Public policy

Next month’s “jobs and skills summit” will be in the Labor tradition

At first sight the agenda for next month’s Jobs and Skills Summit reads like a statement of the obvious. Surely any government would be concerned with “keeping unemployment low, boosting productivity and incomes”, and “delivering secure, well-paid jobs and strong, sustainable wages growth”, to quote from the Treasury’s website.

But to some these policy objectives are not so obvious. The government that lost office in May had a deliberate, if not openly articulated, policy of keeping wages low, and while it was not opposed to productivity gains (provided the gains didn’t go to workers), it sought to protect existing businesses from the disruption of structural change, thereby suppressing opportunities for productivity gains.

The government’s agenda has echoes of the Curtin government’s 1945 While Paper on Full Employment, the economic manifesto for postwar recovery guiding both Labor and Coalition governments for twenty years. Now the government has its sights on another program of reconstruction, following years of economic mismanagement and the disruption of the Covid-19 pandemic. The government has announced that once the ideas from the summit are considered, there will be another White Paper on Full Employment.

Opposition leader Peter Dutton has declined his invitation to the event, and has said that no one from the Liberal Party will attend. Charitably one could interpret this as his acknowledgement that the 100 places at the summit should be occupied by those with more competence in economics. Nationals leader David Littleproud will attend, however.

The ACTU has released a major paper An Economy that Works for People as a contribution to the summit. It starts with a short statement, dismissing the absurd but widespread idea that “the economy” is some deified entity that must be prioritized over people’s needs:

The “economy” is not some independent entity, possessing its own emotions and decision-making capacity, that must be satisfied with appropriate gifts and sacrifices in order to function effectively. The economy is us. It is the place where we work, produce and consume: in hopes of living our lives to the fullest, in healthy families and communities and with a sustainable environment.

It goes on to describe structural weaknesses in the Australian economy, particularly the fall in productivity and the fact that what productivity growth there has been has gone to profits rather than to wages. It deconstructs the idea of “trickle-down economics” – the notion that high corporate profits would finance new investment and create jobs. But it hasn’t played out like that: profits have been paid out to shareholders as dividends and buybacks, while business investment has been poor. In basic syllogistic reasoning the ACTU acknowledges that without productivity gains wages cannot rise, but it points out that there can be, and have been, productivity gains that do not flow through to wages.

The ACTU is particularly critical of the Reserve Bank’s obsession with inflation – its use of one great sledgehammer, the short-term cash rate – in a situation where there is not wage inflation but profit inflation, particularly in energy and housing. As a means of cooling off aggregate demand it would be better to cancel planned income tax cuts, to reform taxation rules so as to encourage businesses to re-invest profits, and to levy an excess profits tax on companies enjoying windfall profits, particularly energy companies, or to regulate their prices.

(The normal defence of high profits is that they provide funds for new investment and innovation. In the case of gas and coal companies there is no long-term future in the industry, and the world certainly doesn’t need increased supply of fossil fuel-based generation capacity. It would make far more sense, in terms of allocative efficiency, if these profits could be taxed heavily to fund expenditure that can serve the public purpose.)

On last weekend’s Saturday Extra economist Jim Stanford of the Centre for Future Work, the ACTU paper’s main author, summarized the paper and provided some political context. He stressed the difference between this present process and the Hawke government’s agreement with the unions, the Prices and Incomes Accord, which was conducted during a period of strong wage inflation, a situation that doesn’t exist now. (17 minutes)

Immigration likely to be boosted, but with more emphasis on skills

Apart from some priority occupations, there is unlikely to be any jump in immigration until after the jobs and skills summit, but Sydney Morning Herald journalist Anthony Galloway reports that the government wants to increase the migration intake to between 180 000 and 200 000 a year, which would bring it up to around the level before the pandemic: Labor to bring in tens of thousands more migrants as it eyes bargain with union movement.

The government is well aware of the unions’ demand that immigration, particularly short-term immigration, not be used as an opportunity to compensate for structural weaknesses, particularly a shortage of skills, and that it not be used to pull down wages: Labor vows to prioritise Australian jobs as it eyes migration boost.

Besides filling a skills shortage we also have a humanitarian immigration program. On ABC Breakfast Patricia Karvelas questioned Immigration Minister Andrew Giles about visas for Afghans: What is the government doing to help those trapped in Afghanistan? When Kabul fell a year ago it was announced that there would be 31 500 visas available for people fleeing Afghanistan. There have been 47 000 applications for these places, but so far only 5 500 Afghans have re-settled in Australia. Giles (somewhat unconvincingly) explained that the process is slow and difficult. He also suggested that there may be some visas issued in categories other than humanitarian and family reunion.

To put all these figures into perspective, around 1949 to 1950, at the peak of postwar immigration, we were taking more than 150 000 migrants a year on a population of 8 million. That would equate to taking almost 500 000 immigrants a year (the population of Tasmania) on our present population of 26 million.

How to fix inflation – or is it really a problem?

Writing in The Conversation Peter Martin collates the views of 48 Australian economists on how Australia’s current high inflation rate should be tackled.

Of those 48 economists, 24 believe that inflation should be held within the two-to-three percent band, while the other 12 are a little more adventurous, opting for higher inflation. When they are asked about measures to check inflation, cutting government spending is the most popular choice, but there are plenty of other suggestions to do with reducing energy prices and boosting childcare subsidies. Some suggest increasing immigration. Surprisingly, perhaps, only 5 of the group say we should “lift productivity growth”, but that’s probably a reflection of the nature of the problem: our present inflation is due to short-term factors, while boosting productivity takes time.

Because most economists see our current high inflation as a short-term phenomenon they stress that it’s important for the Reserve Bank and the government not to over-react.

Transport affordability

It’s on the record: Sydney is the most expensive city to get around, by car or public transport, according to the Australian Automobile Association’s Transport Affordability Index. Getting around Sydney costs $21 000 a year, while getting around Hobart costs only $19 000 according to their calculations.

Actually it was more costly back then

They also provide data for transport costs in certain “regional” cities (i.e. cities other than capital cities), finding them to be lower.  

Extraordinarily it finds “car loan payments” to be just on $8 000 a year. That’s the sort of repayment that would apply to a $35 000 car, financed at 6 percent for 5 years. Another finding on the high side is the cost of fuel at around $5 000 a year. A car with an average fuel efficiency of 7 liters/100 km would need to be driven 700 km a week to cost that much.

Because there is very little explanation of the report’s methodology, it is difficult to make a great deal of policy sense out of it, or even to use it as a guide for household budgeting. It seems to have a bias towards over-statement of the cost of transport, particularly owning and running a car. Possibly this reflects the organization’s concern with government charges – registration, fuel excise, and customs duty. When we look at the AAA’s Transport Affordability dashboard – a condensation of the major report with time-series data, we are presented with a number of scary-looking graphs, all in current $ (rather than inflation-adjusted $), telling stories of the rising cost of owning and running a car. Only public transport costs, and some states’ registration fees, seem to be holding steady.

What would be useful from a public policy perspective is to compare transport costs not by capital cities or so-called “regional” cities, but by people’s income and occupation. For example that could expose the transport costs incurred by a cleaner or care worker working shifts who has no public transport option, comparing it with the costs faced by someone living close to and working in the CBD, well-served by public transport, who doesn’t need to own a car at all.

Also any methodology that lumps fixed costs (registration and insurance) with running costs conveys little information. These fixed costs can be very burdensome for those who must own a car but seldom use it. To guide their choices policymakers and consumers need proper life-cycle costing models.  

Housing policy

A cold winter for renters

Most media and policy attention is on house prices, but the Better Renting community reminds us that many Australians rent. Owners of rental properties have little incentive to make them energy efficient, and in any case most Australian houses are poorly equipped to cope with winter cold.

Their report Cold and costly: renter researchers' experiences uses a simple metric to indicate cold stress. That is the proportion of time a house or apartment is below 18 degrees, the WHO recommendation for a healthy minimum indoor temperature.

Their sample size is small, and is not stratified, but it carries an indisputable message: perhaps as much as 75 percent of the time, rented properties are below 18 degrees. Unsurprisingly the results are worst for the ACT and Tasmania. They note not only uncomfortable living temperatures, but also excess humidity associated with condensation.

Some can cope with low temperatures by bearing the inconvenience and discomfort of wearing multiple layers of clothes. For others, particularly the less mobile, it can mean confining life to one small room heated by an inefficient and costly portable radiator, or going to bed early with a hot water bag. All fairly unattractive, and possibly dangerous, options.

While costs of cold houses are borne mainly by renters, they are also borne by the whole community, because as the report points out, renters use a lot of electricity in their effort to keep warm, while home owners can insulate their houses and invest in efficient heat pumps. That electricity demand is generally at peak times. High peak demand drives up prices for everyone and generally requires bringing fossil fuel generators into service.

This problem won’t be solved without policy interventions, such as minimum standards for insulation and heating, particularly in colder climates. In an unregulated market an owner offering a well-insulated property cannot command a rental premium, because the owner has no way of demonstrating an energy cost saving to the tenant. It’s a textbook example of George Akerlof’s Market for Lemons, a market failure known to most practical economists, but unknown to dogmatic neoliberals opposed to any form of economic regulation.

In a wider context the problem of poor building standards applies to almost all housing in Australia. We have big houses, but they are not energy efficient. Writing in The Conversation Rachel Goldlust points out that we were once world leaders in building houses suited to our many climate zones, but because of commercial pressure from builders, and cuts to CSIRO funding, our standards have slipped.

Dark houses, dark money

Take a drive on a cold winter’s evening, Monday to Thursday, at about 9 pm, when most people are at home with the lights on, and notice how many dark windows there are in apartment blocks.

On Michael West’s website international crime journalist Nathan Lynch has an article Lights out and blinds drawn on the Australian dream as black money fuels house prices. It’s an extract from his 2022 book The lucky laundry: how the Aussie economy got hooked on the world's dirtiest cash. Governments can claim that they’re cracking down on foreign ownership of real estate, but there are plenty of ways crooks can conceal their real identities. Real-estate agents, banks, and state governments dependent on property taxes all take their cut along the way. Those who pay for this largesse are young people seeking housing, either locked out of the market or bearing high rents and mortgage repayments.

Facebook friends and housing policy

What can 21 billion Facebook friendships tell us about social mobility and housing policy?

Quite a lot, when the Facebook friendship data is analysed and cross correlated with data on neighbourhood composition and people’s social mobility.

A team of researchers from Stanford and Harvard Universities who undertook this analysis found that children from low socio-economic backgrounds benefited tremendously when they had the opportunity to form cross-class friendships, and that such friendships were most likely to flourish in neighbourhoods with social mixing, where kids from poor households could mingle with kids from middle-class households. Churches and sporting clubs often provide good opportunities for such mixing.

They found that the presence of cross-class friendships provides a better predictor of upward social mobility than school quality, job availability, community solidarity, or family structure – the variables that are often the prime focus of public policy in breaking kids out of poverty.

Their results are presented in an article in Nature: Social capital I: measurement and associations with economic mobility. On last weekend’s Saturday Extra Geraldine Doogue discussed the study and its results with Matthew Jackson, one of the many contributors to the work: How cross-class friendships increase earning power. (14 minutes)

The study is almost purely empirical. Such is the nature of studies based on big data sets. The researchers can only speculate on the mechanisms that produce this outcome. But there are implications for housing policy, or more generally settlement policy, that incorporates social mixing as a design feature.