Home > Economics - General > Refuted economic doctrines #8: US labor market superiority

Refuted economic doctrines #8: US labor market superiority

May 23rd, 2009
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According to the latest data, the unemployment rate in the US was equal to that in the EU-15 in March, and is now likely to be higher. Writing in the NY Times, Floyd Norris refers to the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe.

Although this is the conventional wisdom, the research on which it was based (by Lazear and others) has long since been qualified or refuted. I looked at this in the context of the debate about unfair dismissal laws a few years back. Although the early research supported the simple view that more flexibility = more jobs, later research yielded the conclusion that employment protection laws lower the variance of employment and unemployment but have no clear effect on the average levels.

When you look at the institutions involved, this is unsurprising. Although Norris refers to restrictions on hiring and firing, the reality is that restrictions on hiring are nowhere very important. Even in the extreme case of Spain, they amount to a few weeks of salary. The big differences are in costs of firing, and it is the anticipation of these costs that acts to constrain hiring in periods of expansion.

Advocates of the US system make much of the deterrent to hiring associated with employment protection laws, but they ignore the other side of the coin. When the economy is contract, employment protection laws do in fact protect employment (if they did not, they would have no adverse effect on hiring either).

On this basis there is nothing surprising in what we are seeing. EU unemployment rates should be higher in expansions and lower in contractions, which is exactly what is required for lower variance.

Which is better? The big problem with strong employment protection is that it tends to create an insider class of well-protected permanent employees and an outsider class who are either unemployed or assigned to some form of semi-permanent “temporary” status (see, for example, the tenure system in universities). But, comparing the EU and US as a whole, the opposite seems to be the case – there is a sharper class divide, and less social mobility in the US than in the EU.

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  1. gerard
    May 23rd, 2009 at 10:56 | #1

    don’t forget to mention the overwhelmingly larger size of the US prison population. that’s a good way of keeping the unemployment rate down.

  2. rog
    May 23rd, 2009 at 10:56 | #2

    I attended a briefing on the new employment laws, which includes unfair dismissal, and there are some clever strategies for employers to avoid charges of unfairness. These strategies include default tests for commitment which some employees would automatically fail.

    For most businesses labour laws are an incentive to further their quality management programs.

    For small employers, subcontractors, sole traders etc it will mean less direct employment and an increase in contract labour.

  3. conrad
    May 23rd, 2009 at 12:14 | #3

    “there is a sharper class divide, and less social mobility in the US than in the EU.”
    .
    But what proportion of those differences are related to employment laws versus other things?
    .
    I also wonder if it is worthwhile considering more than just overall trends. If I compare the US to France, for example, both have a class distinction due to endemic poverty in certain groups. However, at least in the US, a boom economy and liberal labour laws allowed inroads to be made in some of those groups. That didn’t happen to nearly the same extent in France, which suggests that if you are one of those groups in France, then you are going to be stuck on the bottom in both good and poor times. Because these groups are not a thrilling amount of the population, that might not affect overall trends a lot, but since some of these groups cause a disproportionately large number of social problems, the sorts of things that lock them out of the labour market might be worth considering in its own right.

  4. Alice
    May 23rd, 2009 at 13:15 | #4

    #3 Conrad says
    “However, at least in the US, a boom economy and liberal labour laws allowed inroads to be made in some of those groups.”

    I would suggest, excessively liberal derugulations of the financial system, an focus on de-emphasising and reducing the degree of progressivity of the US tax system, and excessive de-regulations of labour markets allowed the class divide to widen in the US, have tipped more people into those poorer bottom income earning groups than they ever pulled out of it..
    U.S. inequality has risen dramatically in the US over the past three decades (whilst being virtually ignored as an indicator) leading to a “sharper class divide and less social mobility’.

    The US was apparently waiting for “trickle down” to occur….but the glaring reality is the majority of the population were tricked into turning their eyes from a growing problem (and those who gained by the false ideology exploited it, supported it and expounded it the most ie the higher income earning mostly conservative class…. to the great detriment of middle and lower income earners, and ultimately to themselves). High income earners somehow came to believe that grossly inflated salaries were their own just recompense for a contribution to production of far lesser value.

    It is up to governments to maintain balance between the interests of competing classes and maintain general economic health, and the US has failed abysmally on this account by pandering to a greater extent to the interests of the powerful and the wealthy at great cost to all in their economy, and the US economy. This is more than apparent yet some would still seek to have us believe the ordinary US citizen is on the whole now better off?.

    OK Ill fall for it…”some are better off..” They sure are…but not the groups Conrad is referring to.

  5. May 23rd, 2009 at 13:34 | #5

    Pr Q says:

    the conventional wisdom that flexibility inherent in the American system — it is easier to both hire and fire workers than in many European countries implies that unemployment should be lower (at any given point in the business cycle) in the US than in Europe.

    I am no fan of the neo-liberal CW on labour markets. But, as a self-confessed “self-hating social democrat”, I have to look at the evidence with a cold eye. Given the severity of the shock that the US experienced its labour markets are performing well-enough, with evidence of job-saving remuneration cuts and job-seeking re-location trips.

    One major problem with Pr Q’s analysis is that he ignores the different timings for the US and EU business cycle recession and recovery phases. The US started earlier and may well finish earlier than the EU.

    There is also an issue with the relative amplitude of recessions in the EU and US. Its quite likely that the EU could sink lower than the US over the course of the cycle.

    The US is not in perfect sync with the EU as far as phases of the cycle are concerned. The GFC started when the US sub-prime housing market imploded from 2006-07. It took almost a year for the US’s financial woes spilled over into the real industrial economy. The WSJ reports the NBER as stating the US entered recession in DEC 07:

    the National Bureau of Economic Research said its Business Cycle Dating Committee determined that the U.S. entered recession in December 2007, marking the end of the economic expansion that began in November 2001. That month marked the end of the last recession for the U.S. economy.

    By contrast the EU did not enter recession until the second (calendar) quarter of 2008. The Eurobserver reports:

    The global financial crisis is taking an increasingly heavy toll on Europe’s economy as fresh economic projections – to be officially confirmed by the European Commission on Friday (14 November [08]) – show that the 15-strong euro area has entered recession, its first in the structure’s history.

    The eurozone’s economy contracted by 0.2 percent between July and September 2008, following a 0.2 percent decline during the second quater of this year, the BBC reports.

    On current forecasts it looks like the US will pull out of the recession before the EU. The Australian reports a WSJ survey of forecasters:

    On average, the 52 economists who participated in the survey project that the recession will end in August…Slow growth is expected to return by the third quarter [2009], with the economy expanding more than 2 per cent in the first half of 2010.

    By contrast the EU is expected to limp through most of 2009 and emerge with anemic growth in 2010. The NYT reports a gloomy forecasters survey which seems to contradict the rosier projections in the Norris article:

    Labor markets, which tend to react relatively slowly to changes in growth rates, will continue to be severely affected, the European Union said, with the unemployment rate expected to rise to 11.5 percent in the euro area next year, from 9.9 percent this year. The jobless rate in the region was 8.5 percent in February.

    These forecasts should probably be taken with a grain of salt. Economists tend to over-predict changes such as recessions and recoverys, as it gives them something interesting to say. In reality most things just keep going on for ages the way they have been. Conservative inertia – same old, same old.

    Is Pr Q willing to bet that the EU’s cross-cyclical labour market performance will be better than the US’s? That would be a most uncharacteristically reckless bit of fore-casting from a risk-averse economist.

    We should probably wait until the recessions in both economic areas have ended before making a definitive call on the “labour market flexibility” doctrine.

  6. robert
    May 23rd, 2009 at 14:34 | #6

    I wish I could remember the precise issue of Time magazine in which I read this, some years ago now; but it seems relevant. Apparently the Michigan state government abolished its unemployment almost overnight, sometime during the late 1990s, by the simple expedient of reclassifying its unemployed people as “consultants”. Et voilà! All of a sudden, an unemployment rate of zero.

    And we know that in this country, it is necessary only to be employed for one hour per week in order to count as “employed”, for statistical purposes.

  7. Alice
    May 23rd, 2009 at 14:54 | #7

    Why the focus on labour markets at all?…flexibility has greatly increased in most industrialised nations given the rise of the much worshipped short term or casual labour contract…it seems to me the (false) sense of superiority and inefficiency resides in US capital markets.

    What cost is there in firing casual or short term contract workers at the end of their contracts even if they are fired before the end of the contract? The cost is minimal to zero. The cost of training a new employee is a cost businesses pass to employees as lower probationary wages in many firms. In addition many firms pass costs to casuals at every opportunity by adding tasks without additional pay and casuals or short term contract workers have no unions to argue their case (bargaining power stripped away).

    It seems to me there are only so many “efficiencies” to be gained from labour (and have mostly been gained to extent labour productivity has now plateaued and slowed over the past decade. The labour market has been called on excessively for such “so called flexibilities”.

    Firms ignore loss of productivity from loss of morale (as existing staff watch workmates face waves of short term sackings aligned with share market volatility). The younger generation has learned that loyalty is not valued and uses firms as stepping stones. There is a general over focus on labour efficiencies in terms of work hours, costs, holiday costs avoided, long service leave avoided, sick leave avoided etc and a relative underexamination of the inefficiencies of capital to bring about productivity increases.

    Workplace morale and its medium to longer term productivity benefits are rarely costed.

    I see “labour market flexibility” as another refuted doctrine (bin it…..and or rename it “unproductive capital muscle flexing”.

  8. Alice
    May 23rd, 2009 at 15:16 | #8

    This is a fairly basic…economics link but the quite dramatic rising inequality in real hourly wages in US from 1973 to 2003 is there to see (and successive US govts have implemented policies that actually worsened it).
    Similar policies were implemented in Australia with a similar outcome.

    Australia has never been confident enough to stand on its own two feet and think independently…we have just been following faulty US policy doctrines blindly…(the blind leading the blind?)

    http://www.economicshelp.org/2008/01/what-went-wrong-with-us-economy.html

  9. Monkey’s Uncle
    May 23rd, 2009 at 16:02 | #9

    The unemployment rate is pretty meaningless because there are many things governments can do to reduce the number of people required to look for work without actually creating more jobs. It would be more accurate to look at the employment rate (that is, how many working-age people are employed for a given number of hours per work).

    In some Scandinavian countries they have reduced their unemployment rates by reclassifying a large number of unemployable people as disabled or ill. Indeed, in Holland and some Scandinavian countries around 8 or 9% of working-age people are claiming either sickness or disability benefit. Does anyone really believe that such a large percentage of people are too ill or incapacitated to work?

    Moreover countries like France have greater levels of early retirement (I think in France about 40% of men aged 50-64 are no longer working). Obviously if more people retire younger, this reduces the number of people who show up as looking for work.

    The only reason unemployment rates in Europe are not higher is not that their economies create more jobs. It is simply that fewer people can be fagged even looking for work at all.

  10. Alice
    May 23rd, 2009 at 16:17 | #10

    The overarching theme seems to me that in many industrialised nations excessive freedoms have been granted to higher income earning classes and producers. The result is now a greatly diminished tax base and a series of large deficits, that further erode the ability of governments to provide remedies such as public sector employment to counter the inability of the private sector to provide suficient in a recession.
    If the general policy direction continues on this path of the giving excessive freedoms to higher income groups, governments themselves will soon only exist as ineffectual committees of bureacrats, without sufficient resources to maintain any economic stability at all..

  11. jquiggin
    May 23rd, 2009 at 17:04 | #11

    Monkey’s Uncle, you can do a similar comparison that avoids the problem by looking at Employment/Population ratios – look at the OECD for data. As of 2007, the US was slightly higher than the EU-15, but this gap has certainly closed since.

  12. Lukas
    May 23rd, 2009 at 17:13 | #12

    re Monkey’sU @ 9

    In several Scandinavian countries sickness benefits are a replacement for sick leave. That is, instead of the employer paying sick leave (and enforcing that people claiming to b sick, are sick), the state pays it after a very short period.

    Hence higher rates of sikness benefits in Scadinavia do not mainly reflect hidden unemployment.

    They reflect hidden sick leave. Of course there is a major compliance problem (absenteeism) arising from employers not being liabl for sick leave, but that is a very different issue, and is not disguised unemployment.

    And of course if you looked at the employmentrate, as Monkey’sU suggests, you will se that Scandinavian countries tend to have higher employment rates than most countries.

  13. Kevin Cox
    May 23rd, 2009 at 18:01 | #13

    Unfair dismissal laws are not the problem. It is unfair employment contracts that are the problem.

    In periods of expansion the employees have the upper hand and in periods of contraction the employers have the upper hand.

    Stopping people getting rid of employees when they can no longer pay them is not good for employees or for organisations.

    Justice Higgins had the right approach. He tried to make the employment contract “fair”. Unfair dismissal laws tend to be “unfair” on the employer. No minimum wage is “unfair” on the employee.

    The problem is that unfair dismissal laws are a promise in the future which the employer through no fault of their own or through changing circumstance can no longer meet or should not be expected to meet. If you can no longer afford to pay someone or if a person changes their behaviour and is not worth employing then you should be able to stop employing them. The absurdity of the situation is with the huge payouts given to get rid of dud CEOs.

    So I suggest we allow employment contracts to only contain mandated promises that apply for the next pay period. Contracts can have other conditions such as redundancy but these are not to be mandated.

  14. Alice
    May 23rd, 2009 at 18:52 | #14

    The problem with only looking at unemployment / underemployment is that we are not looking at the underlying problems that give rise to it in the first place…. sure there are bandaids but what was this country doing so differently in the post war decades when unemployment averaged 1 to 2 percent versus now?? And what did we do between 1970 and now that caused a much higher so called “natural rate” of unemployment? Its just not “the employment contract being unfair” or “no minimum wage being unfair”. There are not enough jobs allowing situations to develop where there are “insiders versus outsiders” with insiders working against any gains by outsiders creating a two tier labour force of Eloi and Morlocks, from of H G Wells “The Time Traveller”.

    There are a lot of people out there who would like to work more but work isnt available except as a bit here and a bit there – a four month contract or a two year contract or a three year contract. Many are productive people underutilised. A bigger picture is needed and its to do with job creation. Whatever we are doing or have been doing – its simply not working.

  15. Alice
    May 23rd, 2009 at 19:00 | #15

    To be precise
    “The Utopian existence of the Eloi turns out to be deceptive. The Traveller soon discovers that the class structure of his own time has in fact persisted, and the human race has diverged into two branches. The wealthy, leisured classes appear to have devolved into the ineffectual Eloi he has already seen, and the downtrodden working classes have evolved into the bestial Morlocks, cannibal hominids resembling human spiders, who toil underground maintaining the machinery that keep the Eloi — their flocks — docile and plentiful. Both species, having adapted to their routines, are of distinctly sub-human intelligence.”

  16. Diego
    May 23rd, 2009 at 19:14 | #16

    “restrictions on hiring are nowhere very important. Even in the extreme case of Spain, they amount to a few weeks of salary.”

    What do you mean? As far as I know, there are no restrictions to hiring in Spain. In fact, even firing is free for most cases (temp workers, which make a third of total employees; workers in distressed companies; bad workers), which explains why unemployment in Spain has doubled over the past year.

    The only employees having real protection (45 days’ salary per year worked in case of firing) are good workers in expanding companies, as it should be.

  17. Donald Oats
    May 23rd, 2009 at 19:14 | #17

    Yes, it is absurd that a CEO has a binding contract which gives them several lifetime’s worth of the average annual salary, while a “permanent” employee can be sacked without even receiving their voluntary super contributions, let alone the compulsory employee and/or employer contributions. It is absurd that a Phd student working as tutor, on a contract which stipulates that the Phd student must be an active Phd candidate while on the contract, and who is expected to use the semester breaks and summer break to advance their Phd (50/50 Phd:contract was once the usual deal), can have all of the breaks cut out of the deal by ending the contract at the end of each semester, only to renew it at the beginning of the next semester. How is that for absurd? Unfortunately, I have seen it happen to others. Or how about needing to be employed fulltime for 7 years before qualifying for long-service leave (but which cannot be taken until 10 years of employment), and finding out that the annual contract seems to have a few days gap between ending and being renewed? The 7 years requirement is 7 *contiguous* years. Pretty absurd.

    People can be very sneaky and a signficant minority are sneaky. That’s why labour markets need a level of regulation and enforcement. It’s a protection of employers and employees from taking advantage of each other. Such a pity that it doesn’t reach to the top of the totem pole, however. The CEOs are largely immune it seems.

    The problems extends to taxation too. I never felt it was an unreasonable obligation to pay tax at the stipulated levels, until one year in particular. I was in the fortunate position of earning enough to be taxed a quite high amount – that in itself was no concern to me – and in talking with a friend, I discovered that the various bonuses and grants, deductions and rebates he had received took his considerably lower, but still good, gross income and converted it into an after tax income higher than mine! I was effectively taking my tax and handing it to him. He had a (new) family, house, and car: I did not. [That wasn't an issue as far as I'm concerned but it was an issue as far as the government was concerned.] Both of us were earning good (enough) money at the time, so it seemed to me to be absurd that the tax/rebate/grant/expenses and sundry other things could invert our positions in terms of net income.
    The previous government’s penchant for middle-class welfare was the significant factor in this.

    Hopefully, at least a few of these absurdities with regard to labour and redistribution of taxation may be repaired during the remainder of this government’s term. Maybe being taxed will mean something again, in that some fraction of the money might make it to improving the situation for the genuinely impoverished, and for those unable to work through no fault of their own – but I won’t hold my breath too long.

  18. Alice
    May 23rd, 2009 at 19:24 | #18

    Diego at 16 says
    “The only employees having real protection (45 days’ salary per year worked in case of firing) are good workers in expanding companies, as it should be.”

    Call that protection? I wrked for a company for three years before the 1991 recession – a freight company (Mayne Nick). I could see the writing on the wall….profit margins were very low in freight normally and volumes were plummeting. I negotiated a redundancy of three months and got it. It wasnt the best (6 months) but it gwas enough to get me into a new job…had I hung on longer they got worse but never less than about two months.

    What on earth makes you thing 45 days redundancy for good employees is that great???

  19. Alice
    May 23rd, 2009 at 19:38 | #19

    Ok 45 days per year worked – I misread that but it doesnt explain or correlate with exec golden handshakes at all does it?

    And it doesnt explain the treatment of the second tier labour force or their opportunities (or lack of). 45 days redundancy to insiders explains “insider benefits” and I can say that when I did most of my work in industry in the 1980s there were not these vast schools of casuals and “impermanents”. You either got the job or you didnt even though you may have had aa probabtionary period.

    Firms gave proper jobs to people on reasonably fair and respectable cconditions. Since then I have noticed the treatment of labour and employees has deteriorated greatly.

    So dont talk to me about what is fair (good employees versus temporary employees who are “bad” is the innuendo here – who are treated badly because they are “not good enough” to have secured permanency?).

    That is a common myth and excess freedom in labour laws has allowed this to happen.

    If I once worked in a business environment where casualisation and temporary contracts was less prevalent (and in fact almost non existent) and it worked OK then, why would I beleive its a benefit to us all now?

    Its a benefit to unethical employers and it redirects gains to capital, at the expense of labour (and is a contributing factor in rising inequality).

    If the firm isnt good enough to survive without treating employees badly, then let it fail and the sooner the better. What we want is sound businesses and a stable relatively secure labour market not mistreatment of labour and inadequate job provision by second rate employers.

  20. Alice
    May 23rd, 2009 at 19:44 | #20

    17#Donald
    How about teaching at uni every semester for 13 years but not qualifying for long service leave (and the uni keeping no records whatsoever) because the break between semester 2 and semester 1 is deemed to break continuity (despite overlapping contracts?) I swear when I retire my solicitor is coming to my leaving party..

    Donald – the things you mention are not the half of it….Universities are right up there with the very worst employers.

  21. Alice
    May 23rd, 2009 at 19:51 | #21

    Donald#19 Casual academic exploitation is at ignition point in universities…if the NTEU had any focus at all they would be directing resources to the formation of an independant separate union for casual academics across Australia’s uni campuses.

  22. May 23rd, 2009 at 20:12 | #22

    Alice wrote “Firms ignore loss of productivity from loss of morale (as existing staff watch workmates face waves of short term sackings aligned with share market volatility)”.

    Many years ago, I heard a story about what happened when a US firm took over a British one and tried applying a downsizing approach it had used successfully in the USA. Apparently there was a huge cultural difference: US workers nearly always supposed that those retrenched had had something wrong with them and that they (the survivors) didn’t, so successive rounds of downsizing could go on without that sort of repercussion. However, the British workers immediately took it as an object lesson, and many valuable employees that the new owners wanted to keep left early so as to stay in work elsewhere rather than having to seek work from a position of unemployment – and the more valuable they were, the easier they found it to jump. The approach backfired badly for the new owners.

    I asked around, and the consensus here was that Australians tended to react like the British in this respect. It may be that Alice’s expectation reflects this Australian cultural effect, and that US employees still don’t react as much that way.

  23. Alice
    May 23rd, 2009 at 20:23 | #23

    Thats interesting PM – implies a cultural difference…

  24. Alice
    May 23rd, 2009 at 20:37 | #24

    Yet PM….wouldnt a widening inequality between the securely employed and the tenuously employed shrink this cultural difference (the US does have the widest inequality of incomes and perhaps a greater degree of the insecurity implicit in a second tier labour force compared to the UK)? I presume the US is at the forefront of flexible labour force initiatives…?

    That is, it becomes an even greater pressure on the employed to see themselves as “right” and the casually or impermanently employed (and sacked) as “wrong” or “faulty”.

    It becomes mcuh harder for the securely employed to look into the abyss pf where they dont want to be, and more importantantly to defend one’s own “secure” appointment by justifying away the unjustifiable (they are not “worthy”)?

    I think they call it the survival instinct? (But it doesnt necessarily justify macro / micro economic policy at all…?)

  25. Alice
    May 23rd, 2009 at 20:39 | #25

    spelling correction
    “It becomes much harder for the securely employed to look into the abyss of where they dont want to be, and more importantly to defend one’s own “secure” appointment by justifying away the unjustifiable (they, who are not securely employed, are not “worthy”)?

  26. Alice
    May 23rd, 2009 at 20:58 | #26

    PM#
    Im a reasonable person. I like to think along the lines of deregulation for businesses so that they can reduce regulatory costs and hire more people and have additional funds to grow. The BAS was the biggest government imposition ever, on small businesses in Australia. Its a costly waste of time for eg small tradesmen and small businesses who have to comply with paperwork quarterly. Its the ATO’s responsibility to collect tax annually – anymore is a nuisance for business and they should not have that right to intrude quarterly on private sector business functions.

    Rightly tax collection is a government cost and this should not ever have been shifted to the private sector…but at the same time Im against labour laws that have obviously permitted too much usage of insecure and casual employment contracts, making private households lives and outgoings insecure.

  27. Donald Oats
    May 23rd, 2009 at 21:38 | #27

    Alice, I basically agree with much of what you have said. I was in the Uni employment during the early to mid-90s and several things became apparent:
    * Many very good and interesting people work there;
    * The vast majority of employees enjoyed the nature of the work, and were happy enough to accept lower pay than they could if they were private sector employees/consultants;
    * Dawkins and Norton et al started the self-consuming process of embiggening (hat-tip to “The Simpsons” for this word) the University sector’s mission to include strong commercial ties;
    * Staffing patterns and the nature of the work were destined to change in ways that decimated the original vision of a University as an institution of research and scholarship for the public good;
    * A commercial interest in which some university employees (once called academics or scientists) are financed by the very companies that need the results of that research – to fall a particular way (see Vioxx) – and in some cases the research is kept private to the benefit of the company, rather than being made public for the public good, and for the purposes of proper peer review.

    The Dawkinisation of the university sector has guaranteed the rise to dominance of private partnerships for a private operator’s commercial benefit, without much reciprocal benefit beyond supporting the now financially compromised and compliant university employees (once called academics or scientists). It guaranteed the rise and rise of the university media and legal functions: media releases of the latest “breakthrough”, a combination of spin and spiel and spruiking (hmm that was alot of alliteration – as was this aside) the purpose of which is to capture new students and new commercial deals. Oh, I forgot to mention the gravy of the media release is a jazzed up and caveat-stripped sexed-up and dumbed-down one minute grab of sciency stuff. Typically the media release is AAP’d and internet-wired in seconds. The role, and the public appreciation, of the arts and of science has been downgraded to junk bond status by this process of privatising the intellectual goods, and this result is seemingly by economic rationalist design (I think they called it economic rationalism at the time). The trouble is that universities need money – a lot of it – and to be pushed so hard into the business world, in search of that money, has inevitably changed the universities’ relationship with their academic staff (and others too) and with businesses.

    Personally I would first and foremost like to see Universities make a real effort to unwind the casualisation and out-sourcing practices within their employment of staff; universities are currently a terrible example of hurtful employee employment practices. Secondly and just as importantly, I would like to see universities retreating at least a little from the significant private research that they do. Independence used to be a great quality of the university sector (once upon a time the expression Academic Freedom wasn’t treated disparagingly), and the principal factor in its demise has been the commercialisation process.

    What is so terrible about having public institutions with dominant functions aimed at the public good? And having the fair work practices expected of other institutions?

    A Don.

  28. May 23rd, 2009 at 21:52 | #28

    Alice wrote “I like to think along the lines of deregulation for businesses so that they can reduce regulatory costs and hire more people and have additional funds to grow. The BAS was the biggest government imposition ever, on small businesses in Australia. Its a costly waste of time for eg small tradesmen and small businesses who have to comply with paperwork quarterly. Its the ATO’s responsibility to collect tax annually – anymore is a nuisance for business and they should not have that right to intrude quarterly on private sector business functions.”

    Then you really might like to look at my second submission to the Henry Tax Review, particularly recommendation (3.) which “covers a lower compliance alternative GST approach, suitable for certain businesses”. (I also go into how GST is being run as a tax on capital as well as consumption, made even worse through provisional taxing.)

    “Rightly tax collection is a government cost and this should not ever have been shifted to the private sector”.

    Well… yes, but that’s not quite the problem. Even if the government did the work “itself”, it would still be the taxpayer paying for it. However, at least that way it wouldn’t be a hidden cost and there would be an incentive to keep it under control – if it weren’t for the fact that the Australian politico-bureaucratic culture and system is rather impervious to such things.

  29. SeanG
    May 23rd, 2009 at 23:32 | #29

    And the inherent superiority of the EU system is why the French youth riot because they cannot get jobs… right.

    ProfQ, it is extremely dangerous to lump EU job market as a single set of regulatory rules. There are multiple variations within the EU which move towards and away from the US model.

  30. Diego
    May 24th, 2009 at 00:52 | #30

    Alice #19,

    what the Spanish law mandates (45 days’ salary per year worked) is the highest minimum compulsory indemnity for firing received in OECD countries. It basically means people in their 50s having worked for the same company all their lives get enough for a living without working until retirement, if fired. And yes, I think it should be (more or less) that way.

    Bad workers (bad as in “having made three different big mistakes reported to authorities by the company”) have no protection. Temps have no protection, and it is unfair; under Spanish law, though, anybody working for longer than 2 years in a company must be hired undefinitely.

    But my comment was not celebrating temps being freely fired, but asking Mr. Quiggin why he thought Spain had extreme restrictions to hiring, which Spain doesn’t have, as far as I know.

    The doubling in Spanish unemployment over the last year is explained by temps being freely fired: too much flexibility.

  31. conrad
    May 24th, 2009 at 07:08 | #31

    “Casual academic exploitation is at ignition point in universities…if the NTEU had any focus at all they would be directing resources to the formation of an independant separate union for casual academics across Australia’s uni campuses”
    .
    No it isn’t. At least where I work, the vast majority of casuals are people doing their PhDs or similar and are quite happy to do it. If casuals were removed from the system, it seems that consequences will be: (a) lots of those people will be out of pocket (many of whom don’t want an academic job, but just some supplementary money); (b) those who want an academic job won’t get teaching experience; (c) casuals may get replaced by a small number of low level teaching/slave that run innumerable low level classes all year; (d) if (c) isn’t true, then they will get replaced by staff from overseas, since Australians won’t have any teaching experience; or (e) if (c) or (d) are not true due to not having enough money, then either classes will go up massively to compensate, locals will be exchanged for overseas students, or other revenue making avenues will need to be found to compensate, none of which will look pretty.
    .
    You could argue here that they could simply increase the workload of current staff instead, however if that is done, many people will simply move on to greener pastures. It seems to me that without the funding, this was crazy move by the NTEU that helps a lucky a few at the expense of many and ignores the fact that many people are quite to have casual/part-time jobs — and that’s not just the case at universities.

  32. jquiggin
    May 24th, 2009 at 08:02 | #32

    Diego, I’m not an expert on this, but the literature I’ve seen suggests that both hiring and firing costs are higher in Spain than elsewhere. See for example,

    http://ideas.repec.org/p/iza/izadps/dp134.html

  33. Alice
    May 24th, 2009 at 08:36 | #33

    30#$Conrad
    Im not suggesting that casuals “be gotten rid of by universities…” Im suggesting that many should be given a real job (permanent or fractional). Many casuals have been teaching for some years in universities and have completed part of post grad studies or masters by research and remain funding their own “employer beneficial” development.

    Conrad, not so long back …around 1990, people like this working towards a phd were employed properly – either part time or full time WITHIN unis on proper notv casual appointments. Those considering an academic career were not expected to fund fully (in time, money etc) the completion of their phd entirely at their own expense, whilst they plugged the gaps with 13 week casual teaching stints twice a year at a decent hourly rate but an annual income below poverty level in unis (as is the case now).

    Those phd students you mention were “employed properly” within the system eg as a tutor attached to a lecturer (Associate Lecturer Fractional or full time ALL year round and being more active in the schools…).

    In most other public sector departments post graduate work is encouraged and partialy funded by time allowance or expenses so that employees are developed. Academia used to be the same ….but now its the Elois and the Morlocks but the Morlocks are still doing lots of work on the side (over and abvove their recognised 13 week teaching contracts) for the Elois because the Elois are being squeezed in three directions (research, teaching and admin) just as badly as the Morlocks who have to wait until they have done their dues acquiring a phd and presenbting it to head of school, before they can get a job worth 65K annually.

    Big woop.

    Now the phd grads might not have stayed in unis in the 1980s/early 1990s before casualisation started to climb, (and you can see why…higher $$ elsewhere…but some did and that was the next gen of academics).

    Is this how we value our academics? Treating phd students like MacDonalds workers?. My without degree, without any formal training, 28 year old female relative earns that in a clerical / admin role in the private sector.

    I think you missed my point.

  34. Alice
    May 24th, 2009 at 09:00 | #34

    31# Conrad
    Further on this point of casual academia, schools are resorting to giving a posses of international travellers a three month “research” contract to lie on Balmoral beach and write a paper or two (reserach outpout) before they continue their extended international holiday at nother uni. They are not involved in managing the growing army of students who deliver the revenues to the unis (leaving manageement of core revenue generating activities neglected through growing class sizes a rotating core of fresh new under grad grads to teach them each year in tutorials…whilst, in the absence of sufficient “local” PHD lecturers who are not engaged in fullor fractional reserach positions, the honourably retired are called back to drop in and give lectures a few hours a week on fractional appointments at their last salary.. …but these ‘mostly gentlemen” may not necessarily be so interested in the development of course teaching materials etc).

    Thus the mostly white ex employee males who are local still end up benefitting the most and….and fortifying the bastions of the ivory towers….well past their retirement lunch farewells.
    The ivory towers were always sexist Conrad (males have always been freer to move families to seek promotion in other unis and greater marking loads can get eg foisted on females, and conference attendances disallowed – all that sort of thing…).

    Some (like me and quite a few long standing fully employed phd females I know) would suggest the phd requirement before any non casual appointment can be made, has made the ivory towers even more chauvinistic and sexist than they were before…

    In fact one senior phd prolific publisher female said to me only two weeks ago “I have been discriminated against all my working life.” She is an academic close to retirement and does not expect that she will be asked back to give lecture series after retirement…because those jobs pay well and go to the boys.

    The core issue of the increasing casualisation of the teaching function (and the increasing demarcation of duties in to “teaching” V “research” in modern universities is simply further entry restrictions and more monopoly power at the top, to the detriment of many staff and students.

  35. conrad
    May 24th, 2009 at 10:25 | #35

    “Im suggesting that many should be given a real job (permanent or fractional).”
    .
    Alice, I think the difference between you and me on this issue is that I’m guessing you work in a business department (which I’ll assume is loaded with cash), whereas I, like most university staff, don’t. Like many departments, mine has a teaching staff to student ratio probably approaching 30:1. Given this, it seems rather obvious that if we have to cut back on casuals, something has to go, and this is not going to be fixed by giving PhD students who currenty work casually more expensive permanent fractional positions (I can just imagine having 30 people on the books at .15 time..). My bet is that where I work, none of them will be given such positions. Aside from being more expensive, this would also bring down one of the university rating categories (% of permanent staff with PhDs) common to many university scales. Thus, not only will we not want to do it ourselves, the university will tell us we can’t. This is just the reality of the situation.
    .
    I might point out here too that whinging about things being better two decades ago (no doubt they were) isn’t going help. I’m sure having no casuals is fine in universities with student/staff ratios of 12:1, but it will be a disaster in Australia for many concerned. In addition, these positions where PhD students are given permanent academic roles can only work in places with few PhD students (where I work, we have many more PhD students (or equivalent) than staff). Perhaps you should ask some people in other departments what the most likely outcome of getting rid of casuals is likely to be and what they will do. I’ll bet very few say “put all our current PhD students at .15 time”. Again, this is just reality, and simply saying “no casuals” with no other changes to accompany it is just going to create a mess with lots of people losing out due to it.

  36. jmh
    May 24th, 2009 at 11:21 | #36

    “And the inherent superiority of the EU system is why the French youth riot because they cannot get jobs…” SeanG

    The European unworthies always were a rowdier lot. Who knows, might link to why they still got robust social safety nets/healthcare coverage. Better the US sheeple building their tent cities quietly. For now anyways.

    What with men (that’d be mainly ‘working class’ men) making up 82% of the 600,000 people thown onto the US unemployment heap per month, on average, since Sep 08 (and ongoing) – who knows how ‘quiet’ things’ll stay (‘quiet’ being a measure of, say, likelihood of remaining happy indoors painting their toe-nails and watching Ophra reruns).

    Having so many men disenfranchised (not to mention incarcerated) must really improve the worthies’ odds with the chicks though – not that I’d want to be insinuating anything ‘primal’ about how things are going.

  37. May 24th, 2009 at 12:38 | #37

    Looks to me like the academic employment system is really busted, and it needs root and branch reform. It is not just about equity – I am watching the Victorian College of the Arts Film and Television School, a key professional training ground in the screen sector, being destroyed by Melbourne University. And I don’t think we can stop it.

  38. Michael of Summerhill
    May 24th, 2009 at 15:13 | #38

    John, if I may reply to Donald Oats by adding it was also the politics and bickering within Departments which contributed to Universities losing their soul.

  39. Alice
    May 24th, 2009 at 16:41 | #39

    37#Shame David.
    35# Conrad – I am in one of those business faculties. Alas the money doesnt doesnt seem to flow downstream. I have 35 to 40 in many classes..grown by 15 or so in ten years..buries you in marking but I take your point about different depts.

  40. SeanG
    May 24th, 2009 at 17:29 | #40

    jmh,

    I would not call unemployed French youth ‘unworthies’. Many of them are quite educated but cannot get a job because people are not prepared to hire them due to the stringest firing policies enacted by past governments.

    Paradoxically, they will also riot if the laws are loosened to incentivise companies to hire.

  41. Donald Oats
    May 24th, 2009 at 21:07 | #41

    It is an interesting point brought up by Conrad #35: my personal experience within the university sector was that in the 90s the union NTEU pushed for contract lecturers/tutors positions to be made permanent – not necessarily the staff filling those positons. This bizarre situation arose, IMHO, because the NTEU gave or compromised on five separate “options” of what could happen to a contract staffer’s position after they have filled it continuously for five years. NOTE: a phd nominally done halftime, while halftime tutoring, should take a minimum of 6 years. Why the 5 year limit? Was it to add extra stress to the candidates? As a second aside, the NTEU is probably the only union where the union rep is often a permanent staff member (in my case the head of department) who is involved in administrative and/or managerial activities. This fatal flaw means that a colleague may also be your employer and your union rep. Anyone see the conflict of interest there :-)

    From memory, one condition was to make the position permanent. Obviously the academic departments that were already cash-strapped were in no mind to consider that option. Another option was to make the role redundant at the end of the contract’s term. Again, the cash-strapped department was loathe to lose a valuable low-cost staff member and the role simultaneously. There were two other options, lost to my memory in the mists of time, which were bad for the staff member for certain. The last option, IIRC, was to have the departmental head write a letter declaring the staff member to have unique skills unable to be replaced; if the administration accepted the letter, the staff member got another 6 month contract on the same pay as before. At the end of six months, another letter had to be written, or one of the other four options would be enforced.

    This happened to me. I had two rounds of six months in which the departmental head wrote such a letter, and it was accepted both times. Clearly the logic of someone being so fundamentally important (LOL as if I was, I was just a simple tutor and lecturer level A) that the department’s program can’t run without them, is rather flawed: if the person is so important, why not make them permanent? Cash, or lack of it, was the answer.

    I spent a year of my own time and money doing an IT/Software Engineering course, and left the much more interesting world of mathematics as a consequence.

    Finally, for years the funding of the departments, that I had involvement with, was predicated on the mathematics and statistics disciplines being non-laboratory (can’t remember the correct term, but this is close enough), meaning they didn’t have expensive equipment and assets beyond chalk and a lecture hall. During this period the computer was the primary tool for research, whether numerical analysis, PDE solving, determining Lie Algebra structure and other symbolic algebra problems, graphics, and of course writing papers and grant applications. The end result of this is that the only cuts available were to the journal collection – an annual event akin to pulling teeth out with pliers – and reduction of staff salaries via better use of casual labour.

    The department and the faculty I worked in had few if any major squabbles during my time there. The departments were still separate, financially viable (if the cuts ceased), entities back then.

  42. billie
    May 24th, 2009 at 21:41 | #42

    I remember my accounting tutor in 1972 had 120 students, 6 tutorial groups. He had arrived from Brisbane and these 6 tutorial groups provided his income whilst he completed his PhD.
    In the pub in January he said “Shit xxxx, you were my only student who passed!”. I learnt my accounting from the car pool driver on my way into uni, in fact I got 64% and he got 52%.
    I think the 119 failures is probably normal results that are to be expected when the tutor is hired from anywhere and there is no control over content of tutorials [or even answrs provided to tutors] and there is no expectation of teacher training.

  43. Alice
    May 25th, 2009 at 09:15 | #43

    28# PM – I think your section 2 and 3 of your submission to the Henry Tax Review on GST sound quite sensible.I know GST accounting and compliance is a burden on small eg trades and businesses (I was involved in a telephone survey last year…I heard it over and over again). Particularly the trades type businesses where they may not necessarily have high accounting skills or very many staff.

  44. May 25th, 2009 at 10:20 | #44

    Alice, the grave danger is that both the Tax review and the government will take the restriction’s on the Reviews remit about the GST (which isn’t imposed on them but they themselves wrote) as meaning the GST should not be touched at all, even to improve things.

  45. May 25th, 2009 at 10:21 | #45

    Drat! The dreaded apostrophe bit me.

  46. Donald Oats
    May 25th, 2009 at 11:58 | #46

    The GST and the BAS in particular always seemed to me to be dumping a signficant increase in administration process costs, without a compensating benefit (for the business). I’ve been quite surprised at how the business world adopted it almost as fate accompli; then again, a Liberal government was in power. When Labor tried to float the idea equivalent to a GST in the 80′s (IIRC – might the 90s, too much time has passed), it got pilloried by the opposition and business groups. Yet the increased paperwork was a non-issue (or a minor one) with business until the day the first BAS hit their intrays.

  47. May 25th, 2009 at 17:00 | #47

    Donald Oats, there’s business and there’s business. For bigger firms, they already need sophisticated management accounting systems. Not only is GST/BAS compliance no big deal for them to add to their systems, it throws an additional burden on their smaller competitors which is a plus for them, what with barriers to entry etc. – indeed, in their denial they can even sincerely think of it as “levelling the playing field”. I have even heard of advocates claiming it would force businesses to set up more efficient systems that would benefit them, and never mind the free market idea that if these things were worth it they would already be in use – which is precisely why some businesses had them and others didn’t. (My enquiries indicate that most small businesses only need to monitor high value items specifically, and just keep a general sense of inventory levels and how fast it is moving between their occasional detailed stocktakes, all the while keeping good account of cash and blowouts in debtor payment times.)

    Anyhow, it comes down to just which voice of just which businesses gets heard – and the agendas behind that selection.

  48. rog
    May 25th, 2009 at 17:19 | #48

    Alice, GST/Bas compliance is not a burden for those that keep records.

    A lot of tradesmen dont keep good records so they rely on an accountant to furnish their BAS. Most just want to work and get paid and have no time for all the compliance b/s

  49. May 25th, 2009 at 17:44 | #49

    Rog, that’s the point. All that record keeping and so on is just precisely the level of management accounting that some firms need but others don’t, that I described just now. “All they need to do is…”, is spelling out just what a lot of them don’t need to do for business reasons and amounts to a burden for them.

  50. Alice
    May 25th, 2009 at 19:16 | #50

    48#Rog
    thats my point – tradesmen trying to grow their business and maybe hire a few apprentices or some extra labour are constrained from “doing what they should be doing” ie growing their fledgling businesses, by accounting concerns like BAS and GST. Its not useful, they are not accountants, yet cant afford a bookkeeper to manage it just yet… – so they find themselves wearing too many hats – tradesman, bookkeeper, accountant…(at night). They dont like it and I dont think they should be so constrained. They need that time after hours in many areas to get extra business, to do quotes (after hours). Its the ATO’s job to collect tax and I think annual accounts should be sufficient for many small businesses. They can give their “shoe box of receipts” over at the end of the year. They may take their accountants advice to keep records in more efficient manner …but let the accountant charge annually (or bookkeeper) charge annually and free the small business from such concerns. Quarterly reliance on tax compliance imposes a too frequent cost (and rightly it is the ATOs cost and should not intrude on growth and enrich the accounting industry at eg the expense of the construction and many other industries).

  51. May 25th, 2009 at 20:17 | #51

    Some data:

    Tables on OECD stat site gives for 2007 (latest detailed data currently available on the web site) on men 25-54 the following data:

    employment divided by population
    France: 88.3% (hence 11.7% jobless)
    USA: 87.5% (hence 12.5% jobless)

    normalized unemployment rate
    France: 6.3%
    USA: 3.7%

    So with a slightly higher relative working population in this age/sex group France has … a 70% higher unemployment rate than the USA.

    As for women 25/54 in 2007 from OECD:
    E/P
    FR 76.1
    USA 72.5

    unemployment
    FR 7.7
    USA 3.8

    So here we have clearly more women working in France (3.6 percentage point) relative to their population but unemployment is 102% higher in France! Even worse than for men 25-54.

    I’d like to see a peer reviewed paper explaining those “discrepancies” in the data, any URL?

    BTW what are economist paid for?

  52. jmh
    May 25th, 2009 at 21:33 | #52

    I had a couple of thoughts about your reply SeanG: ‘thown’ in my post should’ve been ‘thrown’ and ‘Ophra’ of course should be ‘Oprah’.

  53. rog
    May 25th, 2009 at 23:02 | #53

    PM and Alice,

    you have no idea what you are on about; you cant run a business and employ workers without keeping records – nowadays with credit cards and eft its a simple matter of data entry from your itemised statement.

    BTW it was the unions (thru Hawke) that jumped on PJK’s consumption tax and PJK later taunted Hewson over GST in Fightback.

  54. May 25th, 2009 at 23:44 | #54

    Rog, you are wrong if you suppose that records at the level of detail a BAS needs are necessary for every business’s own operations. Some records, yes – but I outlined one typical lower level of detail which is enough for some firms. That’s based on actually speaking to people in such areas.

  55. Donald Oats
    May 26th, 2009 at 06:03 | #55

    PM Lawrence #47: you are certainly correct to point out that the size and type of business determines whether GST and BAS recording is an extra hurdle or not. A cake and gift shop, an IT firm, a bank, etc are all going to have quite different issues in dealing with the paperwork.

    Obviously large firms that handle tens of thousands of client/customers per year will have systems in place already that deal with records at the transaction level. A few million bucks to shoe-horn in a new business process, and/or adaptation of existing business processes, and the problem goes away – in a large firm.

    Small single person operators are generally time-poor as well as cashflow lumpy, so dealing with the additional record-keeping (which in an ideal world they would have largely been doing anyway) imposes an extra learning penalty and recurrent time penalty – unless they can pay for someone else to do it.

    On the flip-side it probably improved at least a few small businesses’ visibility into how they were tracking – a side-effect of preparing for BAS. Never had to do one, so I’m guessing here.

    Don.

  56. rog
    May 26th, 2009 at 08:26 | #56

    At most it takes 2 hours to extract data and complete a BAS.

    You need to keep records; dumping dockets in the bottom of the drawer is not good management. Data entry into MYOB or Quickbooks is quite simple but you do need an understanding of bookkeeping and computers and that may stump some business.

  57. May 26th, 2009 at 10:16 | #57

    Rog, that is quite wrong – unless and until those firms have arranged to capture that data and put it into systems that will process it on demand that way, all of which present time and money costs that don’t show up in “At most it takes 2 hours to extract data and complete a BAS”.

    As I implied, “You need to keep records; dumping dockets in the bottom of the drawer is not good management…” is absolutely wrong, for many firms; it is just precisely the sort of claim I outlined earlier, that “I have even heard of advocates claiming it would force businesses to set up more efficient systems that would benefit them, and never mind the free market idea that if these things were worth it they would already be in use”. Those firms could and did operate perfectly well that way, up until the additional compliance requirements came along – and I spelled out just how they did. So just how is it not good management – for them?

  58. May 26th, 2009 at 10:21 | #58

    Don, I’m sure there were some gains like that from improved management accounting. Only, if they were cost effective for business reasons they would already have been adopted, by and large; that sort of firm is just precisely the sort where it doesn’t pay for itself. It’s an offsetting factor, not an improvement.

  59. Oldskeptic
    May 29th, 2009 at 20:17 | #59

    Well, basically everyone but the Germans lie about their unemployment (even the Swedes). My gut feel is that if you adjust for ‘contractors’, casual labour, part timers then the EU (ex the UK) has done better than the US, with much higher salaries and benefits.

    Take Oz, double it and add 5%. And thats about right. US Take U6 and add 25%. UK, who started this nonesense under Thatcher (quickly copied by Regan and Clinton), double and add .. whatever. I know people who have basically never worked in their entire lives in the UK (not their fault though) .. counted? No.

    Move this group to that, redefine them to that .. you know the game. Here in Oz we have a million on disability berefits .. how many real?

    Hard number time: Best estimate of unemployed and underemployed here in Oz is 11.6%. Add 800,000 working age Ozzies living and (until now) working overseas = roughly 15% overall (I’m being kind, you could easily make it 18%). And that is in ‘good times. Plus we are ignoring all those workers who were forced to become ‘contractors’. Who never appear if their work is downgraded, shortened, etc. Add another couple of a %.

    Any bets that will go to 25% over the next few years? Me I’m betting on a TRUE 30%+ by 2011.

    Make that 33% if Holden and Ford goes under (35% if Toyota pulls the plug).

    Now manage a society with that problem.

    As an aside, it will be not that bad in France .. mainly because they kidnap bosses and riot. Being ‘nice’ gets you rooted.

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