The Paradox of Rising Underemployment and Growing Hours

Paradoxically, underemployment and number of hours actually worked are both on the rise in Australia.

Dr. Anis Chowdhury, Associate of the Centre for Future Work, explains how these seemingly contradictory trends can coexist:

Paradoxically, underemployment and number of hours actually worked are both on the rise in Australia.

Since 1978 from when the ABS started publishing data on the number of hours worked per month, the hours increased continuously. For example, in July 1978 slightly less than a billion hours was worked; the figure was 1.7 billion in June 2017 – a rise of 781.9 million hours worked a month. Compared with June 2008, 151.3 million more hours were worked in June 2017. The recently released Labour Account Australia, Experimental Estimates, July 2017 (by ABS) shows that between 2010/11 and 2015/16, hours actually worked increased by 5.7% from 19.15 billion hours to 20.23 billion hours.

The rising number of hours worked should be a good news, provided it meant more income. But for the most part during this period real wages either stagnated or fell. Recent ABS data show that quarterly real wage growth stuck below 0.6% for three years, translating into an annual wage growth of just 1.9%, the lowest figure since the late 1990s, and probably the slowest rate of pay rises since the last recession.

Hence the majority of workers are forced to work more hours in their struggle to maintain a decent living. Labour Account Australia, Experimental Estimates (July 2017) records that a good number of people work more than one job. Interestingly, increasing by 64,100 (9.2%), the growth in secondary jobs outstripped the growth in main jobs which increased by 791,700 (6.8%) over the six years to June 2016.

It is also not surprising that people are wanting to work more hours, raising the incidence of involuntary underemployment. The most recent ABS estimate, for May 2017, shows 1.129 million Australians working fewer hours than they would like. This translates into an underemployment rate of 9.3%. When added to the current headline unemployment rate of 5.6%, we have a whopping "underutilisation'' rate of around 14.9%!

Labour exploitation is also on the rise as the unpaid overtime work gets longer. The Australia Institute’s 2016 survey (Excessive Hours and Unpaid Overtime: An Update) found that full-time workers were on average performing more than 5.1 hours a week in unpaid overtime. Part-time and casual employees work an average of 3.74 hours unpaid overtime per week. For full-time workers, average unpaid overtime is worth over $10,000 per year – or 13% of actual earnings. For part-time workers, lost income from unpaid overtime exceeds $7500 per year, and represents an even larger share (nearly 25%) of actual earnings. The lost income due to unpaid overtime represents a significant loss to workers and their families.

Australians are putting in some of the longest hours (more than 50 hours) in the developed world, coming in 9th in a survey of OECD countries. Full-time employees are on average putting in extra 4.28 hours and part-time staff are working an hour over their contracted hours every week. ABS data show that around 30% of employed men and 11% of employed women report usual working 45 hours or more each week.

Thus, Australian workers are over-worked and underpaid. They are both time and income poor.

These paradoxes are not statistical quirks. They are the results of heightened job insecurity; but it is deliberate! It is caused by changes in the labour market institutions governing wage and employment conditions, designed to increase the share of profit and strengthen corporate power.

Alan Greenspan, the former Chairman of the US Federal Reserve, made this very clear in his testimony to the Congress two decades ago (26 February, 1997). He elevated job insecurity to major status in central bank policy when he said, “Certainly other factors have contributed to 'the softness in compensation growth'' despite a low unemployment rate, but ''I would be surprised if they were nearly as important as job insecurity''.

Workers have been too worried about keeping their jobs to push for higher wages, and this has been sufficient to hold down inflation without the added restraint of higher interest rates. He also acknowledged, “Owing in part to this subdued behavior of unit [labour] costs, profits and rates of return on capital have risen to high levels”.

Most interestingly, according to Greenspan, widely regarded as the “guru” of present day monetary policy-makers, workers’ fear of losing jobs is not in itself sufficient; the sense of job insecurity has to be rising or getting worse to prevent any push for significant wage increases. This is because, once it levels off, and workers become accustomed to their new level of uncertainty, their confidence may revive and the upward pressure on wages resume, especially when more people find jobs and the unemployment rate drops.

Right now, millions of Australians are feeling some level of job insecurity because of increased casualisation of employment and insufficient availability of full-time regular jobs. The increase in casual and non-permanent work is putting pressure on people to work harder for longer, and to work more hours unpaid.

There are many reasons, from automation to slower growth of the economy, for increased job insecurity. But one factor contributed the most – the deregulation of the labour market in the name of increased flexibility. This not only involved moves from centralised to enterprise bargaining and to individual contracts, but also restrictions on union activities – both intended to weaken worker’s bargaining power and strengthen business’s hiring and firing power.

One can easily blame successive Liberal-National Coalition Governments, starting from John Howard for this. But the Hawke-Keating Labor Government started the process, arguing that it was necessary to respond to changing global economic conditions and to remain competitive. The Hawke-Keating Government argued that linking wage bargaining to the enterprise performance would provide flexibility and hence boost productivity.

The succeeding Howard-Costello Government increased so-called flexibility by introducing “work choices” (individual contracts) arguing the same. In 2007, Peter Costello, said that the greatest risk to Australia's prosperity is a return to centralised wage fixing: "Nothing could be a bigger threat to the Australian economy at the moment than moving away from decentralised wage fixation and going back to the past,"

But alas; there has been no sustained boost in productivity growth. Instead, successive labour market reforms have allowed inefficient enterprises to survive. Employers  felt no pressure to upgrade technology, improve management practices or train workers to boost productivity, as both Labor and Coalition Governments, held hostage by the business group threatening to leave Australia for cheaper destinations, vied with each other to make Australia more hospitable – more “competitive” – for businesses by making labour cheaper and regulations looser.

During 2016, Australia’s labour productivity growth was nil whereas it grew by 1.9% in OECD. Only 4 other OECD countries experienced lower productivity growth than Australia. Using the internationally comparable US Conference Board data, the Productivity Commission reported that Australia’s multi-factor productivity (MFP) growth in 2014 was negative (-0.9%) – and lower than China, India and Korea. ( MFP reflects the overall efficiency with which labour and capital inputs are used together in the production process. MFP growth in Australia continued to decline since the mid-1990s reaching a negative figure, i.e., declining during 2005-2010.

The problem is well exemplified by Australia’s auto industry which survived only due to the life-line of government subsidies and some industry protection – recall the Rudd Labor Government’s $6.2 billion over the next 13 years and Abbott Government’s $900 million budget backdown. Despite all the flexibilities afforded by diluting the employment and pay conditions, one of just 13 countries in the world capable of building a car from the ground up, Australia's 90-year history of assembling and building automobiles is coming to an end with the pulling off of the plug of government assistance.

Therefore, the only way Australia can now compete internationally is by racing to the bottom; by lowering labour cost – cutting the penalty rates, lowering the minimum wage and diluting working conditions; in short, by underpaying the workers and forcing them to work longer hours. And this only can succeed by ensuring continued rise in job insecurity though underemployment, more spells of unemployment, more volatility in the hours the workers are expected to work and continued weakening of labour’s bargaining power.


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