Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697642027884.pdf (Australia)
Submission to the Senate inquiry into the Future of Work and Workers Dr. Jane N. O’Sullivan February 2018 Thank you for the opportunity to contribute to this inquiry into the impact of technology change and other trends on the Australian workforce.

The purpose of this submission is to challenge the view that technology change is the main threat to employment.

It argues that there are more immediate and profound factors changing the employment and career prospects for young Australians.
I apologise for its lateness and lack of referencing, due to my haste to make a late submission.

Should you need references for particular statements, I will be happy to provide them.

Main points:  Concern that technology will take away jobs has been around since before the Industrial Revolution.

In one sense, it was justified, since specific categories of jobs diminished or disappeared.

But overall employment was not lessened or cheapened as a result.
 Australia’s employment environment has changed dramatically in recent years.

Most of the changes are negative.

These include the erosion of wages and job security, casualisation and the ‘gig economy’, rapid rise in graduate unemployment and underutilisation (failing to find work in their discipline), declining wages share of GDP, transfer of training costs to students/workers, and rising income inequality.

 The main cause of negative trends is the oversupply of labour.
Only a tighter labour market can stem the impoverishment of wage-earners.

 While technology change has changed the sort of work being done, it is only partly to blame for the negative trends.

That is the part that allows an ever-greater range of jobs to be off-shored, exacerbating the oversupply of domestic labour.
Employment is determined by spending power of consumers Taking a systems view of the job market, the amount of employment depends on how much consumers spend on items that generate employment.

For each good or service purchased, the price will go partly to employment, and partly as a return on capital.

Both the employment and the profit could be in Australia or overseas.

The labour component is all work contributing to the supply chain and marketing of the product.
The return on capital might be the profit of the direct supplier of the good or service, or that business’s interest payments on debts, or the non-wage component of the inputs which that business purchases.

Hence, Australian employment is determined by the local labour component of goods and services sold to Australian residents, and goods and services purchased by non-residents (including exports and what foreign tourists spend within Australia).
1 Senate Select Committee on the Future of Work and WorkersSubmission 139 The ‘wages share of income’ approximates the proportion of total consumer spending that goes to domestic employment.

Total consumer spending is income minus net savings (or income plus net borrowing, if household and/or fiscal debt is rising, as it has been).

Income may be wages, or returns on capital – business profits, rents, capital gains, superannuation pensions etc.
The important differentiation is between people for whom wages are the main source of income, and those who live on returns to capita.

(In this scheme, government spending can be viewed as spending on behalf of consumers, via their taxes.)

Does automation technology reduce ‘wages share of income’?

At the level of micro-economic analysis, it might appear so: the business owner gets the same income from sales but pays a lower wages bill.

But what does he or she do with the extra profit?


They might soon be forced to lower their prices, to maintain market share against all their competitors who are installing similar technology, so their customers might consume more of that product (generating more jobs) or spend the difference on something else (generating more jobs).
If lowering the price increases export sales, the overall effect on jobs might be positive – but we can assume that our international competitors will be adopting automation too, so the question becomes whether or not we can be ahead of the curve.
Or employers might get to keep some of the profit for themselves, and spend it on a more profligate lifestyle (generating more jobs), or they might use it to increase wages – perhaps on the basis that the remaining jobs require a higher level of skill – so their employees spend more (generating jobs).

They might invest it in shares in another business that uses it to expand production (generating jobs elsewhere in the economy).
Alternatively, they might pay down their debt (which takes money out of the economy – debt repaid is essentially money cancelled).

Or they might spend more on imports (including purchasing the technology itself), reducing the balance of trade (similarly taking money out of our economy).

In either case, the jobs lost are not replaced elsewhere.
Or they might invest it in speculative assets, such as real estate or art work, which puts the money in the hands of the seller, who has the same range of options for spending it.

Hence it’s not immediately obvious whether the technology increases or decreases jobs overall.

Who gets the productivity gains?


Over the past two centuries, the dominant effect is that improved technology (including all productivity gains) lowers prices and spreads consumer spending over more goods and services, so that employment is the same but purchasing power is increased, raising living standards.

However, in recent times, this trend has been challenged by dynamics which are widening income inequality.
If productivity gains are captured by the owners of capital, rather than passed on to wage earners, purchasing power of wage earners stagnates or goes backward while that of investors increases.

Income inequality does not necessarily reduce the total availability of employment, but it changes the distribution of goods and services toward those that serve the rich, rather than those that serve ordinary folk.
Since the poor get a greater increase in quality of life per dollar of consumption, the overall effect is to lower living standards (compared with what they would have been if the 2 Senate Select Committee on the Future of Work and WorkersSubmission 139 productivity gains were more equally distributed – not necessarily lowering them from the previous level, if productivity gains are sufficient).

The main driver of regressive trends is the oversupply of labour.
In a tight labour market with low inequality (think Germany), just buying someone else’s labour to replace yours is expensive, so people tend to spend the extra cash from productivity gains on higher quality items or things that demand skills they don’t have, such as going to the theatre or a good restaurant, or purchasing a hand-crafted item from a local artisan – purchases that not only enrich the consumer’s life but honour the producer and add cultural richness to society.
Where labour is oversupplied, those receiving the productivity benefits face heavy marketing from desperate service-providers, to consume things they would have done for themselves, like dog-washing services, manicures, shoe- shines and domestic servants – purchases that define the status of the supplier as below that of the purchaser.

Meanwhile other businesses compete for the scant spending of low-paid workers, providing ever-more cheap and shoddy products.
These trends reinforce the status difference between buyer and seller, and build a more status-focused and less cohesive society.

Australia has been heading rapidly down this path.

Inequality and balance of trade Consumption by the rich includes more imports and overseas travel, while the poor spend most of their income on food and local services.

Hence, consumption by the poor has a greater multiplier effect in the domestic economy, and that by the rich tends to lower balance of trade.
This sets up a ‘vicious cycle’, in which lower balance of trade depresses the demand for labour, pushing wages further down, increasing the share of income going to capital, further increasing imports and lowering the balance of trade.

To counter this, the economy is forced to be more export-oriented, which exposes us more to the vagaries of the global marketplace, and makes it harder to maintain our own labour and environmental standards above those of competitors.

Thus the ‘race to the bottom’.


Another means of propping up domestic demand has been to expand debt.

When a bank makes a loan, the money is created by the bank and spent into the economy, increasing total demand.

But it is the rise in debt, not the level of debt, which generates extra demand.

Debt repayments reduce demand, countering this stimulus.

So the higher the total debt builds up, the faster it must grow to maintain the same demand stimulus.
When the loan is provided by international finance, the interest payments add to the trade deficit, as a drain of money out of the domestic economy.

It is a dangerous game, because the more debt that builds up, the more risk that paying it down will further depress the economy.

But allowing it to keep building is utterly unsustainable – a pyramid scheme that must collapse in the end.
So far, public policy is neither attempting to end debt growth nor attempting to put in place safety-nets for ordinary people.

The third means of countering a trade deficit is through the inflow of foreign capital.

Like increasing debt, this inexorably leads to increased flows of funds out of Australia.

Our Gross National Income becomes an ever smaller proportion of GDP, as profits are repatriated.
Australia now has so much expatriation of profits that GDP is becoming a very deceptive measure of our wealth.

If we were to focus instead on net national income per capita, we would be rather less enthusiastic about ‘selling the farm’ to foreign investors.
3 Senate Select Committee on the Future of Work and WorkersSubmission 139 Inequality and the supply of labour As the French economist Thomas Piketty explained in his seminal work ‘Capital in the Twenty-First Century’ (2013), if the returns on capital are consistently higher than the rate of growth of the economy, then wage-earners are getting a diminishing share of the pie and income inequality is rising.

Piketty’s thesis demonstrates why ‘trickle-down theory’ does not work.
The productivity gains must be evenly distributed (and consequently, average returns to capital must be no more than growth in the economy) to stem the tide of inequality.

Only a tight labour market can ensure that productivity gains are shared with workers.

The Australian labour market has transformed markedly in the past thirty years.

Despite an unprecedented revolution in electronic technology, this labour transformation has not been driven by technology change.
It has been driven by an ideological adherence to neoliberal economic theory, including ‘trickle-down theory’ and ‘free trade’.

Trade between nations is generally a good thing, allowing more optimal use of resources and talents through specialisation, and a richer diversity of products available to consumers.

But it does not follow that more trade is always better.
It certainly does not follow that the free movement of goods, services, labour and capital should be treated as an inseparable package deal, as both Labor and Coalition governments have insisted on doing.

Instead of ideological dogma, we need to look at the merits of each case.
Trade in goods and services is not good if it undermines our biosecurity or our ability to unilaterally set labour and environmental standards, nor if it constitutes the building of monopoly power by multinationals to the exclusion of smaller producers.

Openness to foreign capital is not good if it is only used to bid up the price of existing assets, like land and profitable businesses, or to capture Australian domestic market share for a foreign brand (as has happened extensively).
Openness to labour is not good if it lowers employment, wages or conditions of employment in Australia.

Australia’s labour market is grossly oversupplied.

Symptoms of this are abundant:  The ‘wages share of income’ has never been lower, although workforce participation is up, indicating a significant shift in distribution of productivity gains from labour to capital.

 Youth unemployment and under-employment have risen alarmingly.
Increasing post- secondary enrolments of youth have partly hidden the fall in their workforce participation.

But this increase in training is not so much because the workforce needs higher levels of training, as because higher education has become an arms race between young people competing for jobs.
 Graduate unemployment is rising, an increasing proportion of graduates are spending many months finding work, and an increasing proportion are not working in the area they were trained (and are therefore not getting an income that rewards their investment in training).
 Graduates are increasingly resorting to unpaid internships to gain a foothold in workplaces – an odious form of exploitation, especially as many employers merely churn through interns rather than actually recruiting any at the end of their internship.

4 Senate Select Committee on the Future of Work and WorkersSubmission 139  Work is increasingly casualised and insecure.
The increase in flexibility that this has given employers is at the expense of workers’ conditions, their ability to save for retirement, their ability to ‘put down roots’ and have a stable home and family life, their ability to engage with their community, both in the workplace and in the wider community.

Social cohesion has consequently suffered.


Public discourse now regularly discusses ‘multiple careers’ and ‘the gig economy’ as if these modes of working were the preference of young people, rather than the diminished options that society is offering them.

 Compared with other developed countries, Australian employers get higher numbers of suitable applications per job, more vacancies filled within a month, and fewer jobs unfilled.
 A new report finds that mental health of Australian youth has been declining, and is poor compared with other developed countries.

The assault on job-seekers is taking its toll.

Rather than responding appropriately to these signs of stress by limiting the numbers of job-seekers entering the market, the Australian government has ramped up immigration, using unsubstantiated claims of labour shortages.
While the developed world averages around 0.2% net immigration per year, Australia has been sustaining 0.8–1.0%.

The requirements for jobs to be advertised locally before hiring migrant workers has been steadily eroded, and eliminated completely in a number of bilateral free trade agreements.

The majority of permanent skilled migrant visas are given to people on a points basis rather than employer-sponsored, so they are not required to have a job offer at all.
Many of these people fail to get jobs in the area of their qualifications, and merely compete with low-skilled Australians – as do the family members accompanying the ‘primary applicant’.

The claim that immigrants don’t reduce Australian employment opportunities because they create consumer demand is mathematically nonsense.

They can only spend a portion of their income on other people’s wages, since most of it goes on returns to capital, imports and remittances.
Hence each immigrant worker can only create a fraction of one other job through their consumer demand.

Unemployment has only been held down by diverting youth to often futile training programs, and allowing the proliferation of part-time and very low paid jobs, spreading the consumption over more workers while driving inequality.

Building trades are the area where skills shortages are more substantiated.

At least, in some locations, it is reported to be difficult to find tradesmen.
In others, there are reported to be imported teams of workers while local tradespeople are unemployed and begging to have access to these jobs.

If there is a shortage of tradespeople, is the direct result of a number of counter- productive policies by recent Australian governments.

The TAFE and apprenticeship system has been undermined to the extent that apprentices may be severely exploited, and many simply can’t afford to subsist through their apprenticeship.
The stable teams of tradesmen which used to undertake public works have been turned into casual teams haphazardly assembled by private contractors who win government tenders.

In response, many tradesmen are forced to seek more stable employment in other occupations.

The parts of major cities where construction work is most dense may now be difficult to access from housing which tradesmen can afford.
A major reason given by recent governments for high worker immigration is to counter Australia’s demographic ageing.

This approach assumes that the supply of job seekers is limiting total employment.

This is not only contradicted by the evidence presented above of labour oversupply, but it defies market theory and is not upheld in international analysis of the effect of ageing on 5 Senate Select Committee on the Future of Work and WorkersSubmission 139 employment.
Japan, with an old-age dependency ratio nearly twice Australia’s, has virtually the same proportion of people employed, much lower inequality when measured before welfare transfers, and better per capita growth.

Throughout the OECD, there is no relationship between the proportion of ‘working-age’ people and the amount of employment.

Ageing has not lowered employment, it has lowered unemployment.

There are many modelling studies which claim that ageing will lower employment.
They all assume that amount of work done depends on the supply of job seekers, rather than the demand for their work.

The Productivity Commission’s ‘Migrant Intake into Australia’ report (2016) is among the more nuanced of these.

It concluded that higher population growth would lower wages and productivity (so people would be poorer) but that GDP per person would nevertheless be marginally higher, simply because a higher proportion of the population would have jobs.
But if Australia adjusts to ageing as Japan and European countries have, then there would be no fewer workers in a more aged society with a stable population – people would just have more work over their lifetime, as well as higher wages.

What we know from the past decade is that the quality of that work, and the quality of life of employees, would be improved by allowing the labour market to tighten.

The oversupply of labour is preventing today’s younger workers from saving for their retirement.
Later entry into the job market, student debts and huge rents or mortgages (due at least in part to high population growth), casual work, career breaks and location moves, all cut into savings ability.

This is a time bomb for the pension system, resulting from the oversupply of labour.

In contrast, without rapid population growth housing costs would be contained, people would work for more years of their life at a higher wage and retire with sufficient savings.
To counter the negative trends in job security and job quality, Australia needs to cut non- humanitarian immigration substantially, to reduce the oversupply of labour.

This is urgent, because the ‘baby bonus’ kids (born since 2003) will soon be graduating from school, increasing the school leaver cohort by around 50,000 per year.

It is also urgent because infrastructure crowding is hampering our productivity.
Skilled migration visas should be limited to employer-sponsored positions filling vacancies which have been advertised to Australian job seekers.

More effort needs to be put into surveillance of exploitative employment of migrants, especially of labour hire companies.

Conclusion The nature of work in Australia has changed rapidly over the past 30 years of ideological pursuit of neoliberalism (‘economic rationalism’) and globalisation.
These changes accelerated in the past 12 years since Australia’s immigration rate was roughly tripled.

To stem the erosion of employment prospects and the disastrous escalation of fiscal and household debt in Australia, the labour market must be tightened so that a greater share of productivity gains from new technology go to employees.

Tightening the labour market requires a substantial reduction in non-humanitarian immigration.
The points-based permanent migration system should be abandoned, and (apart from the work rights of foreign students and backpackers) all new migrant workers should be only on employer-sponsored visas, and only as temporary residents in the first instance.

This will not impede businesses’ ability to 6 Senate Select Committee on the Future of Work and WorkersSubmission 139 recruit internationally, but will end the assault on wages and employment conditions that the current flood of immigration entails.
Much of the demand for foreign labour is due to the ability to exploit these workers with impunity.

Much more effort needs to be given to surveillance of industrial relations laws, including criminal penalties (jail time) for breaches, not merely fines to businesses.

Those indirectly employing must also be held liable, not merely the labour hire company.

A tighter labour market will encourage faster adoption of new technologies, improving Australia’s productivity growth.
It will encourage greater training effort by businesses, to develop the skills of their staff.

The recent stagnation in productivity has been a direct result of cheapening labour and crowding of infrastructure.

I hope that the committee will not be distracted by simplistic analyses fearing that robots will take all our jobs.

There are much more serious policy issues to consider.

Jane O’Sullivan February 2018 7 Senate Select Committee on the Future of Work and WorkersSubmission 139