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Productivity Commission Workplace reform conclusions softened by reliance on inaccurate employment data

Productivity Commission Workplace reform conclusions softened by reliance on inaccurate employment data. By Gary Morgan, Executive Chairman, Michele Levine, Chief Executive Officer & Julian McCrann, Morgan Poll Manager, Roy Morgan Research.

By Gary Morgan, Executive Chairman, Michele Levine, Chief Executive Officer & Julian McCrann, Morgan Poll Manager, Roy Morgan Research

Productivity Commission Workplace reform conclusions softened by reliance on inaccurate employment data - Roy Morgan Research CEO Michele Levine & Roy Morgan Research Executive Chairman Gary Morgan addressing the State of the Nation

The Productivity Commission Workplace Relations Framework draft report released on August 4, 2015 is an important milestone for Australia and has the right ideas – however, there are also several things missing from the report that must be exposed and discussed. The biggest problem with the report is its reliance on the ‘politically convenient’ ABS unemployment figures that consistently under-state the real level of unemployment and under-employment in the Australian workforce and the inadequate data on the cash economy.


Unemployment

There are two issues in relation to unemployment: the actual numbers in % terms and ‘000s of people; and the trends.

The ABS July unemployment estimate shows 801,000 (6.3%, up 0.2% from June) Australians are now unemployed. This is the highest ABS unemployment figure since July 1997 – so the ABS estimates are finally moving in the right direction in terms of accuracy. However, it creates another problem – the trend, or direction. Unemployment is not increasing, it is actually improving but there is a still a gross under-estimate of real Australian unemployment. The latest Roy Morgan July unemployment estimate (1,097,000, 8.7%) shows nearly 300,000 more unemployed Australians are ignored by the ABS – and by extension the Productivity Commission in its Workplace Relations Framework draft report.

Because of the way the ABS unemployment estimate is calculated – the ABS interviews the same people (known as rotation groups) over a rolling eight month period and uses a ‘tighter’ definition of how to classify a member of the workforce as unemployed – there is a definite ‘lag period’ between when a worker is made unemployed and when they will show up as unemployed according to the ABS. In contrast the Roy Morgan estimates are estimated on more of a ‘real-time’ basis with a large sample of different Australians interviewed each month.

In addition to the under-stated unemployment estimates the ABS monthly unemployment estimate also conspicuously ignores the high level of Australian under-employment – the latest Roy Morgan July under-employment estimate shows a further 977,000 Australians (7.7%) are under-employed. Taken together this means a massive 2.07 million Australians (16.4%) are now unemployed or under-employed. Australian unemployment and under-employment has now been above 2 million Australians for 44 straight months – more than 3 ½ years.

This is not a surprise to the Australian people. On every occasion Roy Morgan has asked the Australian people a simple question: “The ABS Unemployment rate in (month) was x%. The Roy Morgan estimate for (month) was y%. Which do you believe is closer to reality?” – Australians have consistently confirmed they believe the Roy Morgan unemployment estimate is ‘closer to reality’: In April 2015: a clear majority of Australians (60%) said Roy Morgan’s estimate was ‘closer to reality’ compared to 29% who said the ABS estimate was ‘closer to reality’ while 11% couldn’t say.


Employment is improving (not getting worse)

Since March this year (the largest gap between the Roy Morgan and ABS unemployment estimates this year) the ABS unemployment estimate has increased from 6.1% (765,000) to 6.3% (801,000) in July – an increase of 36,000 (0.2%).

During the same time period Roy Morgan unemployment has dropped from 10.8% (1,368,000) in March to 8.7% (1,097,000) in July – a fall of 271,000 (2.1%). Roy Morgan under-employment is virtually unchanged during the same period – 976,000 (7.7%) in March and now 977,000 (7.7%) in July.

The biggest driver of the falling Roy Morgan unemployment rate over the last few months has been the increase in full-time employment – now at 7,900,000 in July (up 314,000 since March) while part-time employment is now 3,676,000 (down 40,000 since March). In fact, full-time employment is now at a record high. These trends show that although both unemployment and under-employment remain very high in Australia, the economy is now generating full-time jobs to replace those lost in the mining industry[1].

The fall in Australian unemployment shown by Roy Morgan in recent months isn’t surprising when one considers the stimulus provided by lower interest rates, lower oil prices, higher beef and primary agricultural export prices; and a lower Australian Dollar. The Australian Dollar has spent most of 2015 below 80 US cents and has now dropped below 75 US cents for the first time since the Global Financial Crisis in early 2009 – over six years ago. The fall in the Australian Dollar has provided a huge boost to exporting industries in Australia including tourism, manufacturing, education and agriculture which are all stimulated by the fall in the Australian Dollar. The obvious exception to this boost is the mining industry which is dealing with a slowdown in its biggest export market – China.

Consumer Confidence is another important indicator – generally if unemployment goes down one can expect Consumer Confidence to increase. But today the ANZ-Roy Morgan Consumer Confidence Rating of 112.5 is depressed by people’s concern about a ‘dysfunctional’ Federal Government and Opposition – a Roy Morgan Government Confidence Rating of 86 says a lot! In addition the latest Roy Morgan survey results (July 2015) show neither Prime Minister Tony Abbott (approval 34% cf. disapproval 59%) nor Opposition Leader Bill Shorten (approval 24% cf. disapproval 60%) enjoy community approval for their job performance.


Consequences of relying on inaccurate employment estimates

The problem caused by relying on inaccurate employment estimates provided by the ABS is that the policies formulated in response – and reports like the Productivity Commission Workplace Relations Framework draft report – don’t provide the correct solutions to the real problem.

For example, the Reserve Bank of Australia (RBA) currently has Australian interest rates (at 2%) amongst the highest in the developed world despite Australian unemployment being considerably higher than US unemployment (US interest rates are currently under 0.25%) and of course our Federal Parliamentarians and the Federal Government of the day rely on this data to formulate policy.

Decisions about Free Trade Agreements (FTAs) that will endure forever and have a significant and enduring impact on the Australian economy must be informed by accurate information about our workforce.

If you’re going by the numbers – make sure they’re the right numbers!

Australian Unemployment v US Unemployment (2005-2015)

Comparison between Australian Unemployment & US Unemployment (2005-2015)
Source: Roy Morgan Unemployment & Under-employment (http://www.roymorgan.com/morganpoll/unemployment/underemployment-estimates); ABS Unemployed (http://abs.gov.au/AUSSTATS/abs@.nsf/mf/6202.0?opendocument#from-banner=LN); Bureau of Labor Statistics US Unemployment (http://www.bls.gov/news.release/empsit.t15.htm). U3 Unemployment: Total unemployed, as a percent of the civilian labor force (official unemployment rate). U6 Unemployment: Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.

 

Unfortunately, although the ABS under-estimates of unemployment allow the Government of the day to give themselves a ‘pat on the back’ about their employment related policies, they also help restrict and prevent the Government, in this case the Abbott Government, from enacting the comprehensive and decisive workplace reforms that the more than 2 million Australians looking for work really need.


The cash economy

Accurate data must be sought on the cash economy. A typical piece in the ‘productivity landscape’ of any economy is the cash economy – that segment that sits uncomfortably between ‘unemployment’ and ‘legally paid employment’ (part-time or full-time) and the illegal workforce. Within the Productivity Commission’s entire draft report – of over 1,000 pages – the Commission only refers to the Australian ‘cash economy’ once. ONCE!

From the Potential for disemployment effects (p309-310 of the Draft Report)

“It should be noted that there may be circumstances when people priced out of ‘employee’ labour markets due to minimum wage laws are not priced out of labour markets more generally. Such people may take up self‑employed or contractor roles, or informal jobs where workers are paid ‘cash‑in‑hand’ or ‘in‑kind’ (as in the case of a live‑in housekeeper or nanny), which avoid the need to be paid at the rate of the minimum wage. Jobs such as housekeeping, household maintenance and care work appear particularly amenable to these arrangements. Activities within the illicit economy also provide alternatives some people may take where they are priced out of the formal labour market.”

In contrast to the Productivity Commission’s decision to all but ignore the Australian ‘cash economy’ there are tens, if not hundreds, of thousands of Australians who work in the cash economy every day, and their employers avoid all the attendant costs and red tape that go with properly adhering to employment laws. Superannuation costs, differing penalty rates, the costs associated with employing PAYE (Pay As You Earn) employees and other general employment costs are all avoided by employers who prefer to employ a certain percentage of their staff by way of ‘cash-in-hand’ employment.

In particular this is a huge problem in the restaurant and café industry and amongst blue-collar tradesmen who do home renovations for cash. Many service staff in restaurants and cafes are employed ‘cash-in-hand’ and encouraged to supplement their income via tips and gratuities from customers. Given the large proportion of itinerant and foreign workers that are employed in this industry on a short-term basis this is a widespread problem throughout this industry. The restaurants and cafes employing ‘cash-in-hand’ service staff have a real and measurable detrimental impact on businesses that employ responsibly and follow the law of the land.

There is a similar problem with employment relating to unpaid interns who provide ‘free work’ for employers with the hopeful prospect of attaining a paying job at some point in the future. The abuse of the unpaid interns is another way unscrupulous businesses are able to unfairly lower their costs and this in turn impacts on businesses that pay their employees a fair wage as they deserve.


Conclusion

The Productivity Commission Workplace Relations Framework draft report is a step in the right direction – however, its conclusions would have a stronger grounding if they were backed up by relying upon the real picture of the Australian labour force and the robust employment estimates provided by the Roy Morgan real unemployment and under-employment figures.

By relying on ‘politically tailored’ figures that aren’t grounded in reality the Productivity Commission, along with other policymakers including the RBA and the Federal Government, do not respond in the urgent fashion required by the more than 2 million Australians who are now unemployed or under-employed. It is no good for the millions of Australians looking for work that their search for gainful employment is not sufficiently recognised to be given the priority it deserves by senior policymakers.

Simply put - unemployed and under-employed Australians deserve better, and they deserve real solutions now – not in 18 months or five years.

 

Gary Morgan
Executive Chairman, Roy Morgan Research

Michele Levine
Chief Executive Officer, Roy Morgan Research

Julian McCrann
Morgan Poll Manager, Roy Morgan Research

 

For further information:

Contact

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Gary Morgan:

+61 3 9224 5213

+61 411 129 094

Michele Levine:

+61 3 9224 5215

+61 411 129 093

 

Links.

Roy Morgan July Unemployment & Under-employment Estimates
http://www.roymorgan.com/findings/6379-roy-morgan-unemployment-estimates-july-2015-201508030522

Roy Morgan v ABS Employment Estimate Comparison (1992-2015)
http://www.roymorgan.com/morganpoll/unemployment/rmr-vs-abs-estimates

Roy Morgan Research unemployment estimate is ‘closer to reality’ than the ABS according to a majority of Australians (June 2013, June 2014, April 2015)
http://www.roymorgan.com/findings/6189-roy-morgan-abs-unemployment-estimates-april-2015-201504170455


Productivity Commission Workplace Relations Framework
http://www.pc.gov.au/inquiries/current/workplace-relations/draft

Productivity Commission Workplace Relations Framework – Draft overview (PDF) 68 pages
http://www.pc.gov.au/inquiries/current/workplace-relations/draft/workplace-relations-draft-overview.pdf

Productivity Commission Workplace Relations Framework – Draft Report (PDF) 1,001 pages
http://www.pc.gov.au/inquiries/current/workplace-relations/draft/workplace-relations-draft.pdf



[1] During this period the ABS employment estimates have shown employment increasing to 11,810,000 (up 90,400) with full-time employment now 8,170,400 (up 39,000) and part-time employment now 3,640,300 (up 51,400). So although the ABS estimates employment growth is taking place in Australia, the ABS say growth in employment is too slow to absorb all the new workers joining the Australian workforce in recent months.