The changing nature of work and what to do about it

Tue, 28 Nov 2017  |  

The changing nature of work is causing significant disruption within the economy and for workers confronting an erosion of their take home pay and basic workplace conditions.

The precise nature of these changes is still unfolding in line with the spread of technology, the move to a more casualised workforce, globalisation and the steady decline of union influence.

The recent Per Capita round table discussion of these issues was particularly enlightening, not least because the participants helped to articulate how widespread these trends in the labour market are becoming, but they also covered what these changes might mean for the economy and the policy settings needed to ensure strong growth and a decent society.

One of the most potent manifestations of the workplace changes in the past decade or so has been the hit to wages. After several decades of annual wages growth around 3.5 per cent (which equates to an increase of around 1 per cent per annum in real terms), wages growth has slumped in recent years.

Each of the different measures of wages show the same thing – wages growth has fallen to record lows. The wage price index is rising at just 2.0 per cent, average weekly earnings are up by a pitiful 1.6 per cent and real household disposable income is starting to fall as inflation outpaces incomes growth. It is no exaggeration to suggest these wage trends risk undermining bottom line economic growth as householders’ spending is curtailed by severely constrained purchasing power.

This is certainly an issue the RBA Governor, Phillip Lowe has been noting in his commentary on the economy. He even openly suggested that an acceleration in wages growth would be a good thing for the economy as it would boost incomes and household spending and with that increase the probability of inflation returning it its target band.

And recall, the current real wage stagnation is happening at a time where Australia is in its 26th year without a recession, with record low interest rates, a booming export sector and unprecedented wealth.

Casual workers are finding increasingly difficult to argue for certainty in weekly hours worked and wage levels are often determined by the employer or an intermediary. These factors leads to uncertainty in income which in quiet weeks reduces the take home pay of the employee and in many cases, generates hardship.

A quick look at the recent trends in consumer sentiment and spending show how these issues are having a real economic impact with sentiment skewed towards entrenched pessimism and retail spending starting to go backwards.

A near record number of people – around 1.1 million of them – have a job but would prefer to work more hours. These underemployed workers have an unfulfilled need or even desire to work. Often it is a simple financial imperative for them to work more hours so that they can afford to pay the bills. The fact so many cannot is a major economic problem.

These people are constrained in their spending because of the erratic nature of their income flow which is undoubtedly a critical aspect of the explanation for the persistent consumer malaise.

The discussion about what to do about it was surprisingly straight forward and probably not all that controversial.

In no particular order, the round table discussion raised the following points. Delivering sustainable increases in the minimum wage was fundamental to providing a living wage, as was the tightening of the regulations relating to terms of employment including minimum hours and the maintenance of meaningful penalty payments for those working outside the standard work week.

A policy proposal to address the concerns for many employees was a simple reinforcement of the progressive income tax scales. This could be in the form of a material increase in the tax free threshold from the current $18,200 a year meaning a growing proportion of workers did not enter the income tax net. Such a change could be implemented in a revenue neutral way, with the cost covered by changes to tax brackets for high income earners.

The conversation branched out to cover several other aspect of the need to ensure a successful and robust workforce – access to skills, training and education to ensure all citizens can be skilled and trained so that they can fully participate in the ever changing economy. Support for those not in the paid workforce was also a vital element when bringing fairness to all aspects of the labour market.

It will be important for policy makers to fully understand the extent of the dislocation unfolding in the labour market before they embrace these and no doubt other policy solutions to ensure fairness, equity and decency within the workforce.

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