A mate of mine sent me a very interesting article today (http://www.abc.net.au/news/2011-09-28/kohler-digging-into-productivity/3025896) written by the ABC's economic correspondent, Alan Kohler. Essentially it debunks most common (and accepted) orthodoxy on productivity and why it's lagging. Kohler quotes a report published by NAB written by the head of Australian economics, Rob Brooker:
"A plausible case can be mounted that much of the decline in labour productivity performance in Australia since the middle of the last decade is attributable to special and cyclical factors.
These include high levels of investment in the mining and utilities industries that have not yet come on stream, the impact of slower GDP growth during the GFC and an apparent stalling in the growth of real wages faced by producers, even outside the booming mining sector.
The current slowing in measured productivity may begin to unwind as new mining and infrastructure capital comes on stream and as GDP growth picks up in response to the second mining boom."
In other words, everyone is throwing money at the mining boom, regardless of how efficient the rate of return on their investment is. No one is concerned that it takes years to get a mine up and running simply because the profits will be huge once the mine comes online.
So, all the bleating about the problems with the fair work act on behalf of Treasury, the Reserve Bank & sections of business is all bullshit, right? Well, I'm not so sure.
Certainly this study highlights that Industrial relations settings are having less effects after the massive productivity rises after moving from centralised wage fixing to enterprise bargaining in the early 90's. Again there was growth (see a good table here - http://www.theaustralian.com.au/business/economics/blame-mining-boom-drought-says-productivity-commission/story-e6frg926-1226150097598) in the late 90's after AWA's were introduced and individual agreements were buffered by the no disadvantage test but it was still on a downward slope. That table on the above link does show the rise in cost, however of labour. There's no analysis for that, but we can safely presume that it was a result of more specialised and highly paid positions in mining, but also the large pay packets needed to entice workers to remote areas.
Kohler again remarks:
I've spoken to a lot of people about this subject recently, and most agree that there are few serious productivity gains left in IR reforms, even if we went back to WorkChoices. Most of the effort now needs to be directed at education and infrastructure, both of which are very long term in their results.
The problem is, such spending on education & infrastructure also has a long leading in time. And as much as Howard haters and Labor true believers ignored during the Howard years, such spending is a state responsibility. Yes, the federal government can give grants and other funding, but the quality of our education institutions is a state responsibility. There can certainly be good arguments for federal government funded infrastructure, but the problem is there is less money to spend (after million dollar pergolas & insulation that sets your house on fire) and the infrastructure the government does invest in has received no cost benefit analysis whatsoever and relies on decreasing, not increasing competition. But alas, the much vaunted NBN is the topic of another post. So, what should infrastructure should we spend money on? I'm buggered if I know, to be honest. But I know that faster movie downloads at the cost 43,000,000,000,000 dollars won't help productivity much.
Before, I lose you, dear reader, I will get to the point. Productivity might be lagging because of the mining boom, but no access to individual agreements with a solid safety net (as legislated in 1996) and increased union access to worksites where no union members even exist, won't help.
What will also not help is an example of union thuggery I have just this morning been alerted to - the union representing workers in the federal government department of Defence, Science & Technology Organisation has introduced 1 minute strikes. You read correct, 1 minute strikes. I am reliably informed that workers strike for 1 minute. They are not paid for this 1 minute; but the finance department paying their salary cannot deduct 1 minute of pay from their pay packet. They can only deduct pay in 5 minute increments. So, this terrible injustice of being deducted 5 minutes instead of the 1 minute they didn't work, is then used by the union as a premise to start a dispute with the department.
I'll bet you all thought silly strikes over frivolous matters ended in the 70's. They didn't. And it is incumbent upon any competent government to balance efficiency, productivity & flexibility in the Labour market with fair outcomes for workers. Howard messed up in with workchoices, pre-reinstating the no disadvantage test; now Labor has pushed it too far the other way.
Indsutrial relations may have less affect on our productivity in the current economic climate, but we ignore these settings at our peril.
"A plausible case can be mounted that much of the decline in labour productivity performance in Australia since the middle of the last decade is attributable to special and cyclical factors.
These include high levels of investment in the mining and utilities industries that have not yet come on stream, the impact of slower GDP growth during the GFC and an apparent stalling in the growth of real wages faced by producers, even outside the booming mining sector.
The current slowing in measured productivity may begin to unwind as new mining and infrastructure capital comes on stream and as GDP growth picks up in response to the second mining boom."
In other words, everyone is throwing money at the mining boom, regardless of how efficient the rate of return on their investment is. No one is concerned that it takes years to get a mine up and running simply because the profits will be huge once the mine comes online.
So, all the bleating about the problems with the fair work act on behalf of Treasury, the Reserve Bank & sections of business is all bullshit, right? Well, I'm not so sure.
Certainly this study highlights that Industrial relations settings are having less effects after the massive productivity rises after moving from centralised wage fixing to enterprise bargaining in the early 90's. Again there was growth (see a good table here - http://www.theaustralian.com.au/business/economics/blame-mining-boom-drought-says-productivity-commission/story-e6frg926-1226150097598) in the late 90's after AWA's were introduced and individual agreements were buffered by the no disadvantage test but it was still on a downward slope. That table on the above link does show the rise in cost, however of labour. There's no analysis for that, but we can safely presume that it was a result of more specialised and highly paid positions in mining, but also the large pay packets needed to entice workers to remote areas.
Kohler again remarks:
I've spoken to a lot of people about this subject recently, and most agree that there are few serious productivity gains left in IR reforms, even if we went back to WorkChoices. Most of the effort now needs to be directed at education and infrastructure, both of which are very long term in their results.
The problem is, such spending on education & infrastructure also has a long leading in time. And as much as Howard haters and Labor true believers ignored during the Howard years, such spending is a state responsibility. Yes, the federal government can give grants and other funding, but the quality of our education institutions is a state responsibility. There can certainly be good arguments for federal government funded infrastructure, but the problem is there is less money to spend (after million dollar pergolas & insulation that sets your house on fire) and the infrastructure the government does invest in has received no cost benefit analysis whatsoever and relies on decreasing, not increasing competition. But alas, the much vaunted NBN is the topic of another post. So, what should infrastructure should we spend money on? I'm buggered if I know, to be honest. But I know that faster movie downloads at the cost 43,000,000,000,000 dollars won't help productivity much.
Before, I lose you, dear reader, I will get to the point. Productivity might be lagging because of the mining boom, but no access to individual agreements with a solid safety net (as legislated in 1996) and increased union access to worksites where no union members even exist, won't help.
What will also not help is an example of union thuggery I have just this morning been alerted to - the union representing workers in the federal government department of Defence, Science & Technology Organisation has introduced 1 minute strikes. You read correct, 1 minute strikes. I am reliably informed that workers strike for 1 minute. They are not paid for this 1 minute; but the finance department paying their salary cannot deduct 1 minute of pay from their pay packet. They can only deduct pay in 5 minute increments. So, this terrible injustice of being deducted 5 minutes instead of the 1 minute they didn't work, is then used by the union as a premise to start a dispute with the department.
I'll bet you all thought silly strikes over frivolous matters ended in the 70's. They didn't. And it is incumbent upon any competent government to balance efficiency, productivity & flexibility in the Labour market with fair outcomes for workers. Howard messed up in with workchoices, pre-reinstating the no disadvantage test; now Labor has pushed it too far the other way.
Indsutrial relations may have less affect on our productivity in the current economic climate, but we ignore these settings at our peril.
So what's the answer? Industrial Relations regulations are overrated. They have no effect on most people's jobs and pay packets. Emphasis on productivity is also overrated. When a CEO grants HIMself a massive salary and options package, how does that reflect his productivity?
ReplyDeleteIf productivity is the determinant of pay rises, it would be an incentive not to be productive. If I am as productive as I can be and there is no room for improvement how can I ever justify a pay increase? It is better for me to slow down a bit so that there is room for improvement.
It's the same with NAPLAN tests. If I am a teacher and my job depends on improving my students' scores by the end of the year, I will do my best to ensure that they are mediocre halfway through the year so that there is room for improvement. Watch it happen.
BTW: you should change your comments setting so they allow anonymous posting. You only get smartarse comments when people are protected by the cloak of anonymity.
Let's be a little bit simpler with this.
ReplyDeleteSay you worked in a legal office. Say also, that you have 2 rounds clerks. One is awesome - he runs off to court whenever you ask him to, completes tasks efficiently and has an excellent repore with his colleagues, thus improving office morale.
Let's say the other rounds clerk, is a fat, flatulant git who spends too much time reading about politics and generally gets annoyed when people give him work. He then puts more pressure on his colleagues to take up the slack thuis decreasing office efficiency.
These two people are paid exactly the same.
Therein lies the problem. There needs to be a way of rewarding good employees, thus the need for individual contracts or flexibility clauses.
(It also helps in times of recession, as hours and pay can be directly negotiated, instead of simply sacking employees).
Your point about slowing down and speeding up isn't really a point - individual goals agreed to by employer and employee can work through this.
You other point about CEO's and their pay is a different issue and one of accountability and shareholders etc.
As new evidence shows, productivity won't neccessarily rise, but it will helps us move from cumbersome, one size fits all approaches which should be an agreeable goal, unless you're a union official.