Recent Structural Changes in Employment in Australia

This month the Productivity Commission released a report (or more accurately, a supplement to its annual report) on ‘structural change’ in Australia’s economy over the past decade. The phenomenon of structural change has gotten some more notice here over the past few years, particularly from the Reserve Bank of Australia, with production in Australia shifting towards the mining industry.

But why do we care? Well, as the Commission’s report says there are benefits and costs to us from this type of change. On the plus side, resources should be flowing towards the areas of the economy where they are of highest use, therefore raising the value of what Australia produces. This includes workers moving to where they are of highest use, although this concept is often not all that palatable given the human element involved. Which brings us to the costs of structural change – there are costs from moving resources around, including workers, and some of these will find themselves unemployed, at least in the short-term.

Of course changes like this go on constantly, so by structural change we mean something bigger and more lasting than, say, a local clothes shop closing down, as much as that might initially suck for the shop’s owner and staff. Without having an exact definition, we can think of it as something like, for example, one sector increasing its share of Australia’s economic activity by 5 percentage points over several years, while another contracts by the same amount. The RBA showed a few years back, using ‘structural change indices’, that the rate of structural change appeared to have increased in recent years, although by how much depends on which economic variable you look at (i.e. output, employment or investment), and there had been increases of similar magnitude before.

In terms of employment, the Productivity Commission report shows that the recent boom in natural resources in Australia ‘has not been associated with an unprecedented rate of structural change in employment’ (p. 69). Employment has shifted from agriculture and manufacturing towards mining, and also the services sector, which is perhaps less well-known given that you do not tend to hear about a ‘services boom’ in Australia. These trends though have been going on for some time, as the Commission’s report illustrates, and some of them are not unique to Australia – the shift from manufacturing to services for example is common among the most-developed countries. Some of these service jobs will be in relatively low-paying sectors such as retail and hospitality, but others will be in relatively high-paying sectors such as professional services.

Across states, the Commission's report shows that the redistribution of employment is also not at an unprecedented level. The redistribution of employment across states is typically lower than that across sectors; which is interesting, and may or may not be surprising depending on whether you think people are more likely to move from manufacturing to services than from, say, Victoria to Queensland. The report concludes there is evidence that disparities in unemployment across regions have decreased during the 2000s (though they widened slightly between 2008 and 2012).

The report has quite a large section on recent trends in labour adjustments and mobility. Essentially, these trends are what you would expect given the shifts in overall employment between sectors – e.g. manufacturing is attracting fewer new workers.

Articles and reports on structural change in Australia often seem like they should come with a ‘DON’T PANIC’ sticker on them. The RBA said earlier this year that monetary policy cannot and should not prevent structural change from occurring. The Productivity Commission report gives much the same impression of inevitability. This is not to say that such change should be blindly accepted, but that the relative rise and fall of various sectors has happened before, and will happen again.

The Finger Points Outwards - No. 68

STATISTICS: Increasing weight inequality among US males. & Why children in India are shorter than children in Africa.

ECONOMICS: Illustrating the contrasts between this year’s winners of the Nobel Prize in Economics – are markets efficient or irrational?

MUSIC: The Conversation examines the state of the music industry.

 

BASKETBALL: Grantland rates the NBA League Pass worthiness of each team.

SPORTS:  Another momentum in sport myth busted – this time for baseball.

The Effects of the Australian Fair Pay Commission’s ‘Two-Tiered’ Minimum Wage Decisions

In its 2006 and 2007 minimum wage decisions, the Australian Fair Pay Commission decided upon a ‘two-tiered’ increase to minimum rates of pay in Australia’s federal industrial relations system. Workers on minimum rates of pay earning the equivalent of up to $700 per week received a higher increase in their wages than workers on minimum rates of pay earning the equivalent of more than $700 per week.

In the AFPC’s view, such a decision recognised that low-paid workers are less able than higher-paid workers to bargain for a higher wage than the minimum rate, and therefore are more reliant on increases in minimum rates of pay (see its 2006 reasons for its decision). The AFPC believed that higher-paid employees should be encouraged to move off minimum rates of pay bargain for higher rates.

Note that the AFPC’s predecessor, the Australian Industrial Relations Commission, also awarded two-tiered increases on occasion and it had a consistent practice of awarding flat dollar increases, which are less beneficial to higher-paid employees in terms of maintaining their wages after inflation. Its successor in terms of setting minimum wages, Fair Work Australia/Fair Work Commission, has decided upon percentage increases to minimum rates of pay over the past few years, in order to halt the significant downward trend in the relativities between the lower minimum rates of pay (which typically apply to the lowest skilled labour) and the higher minimum rates of pay (which typically apply to higher skilled labour).

But getting back to the AFPC: did its decision ‘work’, in terms of encouraging bargaining? There isn’t really all that much evidence either way in that regard. One point in favour is that data from the Australian Bureau of Statistics’ Employee Earnings and Hours survey showed that the percentage of employees who are reliant on minimum rates of pay continued to decrease from 19.0 per cent in May 2006 to 15.2 per cent in May 2010. It has since increased again to 16.1 per cent in May 2012. Therefore, the AFPC’s ‘two-tiered’ decisions were associated with an increase in the percentage of Australia’s workforce that was receiving more than minimum rates of pay.

Looking through the distributions of earnings for employees on minimum rates of pay* though, there is a bit of further support that the AFPC’s decisions may have encouraged higher-paid employees to move off award rates of pay. The (biannual) Employee Earnings and Hours survey release has the distribution of weekly earnings for full-time adult employees earning minimum rates of pay, from which we can track this distribution over time (see graph below). As time goes on, and minimum rates of pay are raised, a higher percentage of employees should be found at the higher end of the distribution. We certainly see this from 2000 to 2006, and again from 2010 to 2012. But from 2006 to 2010, the percentage of minimum wage employees earning more than $1000 per week did not increase by much at all. Further, although it is not shown in the graph below, the percentage of employees on minimum rates earning more than $1000 per week actually decreased from 2006 to 2008.

One should be cautious about drawing too much from this: the sample sizes would not be that large, and there could be other factors influencing the distribution (maybe higher-paid employees on minimum rates did not bargain for higher rates but withdrew from the workforce completely). Also, we still saw a bit of an increase in the percentage of adult employees on minimum rates earning between $700 and $900 per week.  Note too that a fair chunk of employees on minimum rates are part-time employees, and these are not included in the above graph.

But what we observe — without knowing the full reasons behind this pattern — is broadly consistent with what the AFPC was trying to achieve through its two-tiered wage increases. Though given that FWC looks like it will maintain the relativities between different minimum rates of pay going forward, perhaps that is the last period for which we will observe this type of pattern for some time.

*I was looking at this as part of a larger article I am drafting (not necessarily for this blog) on the effects of recent minimum wage decisions in Australia, which is how this post originated.

BEER!![10] – Mountain Goat Brewery Beers

Name: The Mountain Goat Brewery tasting paddle: Hightail Ale, India Pale Ale, Summer Ale, Naz Mocha Porter.

Brewery: Mountain Goat.

Place Of Origin: North Road, Richmond, VIC.

Type: Hightail: amber ale; India Pale Ale: India pale ale; Summer Ale: session ale; Naz Mocha Porter: porter.

Alcohol Content: Hightail: 4.5%; India Pale Ale: 6.2%; Summer Ale: 4.7%; Naz Mocha Porter: 5.2%.

Why I Bought It: Because breweries and paddles go together like paddles and pops. Turns out though it was only just over ten bucks for the four beers though, which I thought was a pretty good deal.

Taste: In order of which I drank them: fruity, light, dark, mochaportery.

What I did while drinking it: Shared my concern with my fellow drinkers that my hair was not growing back as fast as it usually does after my most recent haircut. I then felt somewhat better by looking around the brewery, and seeing the shining lights of hairlines receding at much faster rates than mine.

What I did after drinking it: I was quite glad this was one brewery within stumbling distance of where I was going.

The Finger Points Outwards - No. 67

MUSIC: Bo Diddley’s guide to surviving life.

 

Image: youtube

 

SPORTS: Adults stealing baseball from kids. Evil.

BOOKS: Tim Harford on the effects of online reviews.

MUSIC: Are Kings of Leon Pitchfork’s most disliked band? See the evidence here, here, here, here, and here.

MUSIC: And talking about Pitchfork, what was with this review? (The review itself, not necessarily the rating.)

MUSIC: And this one?

MUSIC: And this one too? (Don’t bother reading all the way through these.)

MUSIC: And this one? It’s like the reviewer, like me, didn’t know what on earth At The Drive In were actually on about, and tried to hide that fact.

The Wooden Finger Five: October 2013

1.    Strong – London Grammar

London Grammar sound so much like another particular London band that their albums should come with an ‘X’ on the cover (the xx, for those who don’t recognise the allusion). ‘Strong’ is the (ahem) strongest track off their first album. Singer Hannah Reid’s voice might be reminiscent of a thousand X-Factor contestants, but the way she delivers the line ‘I’ve never been so wrong’ hints at a wellspring of regret that most of those other kiddies can only dream of expressing.

2.    AM (album) – Arctic Monkeys

The Monkeys’ new album got a rare, but not wholly unexpected, 10/10 from New Musical Express. It’s not quite that good, but it’s my favourite album by the band so far, with the possible exception of their previous album, ‘Suck It And See’. I always thought the early Arctic Monkeys albums were a bit overrated, and I think they’ve been a better band ever since their stint with Josh Homme as producer. Even post-Homme, there’s a heavier Queens of the Stone Age-like edge to their sound now, rather than them coming across like a bunch of teenage boys shouting out the clever lyrics they scribbled down at the pub.

3.    Ayla – The Maccabees

Eric Clapton had ‘Layla’, the Kinks had ‘Lola’, Oasis had ‘Lyla’, and the Maccabees continue to show what the best syllable is in the pop language (except for maybe ‘na’ and ‘yeah’). Coming from their album ‘Given To The Wild’, this track makes me think of a camera racing across blue sky and open plains. For others it might make them think of ‘The Clan of the Cave Bear’ books.

 

4.    Reflektor – The Arcade Fire

It was hard to pick where the Arcade Fire might go after ‘The Suburbs’ – this track manages to seem like a natural progression and a sharp left turn at the same time. It grooves along for over seven and a half minutes, not really shifting around that much, but it still might well be the most compelling Arcade Fire track since ‘Rebellion (Lies)’. David Bowie does backing vocals and Regine Chassagne sings in French, adding to ‘Reflektor’s’ THIS IS IMPORTANT! Factor.    

5.    Hoover Dam - Sugar

Sugar are kind of the forgotten group of early ‘90s US alternative rock, in part because they were spawned out of mid ‘80s US alternative rock, with leader Bob Mould previously having been part of Husker Du. Their album ‘Copper Blue’ though is as good as anything produced by younger similar bands of the period. Think a more accomplished Urge Overkill, or a less manic Frank Black. ‘Hoover Dam’ veers more towards ‘arena rock’ than some of Sugar’s other output, but does it brilliantly.

AFL Power Rankings: Post-Finals 2013

Hawthorn finish the 2013 season with the premiership, and ranked #1, where it spent the majority of both this season and last season. The Hawks have clearly been the best-performed team over the past 24 months, and now have a trophy to show for it.

Fremantle finish the 2013 season as runner-up, and ranked #2 after a good finals series. It would be a much clearer #2 if not for its big Round 23 loss against St. Kilda. Unfortunately, the rankings system doesn't account for 'Ross Lyon resting half his team'.

Geelong and Collingwood dropped the most ranking points during the finals series, while Port Adelaide made the largest gain - obviously these are related developments.

See you in 2014 for a new season and a new spreadsheet!

Building a Better Equal Remuneration Case

Nowadays, it doesn’t seem like a week goes by without an article about the gender pay gap. I saw earlier this week that the Fair Work Commission has engaged researchers to prepare an equal remuneration report. Apart from discussing the concept of undervaluation (of labour), part of the intended scope of this report is to identify the usefulness of the various materials parties could bring to equal remunerations proceedings, and direct parties to key resources which may be relevant to an equal remuneration case. This report is intended to build on previous research for the Commission on this topic.

This all sounds pretty useful. As I’ve said before, determining whether or not specific groups of women and men are ‘undervalued’ in terms of their remuneration is not easy. This research will hopefully have a significant impact in terms of giving parties a base of knowledge and evidence to draw upon for future equal remuneration cases.  Regardless of what decisions are made for such cases in future, this should help in strengthening the claims that underlie such decisions.

What this report will probably not do though is expand the set of resources that are available. In the short-term, that is primarily being left to the Commission’s Australian Workplace Relations Survey. As I said last time I wrote on this topic, I’m not sure that as much of the Commission’s resources are specifically going towards expanding the resources relating to pay equity as originally envisioned by the (former) Government. However, in terms of better using the available information, this latest equal remuneration report looks like it will make a positive contribution.