Do Australia’s economists do their jobs?

“On Your Marx”, a frequent commenter on this blog, made a very good point on a recent post on WorkChoices: where was the econometric evidence that WorkChoices had created jobs?

WorkChoices was certainly the biggest reform since the GST, so you would expect that Australian economists would have done quite a bit of work on this question. Amazingly, I can not find any econometric work. (I have searched EBSCOHost and Proquest, no access to EconLit though.)

I did find a paper criticising Australian economists for ignoring the productivity benefits of individual contracts in New Zealand. The OECD concluded that “the reform [WorkChoices] may improved labour market performance” but the only reference they give is a speech from a Treasury official that doesn’t mention WorkChoices but does comment on the fall in the NAIRU.

I did find a lot of articles analysing WorkChoices from a social justice perspective. For example:

WorkChoices extended previous neoliberal reforms and consolidated the negative impacts of those reforms on marginalized groups of workers, especially those in precarious employment. This paper reports on the findings of an occupational science-based, critical discourse analysis of a government newspaper advertisement that promotes the reforms. The construction of aWorkChoices discourse, one that was based on and sought to extend neoliberal hegemony, is identified by exploring the ways that particular ideas are presented as natural and mutually beneficial and, in response, the development of a counter-hegemonic argument, based on occupational justice theory, is discussed. The broader application of critical social research is also recommended in extending the occupational justice paradigm.

Reminds me of why I dropped an English major after my first subject with the word “discourse” in its title.

Am I missing something? Is there work that I’m ignoring.

If there is not that is a serious failing of Australian academic economists, especially given that there is some evidence for WorkChoices’ beneficial impact.

The WorkChoices regime lasted from March 2006 to March 2008. (Julia Gillard intentionally had the Governor-General assent to the law prohibiting AWAs exactly two years after WorkChoices was passed.)

Over that period, jobs growth averaged 3.3% per year, significantly higher than the long term average growth rate of 1.9%.

Basic economic theory says that if you remove unfair dismissal laws, remove a ‘no disadvantage’ test and make it easier for agreements to clear regulatory hurdles then more people will be hired. Prima facie that is what happened.

I think WorkChoices deserves the benefit of the doubt, or at least that doubt should be properly tested.

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18 Responses to Do Australia’s economists do their jobs?

  1. Mark Beath says:

    Comments extremely valid and our academic economists, with perhaps some notable exceptions, are just damned poor when it comes to relevant research and communication. Compare that with the USA! When it comes to my own interest in regional economics they are missing again! I live in an area of Australia which has had a European style economicic collapse and the research is?

    • drpage says:

      Yes that is my experience too Mark. In fairness I think there are many economists who do good theoretical work and certain parts of applied economics (eg, trade). However, in general the contribution of serious economic work to the public debate in Australia is sub-par.

  2. Econlit returns 14 items from a search of “workchoices.” Most from the Journal of Australian Political Economy. ‘Nuff said.

    • drpage says:

      14 actually doesn’t sound like that much. I went through hundreds on the other databases.

      Where any of those actually econometric assessments of workchoices impact? How many were written post-2008 when the impact of the laws could be assessed?

      The Journal of Australian Political Economy website is down. From google cache it looks like they devoted a whole edition to workchoices in 2006 including over 20 papers. The Journal seemed to have put out a press release at the time titled “New Research Says WORKCHOICES dangerously flawed”. Nice to see dispassionate analysis at work.

      In any case, none of those papers could have assessed the impact of workchoices as they were published in 2006. .

    • drpage says:

      Did you realise that the Journal of Australian Political Economy is organised by members of the Evatt Foundation, a Labor party movement? Can hardly be used as evidence that economists have assessed the impact of WorkChoices.

      http://evatt.org.au/papers/state-political-economy.html

      I just had a look through JAPE. Workchoices search returned 9 articles, only 1 of which was published after 2006, and it was on the WA mining boom.

  3. On your Marx says:

    The Previous government actually advertised for academics to examine the era of workchoices and do a study but there were no takers.

    In theoretical terms you would not expect workchoices to do much at all. It actually re-regulated the labour market ( I remember I had the responsibility at the Funds Manager where I was working at the time to get each employee to read the single sheet ( one printed off the website) and then sign it after they understood it. sigh)

    workchoices was designed to reduce union influence indeed taken to to its natural end unions would have had little to do or more accurately little they could do.

    Mark Wooden opposed workchoices because it reduced choices for employees.

    A far better policy was what Reith proposed in 1995 which was almost a carbon copy of the 96 page NZ legislation. Unfortunately Howard vetoed this.

    the 1993 EBA legislation was the most significant change to the labour market. Reith further improved on this in a deal with Kernot.

    Measuring productivity is very problematic because the data can change quite a bit. Just look at what has happened here.

    You had a no-disadvantage test under workchoices after a cave-in.

    Under a more liberal labour market more people will be employed and more people will be sacked.

    One hopes the former outweighs the latter. In good times it does, in bad times it doesn’t.

    One last thing . You have missed possibly the most important item in a more liberalised labour market which is lower minimum wages. ( you would have to do it over time. The five economists’ proposal is an excellent policy)

    • drpage says:

      There all reasonable points and I agree WorkChoices wasn’t perfect and did regulate some parts of the labour market.

      But it still liberalised IR law in some respects and whether those changes led to increased employment is an empirical question.

      Where is the evidence?

  4. On your Marx says:

    Mark Wooden wrote at least one of those articles.

    He is one of the most vocal advocates for a more flexible labour market.

    Poor attitude to scholarship. Read before you actually take a view otherwise you might miss some great articles.

    I remember way back at Uni during one of my post-graduate courses finding out one of the lecturers in PE at Sydney UNI wrote a highly econometric paper in the Review of political economy or something like that. It was actually quite good.

    Most of Mark Wooden’s stuff is high class.

    Read before discarding

    • drpage says:

      I agree Mark Wooden is a good economist. But this is the only work I can see from his Apr 11 CV that covers WorkChoices and it was written in 2006 so it can’t be an assessment of the impact of WorkChoices.

      ‘Implications of Work Choices Legislation’, Agenda: A Journal of Policy Analysis and
      Reform 13(2), 2006, pp. 99-116.

      http://melbourneinstitute.com/downloads/staff/CVMark_April_2011.pdf

      Can you point me to Wooden’s work which analyses the actual employment impact of WorkChoices?

      • drpage says:

        In any case, you seem to be verballing Wooden. Quote below from the conclusion to his 2006 paper.

        By the way, what the hell does “Poor attitude to scholarship. Read before you actually take a view” mean? It’s a blog post not a scholarly dissertation. And I explicitly said I was asking for someone to show me the econometric work that has been done.

        So far I haven’t seen one.

        Wooden quote:

        … such a shift in the balance of power in the bargaining relationship may be a reasonable price to pay if there is a return in the form of increased employment and higher rates of productivity, as claimed by the government and most employer bodies. The tentative conclusion from this review is that jobs growth is not an unreasonable expectation, though many supporters may well be disappointed by the size of the gains. Removing wage setting powers from the AIRC to a new Australian Fair Pay Commission, for example, is unlikely to make much difference, especially to those at the bottom of the wages distribution. Ultimately, creating more competitive wage structures for low-wage
        workers without damaging the incentive to work requires a fusion of welfare, tax
        and labour market policies. Simply changing the way minimum and award wages
        are set will, on their own, make little difference. Exemptions from unfair
        dismissal laws, on the other hand, should act as a spur to increased rates of hiring,
        though net employment gains are likely to be concentrated among very small
        businesses. In the longer term, jobs growth may also be stimulated if the reforms
        lead to lower prices, thus stimulating consumer demand, or enable the
        maintenance of a more expansionary monetary policy. There are thus good reasons to believe that positive employment consequences are at least possible.

        • Ricardo says:

          encouraging employment of marginal labour by lowering the real wage should lower lower measured labour productivity – especially in the short run, as the capital stock is basically fixed.

  5. On your Marx says:

    1) I never said Wooden did econometric work I simply said he had written on the topic and in JAPE.

    No.56 actually.

    2) If you do not read a journal simply because of the stance it has you are not a scholar. you read the articles and then determine the quality!

    3) I wasn’t criticising you but Stephen Kirchner!

  6. On your Marx says:

    I probably did not express myself properly

  7. Bob says:

    I would say the main reason why economists have not done any emperical studies on work choices is because its almost impossible to draw any solid conclusions and its really a waste of time and effort.

    It was in place for a relatively short period of time, meaning that teasing out any cause and effect would be almost impossible if your taking a balanced and objective approach. Added to this the economic climate was fairly good at the time which just adds to the complexity of drawing any solid conclusions.

    Secondly, why would you waste your time given its dead and buried in a political sense. If you look at the issue from a purely objective stance you really wouldn’t waste your time, simply because its so smelly politically and probably wont be entertained by either party for a very long time.

    So in essence its a dead issue because its too hard and it doesn’t matter anymore…the debates over…for now.

    • drpage says:

      There interesting points Bob. But I still can’t see why there would not be one paper on the topic, even just to make the points you made, in particular that its hard to make strong econometric conclusions. It wouldn’t be a lot of work and would be highly relevant.

      I don’t accept that economists should not do work that is not immediately politically relevant. We fund public universities to do this kind of work. In any case, I think you are actually wrong. There probably is a high chance that an Abbott government would look to make some changes. You just have to read the Australian to see the pressure that is building up for change.

      Finally, I am hardly on my own in suggesting that economists’ contribution to the public policy debate is disappointing. Here’s what Gary Banks, chairman of the Productivity Commission last year:

      “There is also a question as to whether enough academic economists in Australia are applying themselves to the policy issues of the day. If we think about the burning policy debates in relation to social and environmental issues, how prevalent are academic economists in these? Only a few come to mind as being active public contributors on such topics as education, health, welfare, migration and, even that most ‘wicked’ contemporary policy challenge of all, Australia’s response to global warming.”

      http://epress.anu.edu.au/apps/bookworm/view/Agenda,+Volume+18,+Number+3,+2011/7641/Text/banks.html

      • Bob says:

        I agree with most of your points on economists drpage. I’m just pointing out the recent climate and complexity of the task as to why nothing has been so far, although i agree if Abbott wins alandslide he is likely to make changes. But he also risks losing cred as labour will harp on about WC’s thru to the next election, so change will be framed as WC’s mark 2.

        As for the quality of economists in Australia i totally agree theyre bloody hopeless!

  8. Bob says:

    Should qualify my dismissal of economists, academics and traders pretending to be economists are the worst of the bunch.

    Also in their defence there is a serious lack of quality longtidinal data on the Labour Market. Apart from HILDA (which has some serious limitations) there isn’t much else to go on apart from the usual aggregated data sets. Yes the demand side is fairly well covered but not much on the other side of the equation.

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