The working man’s paradise

By Leith van Onselen

On Friday, Houses and Holes wrote an interesting article on how the Australian economy appears to have informally adopted aspects of the German ‘kurzarbeit’ system of employment rather than the ‘slash-and-burn’ approach of US laissez faire capitalism:

The basic difference is that Germany has a formal system of automatic stabilisers called “kurzabeit” that revolves around private firms reducing man hours (and the government making up some of the difference in pay) versus the US approach of treating jobs as a variable cost that gets cut when trouble starts. In short, the Germans cut hours while the Americans cut people.

…for the last decade the Australian labour market has been so strong that a private approximation of the German kurzabeit system has developed. Some call it labour hoarding and it is the willingness to use such approaches as reduced hours across a majority of staff rather than cut a minority owing to the fear that skill shortages will cost more in the long run if staff are let go…

In the dark days of the GFC , “Australian kurzabeit” is widely accepted to have prevented much larger job losses…

The downside, however,  is that this is also a contributor to our productivity problem, as businesses spreads less hours over more people to ensure they have the depth of staff needed to address demand.

Certainly, Houses and Holes’ thesis is supported by the data. In the years since the global financial crisis (GFC) hit, the official Australian unemployment rate has increased only slightly, compared with the US, where the rate more than doubled:

Also, the ratio of people employed to the overall population has fallen only slightly in Australia versus a large 5% dip in the US:

In fact, the US unemployment rate would actually be much higher had their labour force participation rate not fallen sharply in the years following the GFC. In comparison, the Australian participation rate is down only slightly:

Obviously, Australia’s stronger economy due to the mining boom and better targeted fiscal interventions have played a large role in keeping Australians in jobs and preventing the official unemployment rate from rising too far. But it is also the case that those fortunate enough to have jobs work longer hours in the US than they do in Australia, suggesting that US employers might be trying to extract more output from less labour resources:

Finally, Houses and Holes mentioned that Australia’s own form of the kurzarbeit could be sapping the nation’s productivity performance, as labour hoarding by Australian employers spreads output over a larger employment base. Again, this claim appears to be supported by evidence, with GDP per hour worked not only remaining well below that in the US, but also flat lining since 2007. In contrast, GDP per hour worked in the US has grown strongly since 2007 as employers have laid-off surplus staff and extracted more output from those still employed:

On balance, however, the Australian employment system has, to date, served Australia well. By ensuring that more Australians have remained in work, Australia’s economy has probably been more stable than would otherwise have been the case. And with higher overall levels of employment, there has likely been lower incidents of financial stress from households that are heavily indebted than would have occurred under a US-style system.

We should remember this when considering the options for increasing productivity in the future.

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Comments

  1. Its a bit contradictory compared to what has happened over the past few weeks with ANZ, Alcoa etc.

    I don’t think Australia has really been under pressure employment wise due to the government stimulus aimed at housing in 2008-2009. Only since mid 2011 have we been feeling the effects of economic global issues.

    IMO The reason many companies held onto jobs was due to the gov stimulus doing its job, many of these companies would have cut jobs pre Christmas 2011 but held off due to public backlash as well as taking the wait and see approach.

    I mean, don’t you hoard labour in case you need it for when business picks up again and it out ways the cost of retraining? A lot of companies who have been hoarding labour will now realise its not sustainable, many dont see a foreseeable resolution to the high AUD, Europes problems and ever increasing cost of living and will have no choice now but to cut.

    • You might well be right there, Georgie. Job losses are clearly on the way. My point is that they would probably be much worse and would have occured earlier under a more flexible ‘dog-eat-dog’ US-style employment system than the current Australian system.

      • Definitely agree with you there about being in a much better position than the US who took the Slash & Burn approach.

        As much as I disapprove of the labor government If I were in their shoes in 2008 I would have made the same decision to kick the can down the road with stimulus in housing. Reason being, who would think in such a modern age with all our technology we would have not solved our economic problems within 5 years since the GFC.

      • the incentive for govt is always short term-ism and largesse..

        when people bring up the fiscal ‘stimulus’ ‘saving’ the economy from the GFC, reminds me of the simpsons episode..

        “Not a bear in sight. The Bear Patrol must be working like a charm.”

  2. Beyond the attempt to encourage people to not to hoar their their 4-week annual leave entitlement, I haven’t seen anything that remotely resembles kurzarbeit at the Aussie workplace.

    • What industry do you work in? I spent the past five years working for an investment bank. They were actually quite good at labour hoarding. Some people were made redundant post GFC, but not nearly as many as overseas or as many as I expected. And that’s despite profitability taking a big hit.

      • I have definitly seen it in the IT services industry. We had a terrible time post GFC, i spent around 9 months with no work, but we were kept on, as without the human capital and skills, there is no product to sell ( some companies do sell and then try to find the skills retrospectivly ).

      • IMHO, IT work is very cyclical by nature and people haven’t found a way to smooth out the work distribution, mainly because internal business demand of IT changes is cyclical.
        .
        There are times when 80 hrs/week is not enough and there are times when you spend all your time on macro business 🙂

      • There are times when 80 hrs/week is not enough and there are times when you spend all your time on macro business

        I know the feeling Mav. 🙂

      • “There are times when 80 hrs/week is not enough and there are times when you spend all your time on macro business”

        So true. Sitting hitting pf5 to see if there is another post …

    • I don’t see it either to be honest. I think the Aussie people are just more accustomed to getting whatever job/task they can to get some money together.

      The number of one-man businesses (independent tradies) here may also contribute to what the stats are telling us.

  3. I was interested to discover this weekend that as of 1 Jan 2012 all volunteers of an organisation must be counted as their employees! In the situation I know of, and organisation with approx 2 full time employees and maybe 4 or 5 people they call in on contracts (captians, it’s a sailing organisaiton) know has in excess of 200 “employees” who volunteer on the boat. This won’t make a difference if they have paid employment elsewhere, but for those who are retired or not working, that could potentially skew the numbers significantly.
    Consider that the scouts have thousands of potential “employees”.
    I don’t know enough about how the numbers are calculated to know whether it makes a difference but it could. If there is an unemployed person, whose spouse makes too much to qualify for centrelink, they would have been a stat, now, if they volunteer (to keep their skills up, learn, or just fill the day), magically not unemployed.

    • Qualification for benefits or even being registered with Centrelink isn’t a pre-requisite for being counted in the figures – to quote from the ABS website:

      The ABS separates all of these people into those who are unemployed and those who are not by asking two simple questions: If you were given a job today, could you start straight away? and Have you taken active steps to look for work? Only those who are ready to get back into work, and are taking active steps to find a job, are classed as unemployed.

      Some people might like to work, but are not currently available to work – such as a parent who is busy looking after small children. Other people might want to work but have given up actively looking for work – such as a discouraged job seeker who only half-heartedly glances at the job adds in the newspaper but doesn’t call or submit any applications. These people are not considered to be unemployed, but are regarded as being marginally attached to the labour force. They can be thought of as ‘potentially unemployed’ when, or if, their circumstances change, but are regarded as being on the fringe of labour force participation until then.

      It is important to note that the ABS unemployment figures are not the same as the data that Centrelink collects on the number of people receiving unemployment benefits.

      • Argh, no idea why that got munged. If a moderator could edit? the quote is:

        “The ABS separates all of these people into those who are unemployed and those who are not by asking two simple questions: If you were given a job today, could you start straight away? and Have you taken active steps to look for work? Only those who are ready to get back into work, and are taking active steps to find a job, are classed as unemployed.

        Some people might like to work, but are not currently available to work – such as a parent who is busy looking after small children. Other people might want to work but have given up actively looking for work – such as a discouraged job seeker who only half-heartedly glances at the job adds in the newspaper but doesn’t call or submit any applications. These people are not considered to be unemployed, but are regarded as being marginally attached to the labour force. They can be thought of as ‘potentially unemployed’ when, or if, their circumstances change, but are regarded as being on the fringe of labour force participation until then.

        It is important to note that the ABS unemployment figures are not the same as the data that Centrelink collects on the number of people receiving unemployment benefits. “

      • It is funny to read about unemployment. On one side there is shortage of skilled people, but if one starts looking even for volunteer job, it turns out there is no such thing as shortage. Qualified people are not welcome for volunteer jobs. On the other side in age care and similar jobs there are available volunteer jobs. The problem is if one is not physically fit anymore for this kind of honorable job, there is very little chance to find something else. Just check online availability and that says much.

  4. Just food for thought. maybe the businesses out there believe that the Govt could stimulate the economy again if it gets to bad. I agree unemployement is going up but after they realize no stimulus could that escalage the job cuts even more like the US style.

  5. Differences in annual hours worked per employee between the US and Australia are easily accounted for by differences in number of public holidays and normal annual leave entitlements. The amazing thing is that Australia was once higher.

  6. I beg to differ, Leith. While OZ may well have adopted the informal aspects of the german “employment system”, it is still a far cry from the more formal structure of Mitbestimmung or ‘Co-determination of Industry’. This is where employee representatives are elected to sit on the boards of the major german industry conglomerates and have a say in their operations overall. Quite a radical concept in this country and I can just see the BCA and/or CoM, not to mention shareholders and managers and think-tanks alike, have a combined apoplectic fit by the mere mention of this system… We live in hope.

  7. It’s not called ‘kurzarbeit’ in the Australian Public Service, it’s called dead wood and there’s a mountain of it rotting away.