catallaxy files

catallaxy in technical exile

Productivity

with 40 comments

It is very pleasing to see the Prime Minister now pushing for economic reforms to boost productivity growth. 

We should now expect the Government to wind back its labour market re-regulation and to bring back WorkChoices.

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Written by Samuel J

January 19, 2010 at 7:01 am

Posted in Uncategorized

40 Responses

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  1. Since when has WorkChoices got anything to do with productivity?

    Capitalist Piggy

    January 19, 2010 at 8:56 am

  2. Actually doesn’t deregulation typically decrease productivity by letting less productive workers enter the workplace?

    Steve Edney

    January 19, 2010 at 10:22 am

  3. Steve – that’s a short-term (measurement) impact that should be overcome by on-the-job-learning.

    Sinclair Davidson

    January 19, 2010 at 10:23 am

  4. Piggy,

    Work Choices was badly sold, badly written and poorly misunderstood without the accompanying tax cuts that would have made it much sweeter and increased labour productivity (net of any increases in firm reinvestment).

    Work Choices was about increasing allocative efficiency (better matching labour inputs to capital) and increasing wages in the long run, as opposed to quicker changes to worker incentives by raising the marginal efficiency of capital. Capital returns would increase and attract more investment to the capital base and in the long run the K/L ratio would improve.

    Semi Regular Libertarian

    January 19, 2010 at 10:50 am

  5. In the first of a series of speeches leading up to Australia Day, Mr Rudd set a target of returning growth in productivity (output per hour worked) from the 1.4 per cent a year averaged over the past decade to the 2 per cent a year achieved in the 1990s.

    That’s interesting. So the little worm wants to see an average increase of 42% in productivity. He expects us to achieve this result how exactly? Is he going to change the tax treatment of depreciation for new plant and equipment? Christ he’s a fucking shallow two bit, asshat.

    jc

    January 19, 2010 at 11:23 am

  6. “as opposed to quicker changes to worker incentives by raising the marginal efficiency of capital.”

    Sorry, that’s a bit muddled.

    as opposed to quicker changes to worker incentives (i.e personal income tax cuts), Work Choices would have worked by raising the marginal efficiency of capital.

    Semi Regular Libertarian

    January 19, 2010 at 11:26 am

  7. Chris Richardson from Access said “The low-hanging fruit in reform was done in the 80s and 90s. You can only float the dollar once.”

    How about floating interest rates? We could do away with inflation and asset bubbles overnight if we got rid of the RBA and moved to a gold standard or a free banking type arrangement.

    Lach

    January 19, 2010 at 1:45 pm

  8. SLR,

    “Work Choices would have worked by raising the marginal efficiency of capital?” Why? Is it because returns on capital rise as labour costs fall? If that is what you mean (I’m sure you’ll correct me if it isn’t) then why has productivity fallen over the past decade, compared to growth in the 1990s? Also, real wages fell during the 1980s (due to the Accord) yet so did productivity.

    At the time it was introduced, Howard stressed the productivity aspect, but I thought the job creation angle was more relevant and immediate.

    JC,

    Rudd is a politician. Productivity (trend GDP per hour worked) has already increased to 3.1%pa, probably thanks to the economic downturn (drop in hours worked relative to output). So at the next election, he can happily claim credit for something that was going to happen anyway (at least in the short-term).

    Capitalist Piggy

    January 19, 2010 at 2:18 pm

  9. WC had nothing to do with productivity, except in one particularly cynical sense: workers forced onto AWAs could be made to do work without penalties, paid overtime, etc., thereby maintaining the same level of work at less cost for the employer.

    By 2007, Howard had given up on productivity. His aim was to fight inflation through ‘wage restraint’. It was the ALP who countered this with the argument that investment in education and infrastructure would increase productivity, and thereby ameliorate the need for wage cuts. Whether the ALP has done anything to make good on that promise is another story, but let’s not pretend that WC had any noble purpose like productivity increases. The evidence clearly indicates that all WC achieved was a reduction in pay and conditions for workers on AWAs, and a brief revitalisation of the union movement.

    THR

    January 19, 2010 at 3:08 pm

  10. Piggy,

    I agree about job creation viz. the removal of perverse incentives in hiring workers. You are precisely correct to say the job creation aspect is more immediate.

    My example says that these decisions has meant that capital was underutilised, thereby allowing the return relative capital to labour to increase.

    I don’t think labour costs have to fall in real terms for benefits to be realised, only relative terms – (both capital and labour become more productive, but the gain for capital is relatively larger).

    The relative and real return to capital increases and the capital base expands more quickly than it would have without the reform, ensuring a larger increase in long term labour demand, and hence long term employment and wages.

    Semi Regular Libertarian

    January 19, 2010 at 3:17 pm

  11. Workchoices was about improving labour market flexibility. The entire reason why unemployment didn’t skyrocket last year was because of this flexibility which allowed employers to adjust hours/conditions etc to reflect the profitability of their business, rather than being lumbered with some onerous award which would result in them firing/not hiring workers.

    Also inflation is a monetary phenomenon, unless you believe JM Keynes.

    Lach

    January 19, 2010 at 3:20 pm

  12. “By 2007, Howard had given up on productivity. His aim was to fight inflation through ‘wage restraint’. It was the ALP who countered this with the argument that investment in education and infrastructure would increase productivity, and thereby ameliorate the need for wage cuts.”

    Bad economics all around. 20 year fiscal policy time-frames are useless with inflation unless you’re talking about deficits etc. Wages do not cause inflation.

    “let’s not pretend that WC had any noble purpose like productivity increases”

    Howard may not have understood any potential benefits and had ulterior motives. That doesn’t mean the benefits didn’t exist.

    Gillard’s new regs. are longer and even more convoluted. The IR policy path we have taken is as bumbling and ad hoc as welfare.

    Semi Regular Libertarian

    January 19, 2010 at 3:22 pm

  13. Sheer revisionism. Howard himself made the connection between WC and inflation:

    http://www.theaustralian.com.au/news/nation/work-choices-battle-shifts-to-inflation/story-e6frg6nf-1111113348854

    The evidence is absolutely clear that the benefits didn’t exist (except to employers who could extract further profit from workers by cutting pay and conditions). The much-mooted ‘flexiblity’ of Workchoices was a brazen lie, since AWAs, common law contracts etc, were available to all long before WC came along.

    THR

    January 19, 2010 at 3:28 pm

  14. THR,

    It might be revisionism but it is competent economics. Labour market flexibility does not determine the general level of prices, viz. the purchasing power of money.

    Take your view or mine as to what happened or why you may want such a policy. How does that fight inflation? Yes, that’s correct, it doesn’t.

    “The much-mooted ‘flexiblity’ of Workchoices was a brazen lie,”…

    …actually it means it might be bit of too much exaltation, but not a “brazen lie”.

    Semi Regular Libertarian

    January 19, 2010 at 3:34 pm

  15. WC had nothing to do with productivity, except in one particularly cynical sense: workers forced onto AWAs could be made to do work without penalties, paid overtime, etc., thereby maintaining the same level of work at less cost for the employer.

    THR, productivity measures production per unit of labor. It doesn’t directly measure cost efficiency although that would be expected.

    It’s the number of widgets produced per hour. In fact Workchoices would most likely have reduced marginal productivity as the marginal worker found his or her way back to the workforce.

    Cap Piggy:

    I bet productivity doesn’t rise at that rate in the same way I bet US productivity doesn’t rise at 10% which was the last measured increase.

    In any event productivity is really a rough marker anyway and doesn’t tell you a great deal.

    The piddly little bureaucrat has everything in reverse. He’s trying to front load us into thinking about productivity when in fact it ought to be that he needs to think of ways that will increase it by expanding the nations capital structure and allowing more entrants into the workforce. The less able workers on welfare the hit there is on the budget. The more capital available the higher the potential productivity.

    You don’t raise productivity by having the government borrow large amounts of money and throw it at school dunnies with name plates attached as that removes capital from the private sector.

    Rudd’s a fucking moron. That’s all we need to know.

    jc

    January 19, 2010 at 3:34 pm

  16. The evidence is absolutely clear that the benefits didn’t exist (except to employers who could extract further profit from workers by cutting pay and conditions).

    Well no, THR. That isn’t correct. Labor market statistics during the time of WC showed rises in broad real wages. You can track that down through the ABS. So the idea that WC actually reduced wage rates is bullshit that the ACTU cranked out and lied to the public. Real wages rose through the period of its introduction.

    jc

    January 19, 2010 at 3:37 pm

  17. Take your view or mine as to what happened or why you may want such a policy. How does that fight inflation? Yes, that’s correct, it doesn’t.

    Idiot. I’ve already made clear that fighting inflation through WC isn’t my view, but Howard’s.

    Real wages rose through the period of its introduction.

    Correlation is not causation. Wages rose in spite of WC, not because of it. Workers on AWAs were demonstrated to have had reduced pay and conditions.

    WC also failed the democracy test – if it was such a boon to wealth and productivity, why was it (arguably) the single biggest issue behind voters rejecting the Coalition? And please, no stories about voters being swindled en masse by ‘union thugs’…

    THR

    January 19, 2010 at 3:43 pm

  18. “Idiot. I’ve already made clear that fighting inflation through WC isn’t my view, but Howard’s.”

    That’s why I meant too. You want to call me an idiot over this? *You’re an idiot because you agree with me*.

    “Wages rose in spite of WC, not because of it.”

    Got any proof of that? Correlation isn’t causation but uttering those words doesn’t confer causality on the contrary case.

    Semi Regular Libertarian

    January 19, 2010 at 3:50 pm

  19. We know that WC didn’t cause wage growth as workers subject to the provisions of WCs (i.e. the new, ‘flexible’ AWAs) suffered reductions in pay and conditions, by and large.

    THR

    January 19, 2010 at 3:52 pm

  20. THR:

    Aggregate wages went up. They didn’t fall. If they fell in some sectors where regulation was causing them to be artificially inflated they went up elsewhere or we saw more broad based hiring. We also saw a fall in part time jobs and a rise in full time positions too.

    That is exactly how relatively unregulated labor markets are supposed to work and the effects were quite easy to predict.

    jc

    January 19, 2010 at 3:56 pm

  21. We know that WC didn’t cause wage growth

    Well yes we do as aggregate wages didn’t fall as you were suggesting earlier. They went up.

    jc

    January 19, 2010 at 3:58 pm

  22. As I explained, jc, wage growth occurred in spite of WCs, not because of it. We know this because workers placed on AWAs after WC was legislated experienced, overall, reduction in pay and conditions (as well as job security, flexibility, and all the rest).

    THR

    January 19, 2010 at 4:22 pm

  23. THR – do you have evidence for that?
    I believe that many or most of the AWAs give more money in return for greater flexibility, buyout of benefits and such. But I’m not sure either.

    Ken Nielsen

    January 19, 2010 at 4:26 pm

  24. Here’s a study indicating that the ‘flexibility’ was one-sides, as it reduced security, etc:

    http://search.informit.com.au/documentSummary;dn=353927010072540;res=IELBUS

    THR

    January 19, 2010 at 4:31 pm

  25. Tks, THR, but I’m not going to pay $33 to find out if you are correct.

    Ken Nielsen

    January 19, 2010 at 4:35 pm

  26. An academic study found that whilst productivity did not increase under WCs, wages and conditions did deteriorate:

    http://solidarity.redrag.net/files/Peetz0207.pdf

    THR

    January 19, 2010 at 4:37 pm

  27. WCs stripped conditions that would have been protected for those under an Award:

    http://www.smh.com.au/news/national/revealed-how-awas-strip-work-rights/2007/04/16/1176696757585.html

    THR

    January 19, 2010 at 4:39 pm

  28. Bear in mind on the productivity front that the evidence linking individual contracts to productivity is poor:

    http://www.abc.net.au/pm/content/2007/s1912715.htm

    There are some papers to there that suggest that it’s actually collective agreements which improve productivity, as they incentivise participation in the workplace, and give workers an increased stake in things.

    THR

    January 19, 2010 at 4:42 pm

  29. Workers on AWAs earn $106 per week less than their counterparts:

    http://www.smh.com.au/news/national/work-more-earn-less/2007/10/01/1191091029953.html

    THR

    January 19, 2010 at 4:42 pm

  30. Sadly, productivity has the unfortunate habit of showing up in the aggregates as deflation. During Japan’s lost two decades, where factories were increasingly automated, official policy has been toward monetary easing. Pity the poor manager looking for efficiency – punished at every turn.

    In reference to the article, is there an unwritten rule of journalism that states that, when reporting a speech, never provide the text in full, but rather pick out bits to comment on ?

    Another train of thought : is this softening us up for the so far secret Henry review ?

    Keith

    January 19, 2010 at 4:45 pm

  31. An academic study found that whilst productivity did not increase under WCs, wages and conditions did deteriorate:

    The academic is bullshitting . He says wages rates fell in 2006.

    They didn’t. They rose on average around 4%.

    Looksey.

    http://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyReleaseDate/5EDD4635EE7F2118CA257288000E9752?OpenDocument

    jc

    January 19, 2010 at 4:47 pm

  32. THR -maybe. This was done after 6 months operation of WC and as I read it, talks mostly of loss of conditions, which fits with my understanding that benefits were traded off for more money.
    I am not a great believer in WC – it was too regulatory for me – but sooner or later we will introduce more flexibility into our workplace arrangements.
    The Hawke campaign on work practices was the start of that.
    And the result will be higher pay.

    Ken Nielsen

    January 19, 2010 at 4:49 pm

  33. benefits were traded off for more money.

    On paper, this was the case. In reality, the results were pitiful. A good example was with Spotlight (IIRC) – workers lost leave loading, overtime, penalties, and all the rest, in exchange for what amounted to a pathetic pay increase. In net terms, they were big losers. ‘Flexibility’ is a furphy here, as AWAs were used (post Workchoices) to strong-arm workers onto pro forma contracts, and not to foster individual ‘negotiation’ at all.

    THR

    January 19, 2010 at 4:54 pm

  34. Workers on AWAs earn $106 per week less than their counterparts:

    However aggregate wages rose. We’ve been through this argument before. You can create closed shops through union rorting supporting restrictive labor practices and when those restrictions are removed there will be an impact in that sector as there should be.

    Aggregate wages rose and employment was becoming more broadly based lowering the numbers of part time workers.

    There’s no issue with the wages of those working in restricted union based jobs should see their wages fall when the artificial protections are removed.

    That’s a good thing as it allows for more jobs.

    THR.

    There has been over 300 years of economic debate over the issue of market determined wage rates and marginal productivity theory. No academic from Griffith University is going to turn this theory around. It just isn’t going to happen no matter how much crap he puts into a paper.

    jc

    January 19, 2010 at 4:58 pm

  35. “strong-arm workers onto pro forma contracts”

    HA nobody is forced to sign a contract of employment. That would verge on slavery

    Lach

    January 19, 2010 at 4:58 pm

  36. “Aggregate wages went up. They didn’t fall. If they fell in some sectors where regulation was causing them to be artificially inflated they went up elsewhere or we saw more broad based hiring. We also saw a fall in part time jobs and a rise in full time positions too.”

    …”allocative efficiency”

    Semi Regular Libertarian

    January 19, 2010 at 4:59 pm

  37. HA nobody is forced to sign a contract of employment. That would verge on slavery

    Yes, those workers at Spotlight and Bakers Delight signed pro forma contracts involving pay cuts out of sheer industrial goodwill.

    THR

    January 19, 2010 at 5:02 pm

  38. The full speech:
    http://www.pm.gov.au/node/6416

    The word climate appears once, and not in relation to the “productivity growth agenda”. Nothing there for the environment either. I guess this is the Rudd reaction to Abbott’s recent speech : just change the topic. Pretty soon he will run out of topics where he hasn’t already failed.

    Keith

    January 19, 2010 at 5:03 pm

  39. According to the ABS, workers on AWAs recorded a bigger pay increase than those on CAs or awards up to August 2008. They were also paid more.

    – Between May 2006 and August 2008, average weekly earnings for those on registered collective agreements increased by 9% to $976.60 (39.2% of employees)

    – During the same period, average weekly earnings for those on registered individual arrangements increased by 12.6% to $1,128.50 (2.2% of employees).

    – Average weekly earnings for those on unregistered individual arrangements increased by 12.8% to $1,116.10 (36.5% of employees).

    – For those on an award, average weekly earnings fell by 1.1% to $485.90 (16.5% of employees).

    Source: ABS Employee Earnings and Hours (Cat. No. 6306.0) Table 12.

    Capitalist Piggy

    January 20, 2010 at 9:45 am

  40. THR – do you wish to take back much of what you posted earlier?

    Semi Regular Libertarian

    January 20, 2010 at 10:10 am


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