On Work, Dignity and Booms

Last night (Wednesday April 20th 2011) the ABC's 7:30 Report contained a segment entitled "Skills Shortage Crippling Rural Australia".

I found that the segment illustrates perfectly the mythical character of meritocracy... even leaving aside anything said by Karl Marx.

The ABC journalist, Leigh Sales, reporting on "long-term problem: not enough workers", used the town of Roma, QLD, as example.

There are some problems with imprecise terminology (are we talking about a labour shortage or a skilled workers shortage?); the report involves unions, but no union spokesperson appears in the report. Perhaps a bit more surprising, the report seems to be all about workers and workers even appear in the footage, but none is interviewed. Migration and skilled migration are mentioned, but only an employer's perspective is considered.

I will not dwell on these problems and focus on a more basic problem. All quotations are verbatim and appear in italics, with indentation, so that my comments are clearly distinguished.

From the transcript:

LEIGH SALES, REPORTER: (...) Thanks to the resources boom, the town of Roma, with its 7,000 residents, has unemployment hovering around 2%, but that's not as ideal as it might first sound.

LEIGH SALES: In this story, we'll use Roma as a snapshot to show you how Australia-wide shortages of skilled workers are challenging everyone from the biggest multibillion dollar mining companies to the smallest mum-and-dad businesses.

LEIGH SALES: Welcome to a sort of modern-day gold rush, where workers fly in and out of towns around Australia, like Roma, to take advantage of the resources boom. (...) Workers are in hot demand, and it's small businesses really feeling the pinch.

LEIGH SALES: Spare a thought for Sandy Kelly and her husband Brett, trying to run the local pizza shop.

Ms. Sales is a respected and competent journalist, I want to make that clear from the start.

What follows is the part of the report I would like to focus on:

BRETT KELLY: In the first 18 months we had 96 people come and go.

LEIGH SALES: In just a little local pizza shop?

BRETT KELLY: Yep.

LEIGH SALES: That's more than one a week. Roma's growth means they've never had so many orders for pizza, but they can't hold on to staff.

SANDY KELLY: There are a lot of other jobs out there that have better long-term prospects, probably a higher pay rate, and we're probably seen as the bottom of the chain in the employment ...

LEIGH SALES: In desirability of ...

SANDY KELLY: In desirability.

This part of the report deserves a deeper consideration than what I can offer now.

Here I will limit myself to the following considerations:

The obvious question is whether this couple tried increasing the wages offered, so as to better retain staff. Although the report seems to suggest otherwise, one might assume they did, at least to some limited extent (see Sandy Kelly's second last statement).

Regardless, several things are clear from this passage:

1. This couple does not require skilled staff, understanding for that staff with a trade qualification. That is probably the case of many other small businesses (in another part, the report mentions "pubs, shops, small businesses, they're all struggling to find workers").
2. Not every businessperson or worker is benefitting equally from this mining boom and associated "labour shortage".

It's evident that this couple is having problems running their business. It's not evident whether the increased volume of sales compensates for these problems.

It's also quite likely that the unskilled workers they require have not benefited greatly from increased wages.

Furthermore, is not clear that one can speak of labour shortage in Australia in general. Currently unemployment has fallen to 4.9%, but underutilization is still 11.9% (as of February 2011). See here.

However, as will be seen shortly, both small businesses and unskilled workers will be required to front up the costs of a situation it's dubious they benefit greatly from.

 (...)

SAUL ESLAKE, GRATTAN INSTITUTE: But given the long-term nature of any effective solution to this kind of problem, it's one that the Government ought to be working on solutions to over the next two or three years because if they don't, then some of those consequences in terms either of opportunities foregone or unsustainable upward pressure on wages could come home to bite us in a very nasty way.

Here Saul Slake tangentially refers to the reason why small businesses and unskilled workers will be affected by the need to manage the mining boom and "skilled workers shortage". I will repeat and clarify the specific passage: [the mining boom creates] "unsustainable upward pressure on wages [that] could come home to bite us in a very nasty way".

The report demonstrates that, indeed, some skilled workers (essentially those directly or indirectly employed by the mining industry), are seeing their wages increased, as a consequence of the mining boom. The report doesn't provide evidence of this happening to most workers, in most of Australia. In fact, prima facie, I suspect this to be false.

Furthermore, for reasons I will not treat here, it is allegedly only workers' wages that have the inflationary effect Mr. Slake warns us against, not executives' compensation or capitalists' profits.

Regardless of the truth (or falsehood) of this assertion, the fact remains that RBA's monetary policies designed to fight inflation (i.e. inflationary targeting: essentially, higher interest rates) attempt to contain workers' wages and/or employment, not executives' compensation, or capitalists' profits.

In other words: low inflation requires systematically lower wages and higher unemployment from workers alone (not from executives or capitalists), even when only a minority of workers are likely being paid higher wages.

Similarly, low inflation requires higher interest rates, which make small business investment more expensive.

What do these two considerations tell the reader about meritocracy?

In this context, PM Gillard's statements in her "The Dignity of Work" address sound remarkably ironic:

"And we have a policy framework aimed at ensuring all Australians benefit from the opportunities created by the boom."

Especially considering that social security will be targeted, once more.

Update:


The RBA Governor's pay rise:

Workers' increasing wages, due to a "labour shortage", may be highly inflationary; however, as stated above, executives' compensations are not. In fact, high ranking bureaucrats' compensation packages aren't inflationary, either.

If they were, I am sure the RBA would not have risen Mr. Glenn Stevens' yearly package (to AU$ 1 million), as they did. Or would have at least bothered to inform the Federal Treasurer right away, not a year after the fact.

And, let's be fair with Mr. Stevens, private sector compensation packages are a lot higher, without creating any fear of inflation.


Further reading:

Baker, Dean. The Conservative Nanny State. Chapter II: The Workers are Getting Uppity.

Baker's work explains and quantifies, within the American context, the effect of inflationary targeting over wages and employment.

This post was inspired by Baker's work.

The First Trumpet

Dürer - The seven angels with their trumpets.

"And the seven angels which had the seven trumpets prepared themselves to sound.
"The first angel sounded, and there followed hail and fire mingled with blood, and they were cast upon the earth."
(Rev. 8:6-7)

That's it, folks. Brace yourselves, because the end is nigh: the first angel sounded his trumpet.

Mind you, the prophecy was slightly wrong in its timing: the end came before May, 21st 2011. The first trumpet sounded on April, 18th, 2011 (US East Coast time, Tuesday 19th, Australian local time):

"Shortly before the market open, Standard & Poor's revised its outlook on US sovereign debt to 'negative' from 'stable' - the first ever challenge to Washington's top-line AAA grading." (see here)

However, before running for the hills, buying canned food or preparing your bunkers, please read this excellent post by my friend the always Stubborn Mule:

"So, there is no need for panic. Once again, the rating agencies are showing that we should not be paying too much attention to them. After all, as they all repeatedly said in hearings in the wake of the financial crisis, their ratings are just 'opinions' and not always very useful ones at that."

That's a sound, sensible opinion. In fact, if the Mule has a problem is that he is way too moderate and level headed.

As a raging Magpie, I am not nearly as constrained: financial institutions have a long history for manipulating their "expert" advice. Referring to the IMF, Rosnick and Weisbrot (from the Center for Economic and Policy Research, headed by the renowned economist Dean Baker) concluded:

"The IMF's large and repeated errors in projecting GDP growth in Argentina since 1999 strongly suggest that these errors were politically driven. The large overestimates occurred during the country's 1998-2002 depression, when the IMF was lending billions of dollars to support policies that ultimately ended in an economic collapse. Similarly, the underestimates took place at a time when the IMF had an increasingly antagonistic relationship with the Argentine government, and opposed a number of its economic policies. (...)
As this paper shows, the IMF's public documents and statements regarding Argentina lend support to the idea that its errors were related to political considerations. (...)"

Of course, S&P would never do this kind of things, right? Particularly when such crass manipulation would hurt the always weak Obama administration.

Well, as I am feeling rather apocalyptic, let's remember an often forgotten passage of the Revelations:

"And I saw three unclean spirits like frogs (...) out of the mouth of the false prophet." (Rev. 16:13)

Update:

I edited some parts of the text, to make my meaning clearer.

And talking about hurting the Obama administration. The latest Washington Post-ABC News Poll (a sample of 1,000, taken before last Monday, April, 18th), concludes that:

"In the survey, 47 percent approve of the job Obama is doing, down seven points since January. (...)
"Driving the downward movement in Obama’s standing are renewed concerns about the economy and fresh worry about rising prices, particularly for gasoline. Despite signs of economic growth, 44 percent of Americans see the economy as getting worse, the highest percentage to say so in more than two years."

Obama seems highly vulnerable, from the point of view of his credibility as economic manager. Ironically, Obama's reluctance to confront the indiscriminate Republican opposition could be making things worse, as argued by Mike Konczal.

This gives the S&P move an entirely new relevance.

Post-Election NSW (II)

So, will they or won't they? (cut NSW public sector payroll, that is).

So far, as reported, signs about an eventual "slash-and-burn" campaign against the NSW public service seem mixed.

At one hand, there was talk of an unexpected budget "black hole" of $4.5 bn and a negative to rule out future budget cuts (which sounds ominous).

At the other hand, public sector unions seemed cautiously confident that the newly elected NSW government would keep a reasonable stance on this matter (which sounds somewhat reassuring).

However, considering that the Commonwealth has been warning of an impending tough federal budget, so much apparent moderation from the State Government is weird.

Last week Prof. Peter Shergold was appointed chairman of the board of the recently formed NSW Public Service Commission, to scrutinize "the role, size and direction of the NSW public service":

"One of his first tasks will be to oversee the review, which is expected to cover all aspects of the public service, including staff numbers, what they are paid and the way directors-general are appointed. It will take between three and six months."

Does it mean that a "slash-and-burn" campaign is about to be unleashed against the NSW public service?


Not necessarily, according to some observers:

"Forecasts that Shergold's appointment heralds a slash-and-burn campaign appear premature, however. Indeed, it is generally agreed that Shergold's five-year tenure as top public servant (he left after Kevin Rudd won the 2007 election) silenced many critics..."

However, the fact that Prof. Shergold has described his career "as a mandarin could be typified as that of an economic rationalist", who was the secretary of the Commonwealth Department of Workplace Relations during the waterfront disputes appears far from reassuring.

Update on election results:

The seemingly definitive results, after preferences, seem to indicate a better result for the Greens. They did indeed get their first seat at the lower house of the State Parliament, at the expenses of Labor; and the independent Pauline Hanson finally was left out of the upper house:

Credit Where Credit is Due (III)

God knows that I disagree with Gerard Henderson. I've criticized his opinion pieces before. I'm sure I will have to do the same in the future.

Today, to my surprise, I feel obliged to applaud a piece by Mr. Henderson.

I'm not saying it was 100% balanced (for instance, Andrew Bolt and Greg Sheridan are mentioned as targets of insulting criticism, not so much as frequent sources of it), or that there were no loose ends (what does the opening paragraph have to do with the rest of the piece?).

However, if the results were less than perfectly balanced, the reader can, at least, appreciate the effort.

So, good on you, Mr. Gerard Henderson.

There, I said it.