Cutting through the bullshit.

Wednesday, 6 June 2007

Creating jobs

Last month I mentioned that John Howard’s boast that jobs growth vindicated his draconian WorkChoices legislation was based on a misinterpretation of the data. Specifically, his claim that 276,000 jobs had been created in the year since WorkChoices came into effect was nearly true - 276,000 more persons were employed, which is not the same thing, but is more important anyway. But because of an increase in the size of the labour force, this figure was an over statement of the net growth in employment by a factor of nearly six. In reality, the net growth was only 46,400. If fewer of the 230,100 new entrants to the labour force over the period from March 2006 to March 2007 had found jobs, Mr Howard would have had a much higher unemployment rate to boast of.

The ABC reported this morning in an item provocatively titled ‘IR changes creating jobs: survey’, that according to Christena Singh, author of the ‘Sensis Business Index’, a survey of 1,800 smaller businesses found ‘a significant number of businesses have decided to recruit staff based on the workplace changes’.

What the report actually shows is that although ‘15 per cent of SMEs’ reported ‘a rise in employment’, this ‘was offset by the 10 per cent of businesses that experienced employment declines’.

This is a trick. And a much nastier one than Mr Howard tried. There’s actually a pretty close relation between the number of persons employed and the number of jobs. In fact, as I pointed out in a comment on Lefti the other day, in the US last month, the increase in jobs and the increase in employment were actually equal.

What’s going on here is that the proportion of businesses hiring new staff, or laying staff off, is not necessarily the same as the proportion of people getting and losing jobs. So one possible scenario that the data could describe is that there was a net increase of 5% in the number of jobs. Another is that each of the businesses that hired new staff created 50 new jobs and those that laid off staff had each just let one go. Or vice versa. The fact is, the report doesn’t tell us anything at all about employment even if the survey actually collected data that would clarify the issue. And of course, the other thing it tells us nothing about is anything whatsoever about employment by larger business and non business employers.

Not that I would attribute any clairvoyant powers to small and medium business owners, I suppose it’s fair to attribute their ‘expectations’ to their intentions. And only 13% of SMEs surveyed said they expected an increase over the current quarter, down by two percentage points from the expectations recorded in the past two quarters. Similarly, while 24% said they expected an increase in their workforces over the next year, another 4% expected a decrease, giving a ‘net balance’ of only 20%, three percentage points lower than the corresponding expectation in the previous two quarters.

What I found most interesting about the survey, unreported by the ABC, was this ominous observation.

Despite strong employment growth, net growth in total wage costs decreased during the last quarter, and SMEs were expecting further decreases in their wages bills for both the short and medium terms, easing inflationary fears.

As a matter of fact, wage inflation is not my deepest fear. The conclusion I draw from this is that the wages share of the economy is declining, and more importantly, wages on average are declining, just in case anyone was entertaining any hopes that WorkChoices was going to deliver a higher standard of living for workers.


  1. According to Average Weekly Earnings, Australia, Feb 2007 (ABS Catalogue #6302.0), Full Time Adult Ordinary Time Earnings rose by 3.4% from 12 months previously.

    Interestingly, the same table says that All Employees Total Earnings rose by 4.4% in the same period. I suspect the difference would be caused by a decrease in the proportion of part-time workers, since I seem to recall most employment growth in the last year or so has been in full time jobs.

    On the other hand, Labour Price Index, Australia, March 2007 (ABS Catalogue #6345.0), which tracks hourly rates of pay (excluding bonuses) for a given job over time, gives a rise in the Wage Price Index of 4.1% for the previous 12 months.

    The discrepancy between the AWE figure of 3.4% and the WPI of 4.1% can best be explained by higher job creation in low-wage sectors of the economy. There's probably a good story in there, investigating what that means in terms of who's getting what sort of jobs where and why.

    Of course, the bosses would have their own explanations, but we need a reputable labour movement study. The bosses' reasoning is so transparently self-serving that if they said the sun rose in the East, I'd want to get up early just to check.

  2. It has become clear to me that the political point I was making in my statistical analysis isn't clear. I'll do a table for three quarters of 12 month figures from Sept 06 to March 07, adding the Consumer Price Index (ABS Cataloge #6401.0) for comparison:

    3rd Qtr 3.9 3.1 3.8
    4th Qtr 3.3 3.0 4.0
    1st Qtr 2.3 3.4 4.1

    Comparing the rise in the CPI with the rise in wages, it shows that Average Weekly Earnings are now rising marginally faster than prices, because of a dramatic fall in inflation in the last 6 months. Until then, it had been behind. The Wage Price Index, however, had been level with inflation and has now pulled well ahead.

    When put in the context of the rapid rise in employment in Australia and the fall in unemployment, it means that the new jobs are mostly in low-paying sectors of the economy. Further, since both AWE & the WPI are rising more slowly than nominal GDP per capita, the profit share of national income is booming and has reached record levels.

    From the point of view of the bosses, Howard's Work Choices legislation is working. This is my political point. The economy's growing & so is their share of it. Further, inflation is not a major threat in their eyes.

    On the other hand, the fall in unemployment is a fall in the reserve army of labour. You'll notice that there is a slow upward movement in both AWE & the WPI. We are getting into a better objective position for struggle than we've had in decades. What's missing is the subjective element. We have to go on the front foot and actually take on the bosses. They aren't in a position to resist a major wage push, both from the perspective of supply (a shortage of workers) and demand (the missed opportunity for profits while production is ceased - their margins are so high now that even giving us a larger wage rise won't cause them losses).

    Of course, the ACTU would have none of this. Doing it, therefore, would require a major assault by workers on the trade union bureacracy. I'm doing my bit.