As Aussies sacrifice, leaders rort

Kurzarbeit is a German term describing its particular labour market mechanism for dealing with periodic overcapacity:

Short-time working or short time is a situation or system in which civilian employees agree to or are forced to accept a reduction in working time and pay. The term can refer to short-term, recession-related programs operating in several European countries in which companies have entered into an agreement to avoid laying off any of their employees by instead reducing the working hours of all or most of their employees, with the government making up some of the employees’ lost income. Employees who undergo training programs during their extra time off can often maintain their former incomes.

As you can see, it is a formal system operated through mechanisms that brings together government, trade unions and management. Sometimes it is criticised for being clunky and bureaucratic versus the pure capitalist system in the US where headcounts are ruthlessly chopped when needed and there is some truth to that over the short run. But in the long run it is a very useful way to preserve talent and keep training costs down for businesses as well, which is vital to an intellectual property driven economy such as Germany’s. It also keeps the social fabric much better intact which efficiently prevents all kinds of costs from blowing out.

Now, take a look at the following few charts from yesterday’s Australian jobs report. Headline jobs are growing albeit modestly:

But hours worked are not growing at all:

And average hours worked is shrinking fast:

What we have here is the Australian labour market distributing less hours among more people and it’s resulting in falling wages:

In short, the Australian labour market is responding to overcapacity by using the European method not US. This is Aussie kurzarbeit but arguably even better given it is being negotiated one on one, among millions of employers and employees right across the country, retaining talent, preserving headcount but deflating the labour market as well.

Yes, Australia has industrial relations rules and structures that shape the labour market but my experience of Aussie kurzarbeit is that it is quite voluntary. During the GFC I was consulting across half a dozen medium-sized firms and they all deployed something similar not because they had to but because they saw the sense in it and it fitted their values.

That’s the rub. Economists don’t like to mention such things because they can’t input them into a spreadsheet, but Aussie kurzarbeit is a reflection of the Aussie identity. It is mateship and egalitarianism expressed at its most fundamental level, in the giving of the weekly pay packet. And right now, as it has before, it is preventing a rout in the labour market as the economy struggles with overcapacity.

Moreover, this mechanism is also contributing enormously to the fundamanetal repair that the post-mining boom Australian economy must undertake. After decades of credit and consumption excess – supported by massive income flows from the mining boom – Australia priced itself out of just about every non-mining tradable sector that there is. This is most clearly expressed in the trade-weighted index (the real exchange rate) which includes both the currency and inflation:

The big deflation we’ve witnessed since 2012 has been part currency and part wage restraint. Notice, alas, how much further it has to go.

Which brings me to the second point that I wish to make. Aussies generally have been making admirable sacrifices across the board to help their neighbour (and nation). How have they been rewarded for this? Has a government, servant of the people, acknowledged why this process is taking place? No. Has it joined in and done its best to ensure that the pain is spread as evenly as possible by making its own sacrifices? No. Has it set policy to manage the real exchange rate deflation as best and quickly as possible as it can be, most particularly by setting policy to deflate the currency so that wages can take less of the brunt of adjustment? No.

In fact, policy has been set by monetary and fiscal authorities to ensure that maximum pain is foisted onto the maximum number of Aussies so that certain political interests are protected ahead of the people. This is obvious in:

  • loose monetary policy aiming to inflate a housing bubble, directly inflating the currency as well;
  • zero structural reform in fiscal spending which ought to aim to boost productivity (the easiest deflation of all); deflate property prices via tax concession reform and spend more efficiently across limitless measures;
  • mass immigration pumped up to artificially boost headline growth for the property, banking and retail sectors while per capita growth falls;
  • no narrative has been forthcoming to ensure the burden of adjustment is shared by the wealthy as well as the worker.

In short, as Australian’s work conscientiously towards a better nation, the political class has launched a rabid class war that is royally shafting the electorate for their own short term gain.

Aussies deserve so much better.

Comments

  1. The Traveling Wilbur

    I don’t​ think Germany is the optimal model to follow for dealing with supply side issues in relation to an excess of available employees.

    • Perhaps you would like to explain why instead of stating it like some totemic truth let fall from above. Unemployment 3.9% , real wages growth 2% versus 5.7% and minus here.

      • The Traveling Wilbur

        It’s not about numbers. Well, not those kind of numbers.

        Citing Germany as a model for workforce management may very well be correct technically. I did not say you were wrong. I said I wouldn’t do it.

        However there’s a very smelly elephant in the room you seem to have overlooked.

        Similarly I wouldn’t cite Cambodia as a prototype of a successful economic transition from a dominion of a foreign power to self-rule. Though there’s nothing incorrect about doing so.

    • thomickersMEMBER

      It depends…. kurzarbeit works well if the economic settings are aligned. For example, german banks will assess your loan application using a 3 day work week (in the event of kurzarbeit) for full time applications, whereas aus banks dont but inflate your income by 10-20% and stress test for +2% interest rate hike . The result is that in germany, your borrowing capacity will be a couple hundred thousand less

      • And that my friend, is why their properties are hundreds of thousand dollars cheaper than ours.

  2. Jake GittesMEMBER

    Comparing Schauble with Swan and Hockey and Morrison is going to show up huge gaps. The German economic management model is utterly different to the Anglo neo-liberal orthodoxy, something Blyth explains in his book on Austerity. Worth the time. But Australian business don’t even understand this shift; the view is still stuck in a decade old loop.

    • Hence why so.few Australian companies are successful on international level. Most are are just local village bully..

  3. Know IdeaMEMBER

    Those are good points that you raise. A classic case of the elites vs the workers, or capital vs labour.

    The concept of Kurzarbeit reminded me of my own workplace following from the GFC. We instituted a voluntary program of reduced hours, which was explained, and people were encouraged to use it. Many did. Once things righted themselves the original hours were re-established and we gave a pay rise to the volunteers. In the group that I manage, all of them are still with the organisation.

    Mind you, there is no risk now of us asking people to work less hours. We generally struggle to find new people, even though we provide all the training. Oh well, back to looking at 457 visas or offshoring, although not by choice.

    • See, this is a prime example of why it is a sh1t system. This firm had an opportunity to cut out the dead wood and to freshen up but instead they’ve now got “lifers”. Their innovation will be sadly limited because they will never be able to get rid of these entitled hanger onerers! It’s just not a profit maximising solution.

      • That’s right, o’ Most Beautiful! Besides – they have surely avoided the One True Path to riches – that is, to go balls deep investing in property: With bricks and mortar you can go far. They surely deserve what they’ve got.

      • Know IdeaMEMBER

        You’re funny. Your first presumption is that there was dead wood to be cut. Your second presumption was that lifers cannot innovate. Maybe that holds in the parallel neo-liberal universe you have concocted for entertainment purposes. It may also be true for organisations that do not manage their people. Having said that, some men you just can’t reach.

      • Know IdeaMEMBER

        Professional services … which is certainly not everyone’s cup of tea.

  4. This is just a commie-light system that was brought in to try and stave off commie-proper. Your commie image does it justice. This system goes against the free market system of supply and demand where if the demand for workers isn’t there they should just be sacked. Thankfully we can at least rely on our big corporates to follow the proper capitalist model of obliterating surplus human resources. The banks are especially great at this so we should give them our respect for maintaining a free society over this disgusting commie-light solution.

    • mate – you should be in bed in these early hours. or is it CoreLogic numbers keeping you awake lately?

      • Nah Reusa can’t sleep because of all the party drugs still in his system. Besides he knows all too well that CoreLogic numbers are just numberwang.

  5. I don’t think that what is happening in Oz is Kurzarbeit. I doubt Kurzarbeit as described above still exists in Europe even, or at least at the scale it once did.

    Following the impact of Dutch Disease in the 70’s, the Dutch economy lay in waste in the early 80’s. It took formal negotiations from Government, Unions and Employers to come to the agreement that pay would be cut or frozen, with employers agreeing to minimise layoffs and Government doing its part via reform, subsidies, investment, etc. See here:

    https://en.m.wikipedia.org/wiki/Wassenaar_Agreement

    In Australia the above result is far more like due to the pervasiveness of ‘contractors’. Individuals who do not have a permanent or long term arrangement with an employer and hop from job to job. Some of these will be part-time, sometimes there will be downtime between jobs etc.

    To assume that there is any form of adult discussion, negotiation or strategic policy at the basis of this is giving way too much credit to the three parties.

    Mind you, ‘contracting’ is now common in Europe as well and an Agreement similar to Wassenaar is unlikely to be repeated in today’s neo-liberal environment.

    • Agree. Way too early to backslap aussie ‘mate ship’. Much more likely the more recent past time of cutting perm and hiring temp.

  6. “…government, servant of the people…”.

    Errmm…In an ideal world, yes. In reality, I suspect they’re actually a bunch of self-entitled, arrogant mongrel dogs who view themselves as our lords and masters, and look out for number one while screwing the rest of us.

  7. Luckily they stopped printing 457 visas like mad in order to slash overcapacity. Oh wait…

    • Jumping jack flash

      This!

      My main problem with the whole 457 scam is that there was no baseline study (nor will there likely ever be) to determine optimum numbers of professionals per profession, and to calculate a shortfall.

      Then on calculating a shortfall, only that number of 457s are allowed into the country. No more.

      It seems simply one day, at random, they decided that there was a shortage in some professions, and without checking to see whether there actually was one or not, constructed a “professions in dire shortage” list, which was, and is, and continues to be, an absolute joke (deer farming, anyone?), and started importing people.

      If establishing a baseline and then determining a shortfall from it is deemed impossible, then 457s should immediately stop, because in that case they are being used as a solution to a problem which cannot be determined whether it even exists or not, and no way of gauging success or failure.

      • blacktwin997MEMBER

        Mate, thinking about things properly is HARD! Lets just get out there and bring some more people in, we can sort out the reasons and shit later.

  8. Time to drop the overtime point.

    36 hours.

    Beyond that, time and a half or TOIL at time and a half.

    Implement the policy, let the market sort out the details.

  9. I think there are several factors, one employers aren’t paying overtime but still expecting employees to put in extra hours to keep their jobs. Transfer of permanent to permanent part time jobs. More use of contractor or sub contractor work. Then we have 457 visa rorts etc.

    I don’t think there is mateship going on at all, just companies exploiting workers much more and due to excess capacity, employees having to suck it up to keep their jobs.

  10. oliver47MEMBER

    No mention of automation or robots here, growth in deployment of which, will rapidly reduce available working hours in all sectors of the economy. Defining the quantum of, and how to implement, a Universal Basic Income should be the focus of the much-vaunted Australian Industrial Relations system.

  11. DominicMEMBER

    “zero structural reform in fiscal spending which ought to aim to boost productivity …”

    Productivity does indeed beget deflation (the good variety) but how the hell government fiscal policy can boost productivity is beyond me — that smacks of wishful thinking on a grand scale. If it were within the government’s power to do it, they would do it. Productivity growth is fundamental to increasing a country’s wealth, after all.

    The only positive impact government can have on productivity is via fiscal retrenchment and I’m pretty certain this isn’t what was meant by the above statement.