initiatives continue to campaign for more formal mentoring, internships and training opportunities for African graduates and professionals. Omar Farah’s project is now also targeting professional African women – traditionally even further down the ladder than their male counterparts – and reports more African women undertaking “care” qualifications such as nursing and aged care, and an encouraging number starting up their own childcare businesses.

But clearly much remains to be done. “Australians are a very welcoming, open society when you take your wife to maternity or your child to school, but Somalis coming here still cannot compete on an equal footing in the job market,” says Ahmed Warsame, a Somali community leader who lectures part-time at Victoria University. “There’s an enduring lack of policies and formal assistance for new arrivals, particularly for young people and women.”

Abdirahim Abikar, an experienced social scientist and RMIT Masters graduate, has been forced to return to Africa nearly every one of the twenty-three years he has lived in Melbourne. He called me from Juba, Southern Sudan, where he’s currently providing training to the world’s newest human rights commission. “I consider myself Australian, but there are just no chances for me there. I have five kids, aged between six and seventeen; you can imagine how badly they need me. But a man needs to support his family. It has been awful to leave them behind so often.”

Abikar says that however many times he returns to Australia, he always feels like a refugee, a misfit; more so, when he picks up a newspaper. “The media consistently portrays us Africans as poor, illiterate and unprofessional, and basically suggests that every Somali in Australia has links with pirates or terrorists.”

WHEN I read the story of the Australian doctors using a hacksaw and a knife to amputate the legs of a man trapped in the Christchurch earthquake, I was reminded of two doctors I once met in a small hospital in the town of Eldere in southern Somalia. The only doctors for hundreds of miles, these young men were operating each day on everything from broken bones to complex obstetric fistulas, in a bare theatre, with ancient instruments and – all too often – inadequate or out-of-date anaesthetics. Watching them work was inspiring beyond words.

On six visits to Somalia over the past fifteen years, I have been struck time and again by the courage, resourcefulness and staggering dedication of the professionals working there. As well as doctors undertaking near-miraculous operations, I met teachers instructing large groups of pupils under trees without a single pen, and journalists writing reports on corruption they knew could get them assassinated. Fearless and single-minded to a fault, these were some of the biggest heroes I will ever meet.

Yet bring them to Australia, and the courage and commitment of people like this slowly but surely die: eroded by year after year of rejection, discouragement and official silence. It’s little wonder the older professionals here – many once proud captains of their industries – wind up sliding into an uneasy retirement, “fitting in” as interpreters or drivers, and trying not to look back at what might have been, had they not given up their old lives for their children. •

The post Pirates, terrorists or doctors of philosophy? appeared first on Inside Story.

THE CHANGES announced and implemented on Monday by the immigration minister, Chris Evans, constitute the most fundamental reform of Australia’s skilled migration program in more than two decades. Senator Evans has not only addressed an immediate and thorny issue – the problematic link between permanent migration and the marketing of Australian education – he has also signalled a major rethinking of how Australia selects skilled migrants for permanent residency. (Family and humanitarian migration are not affected by the changes.) There will be a great deal of pain for some organisations and for many individuals as a result, and the full consequences will take many years to be felt. Some pressing problems remain – most notably the blow-out in processing times for non-priority visa applications already in the system – but the attempt to shift policy onto a new footing is driven by a strong and defensible rationale.

Politically, the changes enable Senator Evans to portray the government as “taking back control of immigration” from whom he doesn’t say), a useful message in an election year when “population” is emerging as an issue. But this is not poll-driven policy. The changes are the result of months-long departmental reviews that have prompted fresh thinking and provoked intense debate within the bureaucracy and within cabinet. The outcome represents a significant victory for the Department of Immigration and Citizenship over the much bigger and generally more powerful Department of Education, Employment and Workplace Relations. When the policy was contested in Canberra corridors, the heavyweight departments of Treasury, Finance and Prime Minister and Cabinet all came down on Immigration’s side.

The changes confirm and entrench a shift from a “supply-driven” to a “demand-driven” migration program. In other words, rather than migrants volunteering themselves to be future residents of Australia, Senator Evans is building a system in which employers, including state and territory governments, select and sponsor the migrants that they think they will need. This is a significant refinement of the bias towards skilled migration that has characterised Australian policy since the late 1980s. It is probably the most far-reaching change since the Hawke government implemented major recommendations of the 1988 FitzGerald report on immigration policy, led by former diplomat Stephen FitzGerald.

For anyone unfamiliar with the complexities of the migration program and its array of visa subclasses, the changes are difficult to understand. Many of the “plain language” explanatory documents posted on the department’s website are almost incomprehensible for the uninitiated.

Stripped of the department’s convoluted language, Senator Evans’s most dramatic act has been to scrap the Migration Occupation in Demand List. Created in 1999, MODL was a list of occupations deemed to be in short supply in Australia by the Department of Education, Employment and Workplace Relations. Aspiring migrants with qualifications and experience in the occupations on the list would score extra points in the migration points test, and this could swing the balance their way in determining whether or not they qualified for permanent residency.

The minister was convinced that the MODL had been compromised. He and his department saw it less as an evidence-based evaluation of skills shortages in the economy than as an expression of successful lobbying efforts by businesses to advance their own interests. Evidence for this view can be seen in the way the MODL has expanded from fewer than thirty occupations in 2004 to more than a hundred in 2009.

Crucially, the interaction of the MODL with other policy measures distorted Australia’s education-for-export industry. In 2001 the Howard government allowed international students graduating from Australian colleges and universities to apply for permanent migration onshore (that is, without first returning to their home country). This was done partly to address skills shortages and partly to give Australian colleges and universities an edge over their rivals in the competitive international education market. Visa applicants also received additional migration test points for having studied in Australia. In 2005, amid continuing business complaints about skills shortages, the Howard government added seventeen new occupations to the MODL, which were mainly in trades and engineering.

The combination of these measures produced an unanticipated boom in vocational courses, especially in cookery, hairdressing and accountancy. The best colleges offered high-quality training; the worst were nothing more than visa factories. The number of foreign students undertaking these vocational courses sky-rocketed. As they completed their studies and applied for permanent residency they contributed to the creation of a huge bulge in the migration program and a serious backlog in visa processing. Last year, for example, 170,000 people applied for permanent migration to Australia but the current annual intake has only 108,000 places. The backlog of applications awaiting processing has grown to 145,000, including 12,000 applications from cooks. (To put this figure in perspective, there are only around 36,000 cooks currently employed in the Australian economy.) An even larger number of accountants is waiting in the pipeline, and hairdressers also feature prominently.

The government cannot simply turn these migrants away. Almost all of them have passed the points test, amassing the magical 120 points necessary to qualify for permanent migration. But because there are too few places on offer in the migration program, the government has categorised certain classes of application as low-priority, essentially putting them on indefinite hold as they wait in a queue that does not move. This week’s changes will not get the queue moving again, though they may have stopped it from growing even longer.

Senator Evans could have tried to address the distortions in the education-for-export industry by tinkering once again with MODL – by dropping certain occupations from the list, for example. Or he could have tinkered with the migration test by reducing the number of points awarded for MODL occupations and boosting points for qualities like workplace experience.

Instead, he has gone much further. By scrapping the MODL, he has weakened but not entirely severed the link between education exports and migration outcomes. Vocational colleges that depended heavily on the dangled carrot of permanent residency to lure overseas students into their courses will now go bust. Other colleges will be forced to downsize dramatically and rely more heavily on domestic students. But universities offering longer degree courses that lead to professional qualifications could still find that the prospect (though not the guarantee) of permanent migration makes their offerings attractive to overseas students.

Those with the most to lose from the changes are the students themselves. Many have invested tens of thousands of dollars in an Australian education in the hope of securing a permanent visa. To ease their plight the minister has put in place transitional arrangements, in force until the end of 2012, which mean that many of those already in the system will be processed under the old MODL and points test rules. On completing their course, students can also apply for a temporary skilled-graduate visa (subclass 485) which enables them to live and work in Australia for a further eighteen months. In theory this should enable students to gain the practical work experience they need to boost their application for permanent residency. In practice, though, it may not work out that way.

There are three reasons for this. First, there is already a huge backlog in immigration processing – the queue already mentioned – and the government has given no indication that it has any way of working through the applications on hand. The priority processing arrangements already put in place will be adjusted, but not in a way that changes the outlook for applicants currently stuck in the pipeline. Onshore migrants have been told to expect a wait of at least two years before a decision is made in their case, unless they can find an employer who will sponsor them. Students who apply for permanent residency without a sponsor will go to the back of the queue.

Secondly, while they wait, there could be further changes that will knock applicants out of the queue altogether. As part of the most recent reforms the minister has moved to render void some 20,000 visa applications made before 1 September 2007, using a process known as “capping and ceasing.” (The minister has the power to “cap” the number of visas that can be issued in a particular category in a particular year and, once that number is reached, any pending visa applications are deemed to “cease,” as if they had never been made.) Applicants who are capped and ceased will have their visa application charge of between $1500 and $2000 refunded by the government, although they will still be massively out of pocket for the associated costs of things like medical tests and migration advice. It is not clear whether the minister could easily apply the same “cap and cease” measures to knock more recent applications out of the queue, but his actions do send a message that the government can find ways to shift goalposts retrospectively when it really needs or wants to.

The third reason that foreign graduates will find it hard to use the extra eighteen months to gain permanent residency is that it will be much more difficult for them to have their Australian qualifications recognised. On 1 January the federal government introduced the Job Ready Program, which requires foreign graduates of Australian vocational colleges to complete a four-stage assessment of their workplace skills, including racking up twelve months’ full-time employment on award wages, in their nominated trade, with an Australian employer. The employer must be willing to provide details of their progress towards “job readiness” by completing monthly log book entries online. The process, overseen by Trades Recognition Australia, will cost the applicant around $4500 in fees. This is on top of the $2525 visa application charge paid to Immigration and is a dramatic increase from the previous cost of about $300 for skills assessment.

There is a great irony here. Australia has marketed itself to the world as a purveyor of high-quality education and training, yet it now has so little faith in the quality of the vocational sector of this industry that international graduates must go through a rigorous and expensive new assessment system – one that does not apply to domestic graduates of the very same courses.

It is likely that a significant number of foreign graduates will fail to jump through all the Job Ready hoops within the eighteen-month window offered by a 485 temporary visa, which is not renewable or extendable. Many may not even try. Instead they will continue to work in undesirable jobs in the service economy – driving taxis, staffing checkouts or doing the late-night shift in convenience stores. When their visas expire they will be expected to leave Australia, but they may not be happy to do so. Expect a surge in appeals to the Migration Review Tribunal in about a year and a half.

The government will eventually replace the MODL with a refined Skilled Occupation List, or SOL, drawn up by the independent agency Skills Australia. The list will be announced in April and will take effect from 2010. In consultation with the Commonwealth, the states and territories will be able to draw up their own migration plans and augment the national SOL with occupations that may be specifically relevant to their own local economy (foresters in Tasmania, perhaps, or welders in Western Australia). Migrants who have employer sponsorship or state or territory sponsorship under a migration plan will receive top priority in visa processing.

But a listing on the SOL will not confer extra points towards the migration test, which is itself now under review. Nor will it act as a magnet for international students to undertake particular courses in Australia or for education providers to offer such courses. Rather the government is aiming to identify a range of occupations and professions that are of critical importance to the nation’s development. In the minister’s words, these will be occupations that “we can’t afford to risk... being in short supply” and which demand skills that “take considerable time and diligence to acquire.” Senator Evans says that the MODL was “delivering self-nominated migrants from a narrow range of occupations with poor to moderate English language skills who struggle to find employment in their nominated occupation” (think taxi drivers with a diploma in accountancy). He expects that the new SOL and a revised points test will result in “a wider mix of professions and trades” coming through the migration program “to supplement the national skills base.”

The minister has also flagged the creation of a pool of potential immigrants who will submit their qualifications and experience for consideration without making a formal visa application or paying the associated high fees. Employers and states and territories will be able to trawl through this pool to find people with occupations and skills to meet their workforce needs. They can then sponsor them through the visa process.

Over time, the proportion of sponsored skilled migrants will rise, and those coming to Australia independently will fall. Urgent short-term vacancies will be filled through the existing temporary migration categories, such as the 457 skilled worker visa, which have expanded dramatically over the past decade. Temporary migration is now a permanent feature of the migration mix, and it is expected to rise and fall with the economic cycle, helping smooth out the lags that emerge between the demand for skills in a growing economy and the ability of the education system to deliver appropriately trained workers.

THESE ARE the essential elements of the “demand”-driven model that Senator Evans is promoting, and he has found a powerful metaphor to describe it. The old MODL system was “like pulling a ticket number from the dispenser at the supermarket deli counter,” with everyone served in turn. In theory, anyone who amassed 120 points in the migration test would eventually get “served” with a visa. A better model for selecting skilled migrants, he says, is the university entrance process. Places are limited, so they are given first to those most suitable and best qualified rather than those who have waited the longest.

From the standpoint of Australia’s national interest this is a sound argument, but there are still significant problems to be resolved before we can move away from the supermarket deli counter to fish selectively in the pool of migrant talent. For a start, the changes do not resolve the matter of the 12,000 cooks and all the other visa applicants who have passed the points test and who are stuck in the processing pipeline. They pulled a ticket from the dispenser and most of them were given the impression that their cases would be finalised in less than twelve months. They are not making progress because the government has given priority to other categories of migrants, especially those directly sponsored by an employer. The applicants stuck in the queue – both onshore and offshore – have shelled out thousands of dollars in fees and charges yet they must live in a state of anxious uncertainty.

Senator Evans makes no apologies for this. “A number of commentators have criticised me for leaving people in limbo under the priority processing arrangements,” he says. “I say to them it is my duty in the national interest to give priority to those applicants who offer Australia the most.”

The latest changes also appear likely to have some unintended consequences. Experienced migration agents are already pointing out that the new rules could prevent nurses on temporary 457 visas from becoming permanent residents. Until now, a foreign nurse under forty-five years of age with competent English could easily mount a strong independent application for permanent migration, especially after gaining some work experience in Australia. With the abolition of the MODL that nurse has lost twenty points towards the migration points test and will probably fail to cross the 120-point threshold. This does not appear to be the outcome the minister is seeking – he has repeatedly nominated nurses among the categories of migrant that the government is most keen to attract – but such are the complexities of making changes to the migration program. The pending review of the migration points test will no doubt attempt to address such anomalies and will be a sensitive exercise in itself.

For the managers of vocational training colleges that cater to international students, for students themselves, for anyone with a skilled visa application already in the system and for migration agents who offer professional advice on moving to Australia, the minister’s announcement will feel like yet another sharp, sudden and arbitrary tilting of the playing field in the government’s favour. But in the longer term Senator Evans’s reforms hold out the prospect of a more stable, predictable and rational system. In the meantime, expect many more difficulties ahead as the ripples of the announcement wash through people’s lives. •

The post From queue to pool: skilled migration gets a makeover appeared first on Inside Story.