Other economics
Exploitation of migrant workers is rife
That’s the first sentence in a report by the Grattan Institute: Short-changed: How to stop the exploitation of migrant workers in Australia. To quote from its summary:
Exploitation hurts migrants, but it also weakens the bargaining power of Australian workers, harms businesses that do the right thing, damages Australia’s global reputation, and undermines confidence in the migration program.
Underpayment of immigrants, particularly of recently-arrived immigrants, is commonplace. Underpayment occurs in all industries, but is worst in agriculture (probably horticulture) and food service industries.
Government resources devoted to supervising employment conditions are insufficient for the task, and fines and penalties for breaches are generally so small that they can be considered as a cost of doing business. Visa conditions binding a worker to one employer are particularly pernicious, because exploited workers live in fear of deportation if they complain.
The report’s analysis is thorough and it makes 27 specific recommendations for government action. These are in three broad categories:
Reform visa rules to make migrants less vulnerable to exploitation.
Strengthen the enforcement of workplace and migration laws.
Close loopholes and better support migrants to pursue underpayment claims.
Some practices identified by the Grattan Institute, such as confiscation of passports, are characteristic of modern slavery. The human rights organization, Walk Free, has published the Global Slavery Index for 2021, revealing that an estimated 50 million people are living in slavery worldwide, up from 40 million in their 2016 survey. Countries where slavery is most prevalent include Saudi Arabia and neighbouring Arab countries, Russia and Turkey. Unsurprisingly modern slavery is virtually non-existent in the Nordic countries.
In terms of modern slavery practices, Australia has a reasonably clean score, just behind the Nordic countries. But like other “developed” countries we import products made under conditions of modern slavery, including electronics, clothing, solar panels and fish.
Is our relationship with work changing?
There are long-term trends in the world of work. For example, in industrialized countries working hours have been on a long-term downward trend for at least 150 years.[1]
There are stories about people’s experience during the Covid-19 pandemic having re-shaped their attitude to work. Any change so detected would be a step change, and it may not be enduring.
Maybe these stories have some validity. The ADP Research Institute, an offshoot of the large payroll management firm ADP, has produced a report People at work 2022: a global workforce view by Nela Richardson and Marie Antonello. The general conclusion from the report is that there has been a change in people’s attitudes to work. To quote from its summary:
The pandemic has sparked a rethink of priorities and workers are signalling a willingness to walk away if employers don’t meet their standards on a variety of fronts.
and
The total package of what workers want has taken on new meaning. No longer is it just about salary and other financial benefits plus a few perks: employers need to consider a much wider and deeper range of factors to foster a sense of job satisfaction and security among staff.
It’s hard to find a great deal of supporting evidence for these conclusions within the report, however. That doesn’t mean it lacks rigour. It is thorough, based on a survey of 33 000 workers in industrialized countries, but it is essentially a snapshot, with little information on trends. For example 71 percent of workers say they have considered a major career change over the last twelve months, but without time-series data it’s not possible to evaluate the significance of such a statement.
1. It is notable in that chart, provided by Our World in Data, that Australia once led the industrial world in reducing working hours, but for the last 50 years we have been a laggard, a long way behind the French and Germans. ↩
The euphemisms and simple formulas of monetary policy
Imagine if the Reserve Bank’s next statement on monetary policy were to read something like this, drawing on April labour force data:
Last month’s labour force was disappointing. Only 18 000 more Australians became unemployed, and the unemployment rate, although rising a little, remains stubbornly low at 3.7 percent. We will not be satisfied until another 115 000 Australians lose their jobs. That corresponds to a 4.5 percent unemployment rate, the level we estimate is necessary to bring some discipline to the workforce, ensuring that workers knuckle down and stop seeking better pay and conditions.
Such a statement may shock, but it would be brutally honest, and could save the RBA staff the task of finding euphemisms to soften its monthly press statements.
Writing on the ABC website Gareth Hutchens explains how the RBA sees the relationship between unemployment and inflation, but that reasoning is usually obfuscated in language that says little about achieving a level of unemployment actually being an objective of monetary policy.
As Karl Marx and Milton Friedman understood the workings of capitalism, there needs to be a reserve army of unemployed if capitalism is to function without the disruption of inflation. Hutchens’ article, cheekily titled If economists want more unemployment, will they volunteer to join the dole queue?, is a criticism not only of the Reserve Bank but more generally of the simple model of inflation and unemployment that guides monetary policies.
That model treats inflation as a simple well-identified phenomenon (it isn’t), and the labour force as a homogenous fungible entity, as if everyone with a job or seeking one is just part of the pool, regardless of their power in the labour force. A cleaner, an economist in the RBA or Treasury, a taxi-driver, a surgeon: they’re all the same according to the model. In practice however, monetary policy has its cruellest impact on those with least power in the labour force.
The only way to contain inflation while real wages rise, is to improve productivity. That requires attention to structural policy, rather than the crude and blunt tools of monetary policy.
No, Peter, the budget will not drive up inflation (but the Reserve Bank may)
As we covered in last week’s roundup, Peter Dutton, in his budget reply speech, claimed that the budget will fuel inflation and therefore any future interest rate rises to combat inflation will be the fault of the government.
Peter Martin, in a Conversation contribution, clearly states that the budget will not fuel inflation and he explains why.
He rejects the crude monetarist theory that because the budget will increase net spending by $20 billion in coming years it will drive up inflation. That fiscal injection is insignificant: over the same period Australians will spend and earn $11 trillion.
More basically, he goes into details of government spending and its effects on the cost of living, explaining the rather convoluted way monetary theory is meant to work.
To explain monetary theory with a straight face, when the Reserve Bank uses its power over interest rates to make people pay more for their mortgages, they will have less money left to spend on beer, butter, bread, and books. Therefore people’s reduced spending on beer, butter, bread, and books, in reducing demand, will result in a fall in the price of beer, butter, bread, and books, and therefore a fall in the CPI. Mission accomplished.
It’s an infallible theory, provided the prices of beer, butter, bread, and books are fully determined by small changes in people’s disposable incomes, as long as one overlooks the effect of higher interest rates on rental prices, and as long as people do not dip into their savings or find other sources of income to pay for beer, butter, bread, and books.
The US debt limit: is it of any concern to us?
Ever since 1971, when the Nixon government abolished the fixed convertibility of the US dollar to gold, ending the Bretton Woods order, economists have been warning that the debt-laden US financial system is in imminent danger of collapse.
Half a century later, with Republicans in Congress refusing to raise the debt ceiling, the situation looks no less precarious.
On last weekend’s Saturday Extra Anthony Zurcher, a BBC North America correspondent, explained the politics of the standoff and the immediate consequences if the debt ceiling is not raised: US debt ceiling dispute. (14 minutes) Social security payments, payments to defence contractors, soldiers and public servants would stop. The demand-side consequences alone would be enough to plunge the country into recession.
Interest and repayments on government bonds would cease, stimulating a sharp fall in bond prices and consequently a steep rise in interest rates. Because US bonds are traded on the world market, this would have consequences worldwide. The $US has long been seen a safe and reliable currency, which is why it is still the dominant currency of trade, and why foreigners have been comfortable in holding US bonds, financing America’s large fiscal deficit.
There would be turmoil on world financial markets. Currency markets would become volatile as exchange rates react to rumours and guesses about national governments’ strategies. Volatile exchange rates would suppress global trade in the same way that nationalistic trade barriers do. The US dollar would depreciate significantly, adding to US inflation. Eventually, after a period of severe disruption, a new order would emerge: perhaps the Euro or the Renminbi would take the place of the US dollar, but it would be a less robust and less predictable order than it has been.
A Foreign Affairs article – Great powers don’t default – by Matt Pottinger and Daleep Singh postulates on the effect of a default on US power. Along the way the authors give a frank account of the way the worldwide status of the US dollar has become an integral part of the nation’s economic system:
U.S. dollar primacy is a national treasure. The strength of the dollar allows American households, businesses, and governments at all levels to fund themselves far more cheaply than would otherwise be the case. Families benefit from the dollar’s unrivaled status each day by paying lower interest rates on credit card debt, mortgages, and student loans.
In other words the world has been financing US debt – its borrowings from the rest of the world. In any other country running both a high external debt and a high government debt, the IMF would have stepped in many years ago, imposing some combination of austerity and higher taxes, while the currency depreciated. But the primacy of the US dollar has deferred that reckoning.
At the Bretton Woods Conference in 1944 Keynes warned the Americans of the danger of allowing the US dollar to become the dominant world currency. Attracted by the idea that they could borrow from the rest of the world in their own currency, and seeing status in the greenback’s dominance, they ignored his advice.
Housing – we have a supply problem and the houses we live in are cold
The fundamental problem in both the rental market and in the first-home buyer market is that we haven’t been building enough houses, and there is no sign that the situation will improve.
The Grattan Institute has a 25-minute podcast Why housing was the biggest missed opportunity in the federal budget, with the Institute’s Kat Clay, Brendan Coates and Joey Moloney. They describe the hard numbers of the rental crisis: when vacancy rates are less than three percent there is pressure on the market, and the vacancy rate is now one percent or less. They describe the budget’s housing measures: they are generally positive but inadequate. They go into detail of the mechanism of the Housing Australia Future Fund: it’s a clever financial mechanism, but it’s underfunded. And they discuss immigration: it is actually low by recent standards, but it’s still a stress on the market.
Illustrating the development of the rental crisis, the ABC’s Clara Jones has some hard data on the number of rentals available for less than $400 a week. Nationally just three years ago about 42 percent of offerings were under $400: now only 16 percent are available under $400. Although the situation is worst in capital cities, the decline in affordable rentals has occurred in both capital cities and in other regions.
An article by the ABC’s Maani Truu takes us into the way property owners and property managers set rental prices. Unsurprisingly there’s a wide range of behaviour: the market is a long way from economists’ notion of an equilibrium price. Some property owners seek to sustain good relations with tenants, taking their financial situation into account, while some others are greedy, dishonest and exploitative. Most commonly owners raise rents when properties become vacant.
In what seems to be an excuse for distancing themselves and property owners from hard moral decisions, property managers point out that their job is to act in the owner’s best interest. The property owner does not have to confront the tenant, and the manager can refer to trends in the market when increasing rents.
One housing measure announced in the budget was a $1.6 billion fund for energy-saving improvements in housing. In a Conversationcontribution – Budget’s energy bill relief and home retrofit funding is a good start, but dwarfed by the scale of the task – Trivess Moore and Ralph Horne of RMIT University describe the program, pointing out that “more than 10.8 million existing dwellings fall short of the quality and performance needed for a low-carbon and affordable future”.
Breezy in winter
Our houses in Australia may be the world’s biggest, but by world standards their thermal quality is poor. Another Conversation article, by Cynthia Faye Barlow and Emma Baker of the University of Adelaide, and Lyrian Daniel of the University of South Australia, reports that 4 out of 5 homes in southern Australia are colder than is healthy. They report that three quarters of Australian homes were cold last winter, “having an average winter temperature less than 18 degrees (the World Health Organization’s recommended minimum) during occupied, waking hours”. Their academic paper on which the Conversation article is based is available on Science Direct: Cold homes in Australia: Questioning our assumptions about prevalence.