Pearls and Irritations

In contrast to the policy vacuum left by the previous Morrison Government, Labor’s Jobs and Skills Summit has paved the way for Australians to work constructively together on the challenges facing the labour market and the economy. For reasons of space, this present review focuses on the major policies announced at the Summit and their likely impact.

In the last decade the performance of the Australian economy was not good. Productivity and wages growth slowed and grew less than in other developed countries. Unemployment was too high, and it also rose relative to other countries. Most recently living standards have fallen significantly.

There is a concern, expressed at the Summit, that Australia is less dynamic, too prone to defend the status quo, and consequently less able to take advantage of its opportunities.

Clearly new policies are needed, and this will be helped by a more open and collaborative approach to developing those policies, which hopefully the Jobs and Skills Summit has helped initiate.

The Summit Priorities

The key priorities addressed at the Summit were to:

1. Improve job security and grow wages as the basis for boosting living standards, and
2. Build a bigger, better trained, and more productive workforce.

In responding to both these key priorities it was also recognised that gender equality would be a central issue.

Job Security and Wages

The two leading economists, Danielle Wood and Ross Garnaut, who addressed the Summit, both emphasised the importance of full employment and argued that a strong labour market would translate into a recovery in wage growth over time.

Garnaut then concluded that macroeconomic policy should continue to focus on driving unemployment down until wage growth was adequate and consistent with the inflation target and the increase in productivity.

Such a policy would be reasonable if lack of sufficient demand across the labour market was the only reason for past wage stagnation. However, there is considerable evidence that wage stagnation is not only due to insufficient demand. There are also structural features of the present Australian labour market that have been holding back wage growth as well.

These structural impediments to wage growth are:

1. Skills imbalances, largely as a result of an inadequate response to changing technologies and patterns of demand, especially for services.
2. A power imbalance between employers and many workers and a broken agreement-making system.

In fairness, Danielle Wood did strongly support investing in human capital and raising skills, and the Summit’s outcomes in relation to skills will be addressed further below.

Although there was widespread agreement at the Summit that the agreement-making system was broken, and that a new approach is needed, many of the details are still to be negotiated.

In particular, the announcement by the Minister, Tony Burke, that the Government will legislate to remove “unnecessary limitations on access to single and multi-employer agreements” was probably the most controversial proposal at the Summit. The large employers are, at this stage, opposed to allowing multi-employer bargaining and agreements. In addition, the Opposition has alleged that it will lead to many more strikes, disrupting the economy.

In my opinion, however, the Government is right to support the restoration of multi-employer agreements. This form of wage determination is common to many other countries, including some that have higher productivity than Australia. Also in Australia we already allow common awards to determine wages across an industry, and multi-employer bargaining is really not very different in its outcomes.

The reality is that in some industries wages will continue to be inadequate if we rely only on market forces. Multi-employer bargaining will probably help resuscitate wage growth in these industries where employment is widely distributed across many small firms and/or unions are weak relative to the employer’s bargaining power.

For example, in the caring industries there is currently a push for an industry-wide award that significantly increases the wages. Without such an increase, these services will continue to be inadequately staffed, but the market and enterprise bargaining were never going to remedy this situation.

Unfortunately, it is not only the caring industries where pay is insufficient. Indeed, it seems to be a common phenomenon in services that are largely government financed, such as nurses and schoolteachers.

Also, as these services are disproportionately staffed by women, changing the wage bargaining system to facilitate their workers’ bargaining position would do more for gender wage-equality than most of the proposals discussed at the Summit.

Many of the details of a new wage bargaining system are still to be settled, but the Minister has expressed a willingness to negotiate these details – starting this week. In these discussions, employers might want to think about the conditions that could define when they would be able to opt out of multi-employer bargaining in favour of single enterprise bargaining. Such a compromise might be the best way to satisfy all parties.

Increasing Skills

The three biggest announcements at the Summit to increase the supply of skills were:

1. Accelerate the delivery of 465,000 additional fee-free TAFE places, with 180,000 to be delivered next year,
2. A change to the age pension means test so that these pensioners can earn an additional $4000 over this financial year without losing any pension,
3. Increase the permanent migration program planning by 35,000 to 195,000 in 2022-23.

These initiatives have been widely welcomed, but arguably they could be improved.

First, TAFE fees are probably not the main inhibitor to students enrolling for a TAFE qualification, because the fees are paid by incurring a HELP debt that is only repaid over time when the student can afford it. Instead, it would have been better to spend more on helping students meet their living costs while studying, and this applies particularly for older students and workers who are seeking to reskill.

Second, it is doubtful that many pensioners will actually be induced to work more. At present a pensioner must be at least 66 years and six months old to be eligible for the age pension, and the number of people that age wanting to do physically demanding work is limited.

Also, it will be necessary to limit this easing of the pension means test to earned income and exclude investment and superannuation income. Otherwise, this change would cost a lot and have no extra impact on work incentives.

Third, it has been pointed out by the Grattan Institute that in the short term more permanent migrants will not increase the labour supply, because most people who receive a permanent visa are already in Australia on a temporary visa.

In addition, industries suffering the worst labour shortages, such as food and accommodation services and agriculture, do not employ permanent visa holders who typically work elsewhere in high paid professional jobs. Instead, these industries mostly employ unskilled labour and were relying on overseas students and working-holiday visa-holders, and it is the number of these people which has plummeted.

Gender Equality

As mentioned above, the changes to wage determination should help improve female wage equality over time. The other major proposal to help increase female participation in the workforce is the Government’s election policy proposal to reduce the cost of child care for parents by increasing the amount and availability of the subsidy.

Improved access to child care should help lift Australian women’s workforce participation significantly, and arguably is an important economic measure as well as helping young families cope with the increased cost of living. At the Summit there was pressure to accelerate the introduction of the new child care subsidy arrangements, but the Government resisted this for budgetary reasons and because more time is needed to attract the necessary additional staff.

Conclusion

The Jobs and Skills Summit has been widely seen as successful. The Government has listed 36 immediate initiatives agreed at the Summit. In addition, another 30 areas for further work were agreed at the Summit, and the Government was able to identify at the Summit another 48 existing commitments that will complement the work started by the Summit.

In short, significant progress has been made towards improving the operation of the Australian labour market and the economy more generally. Of course, much work remains to be done to develop the details of many of the new policy directions, and then to effectively implement them.

But in contrast to the Morrison Government’s policy vacuum, the Summit has identified where new policies are needed, and set a new tone for working together to solve what are common problems. So, there is good reason to hope.