Will lifting unemployment really improve productivity?

gurn (alternative spelling of girn): to snarl. to grimace; pull grotesque faces, to complain fretfully or peevishly

Collins Dictionary

It seems that property developer Tim Gurner has support from the business community for his attack on Australian workers and his call for a big rise in unemployment to correct their attitude. Minerals Council of Australia chair Andrew Michelmore endorsed his comments (quelle surprise), accusing workers of enjoying “a lifestyle that was not sustainable” and of demanding the same pay for doing less. Higher unemployment was needed to make them work harder, he agreed.

Gurner’s comments, however offensive, will fall on fertile ground in business circles because of the belief in a “productivity crisis” gripping employers. Business lobby groups are fighting against the federal government’s current industrial relations reforms to curb exploitation of contract workers, and as always want to go further with deregulation to strip away what worker protections currently exist in the Fair Work Act.

That’s despite Australians actually working longer hours. According to the Australian Bureau of Statistics, the June quarter and 2023’s national accounts showed “we spent 2.4% more time at work than we did last (March) quarter, which, excluding the COVID-19 pandemic, was the fastest quarterly increase in hours worked on record. We worked 6.8% more hours this year (2022-23) than last year, and with GDP rising by a smaller amount, labour productivity fell 3.2% in annual terms.”

So much for the idea of lazy workers.

Would unemployment actually improve productivity, as Gurner and Michelmore reckon? It turns out that, yes, it would — not because it somehow puts fear into the souls of workers and makes them grateful just to have a job, but because it removes the most marginal workers from employment. As the labour market gets tighter and tighter, it draws in workers who might otherwise struggle to find work — particularly those with low skills. And as economic conditions deteriorate, employers first tend to hang on to staff — which is why employment is a lagging indicator of a recession, and why labour productivity is declining now as GDP slows  — but then it tends to be lower-skilled, less valuable workers that they let go first.

And as unemployment rises, more marginal, poorer-performing businesses also shut up shop, freeing up workers to move to other, more efficient and productive firms and industries, thus improving productivity and innovation. Or, as the neoliberals prefer to call it, creative destruction.

But that unemployment also comes with a substantial cost in terms of lost production, erosion of skills and employability, long-run damage to productivity, and damage to social cohesion and equity — not to mention costing taxpayers.

What business would really prefer is more industrial relations deregulation so they pay workers less, casualise their jobs and make them easier to sack. Will this increase productivity? Well, we know from experience that it doesn’t: as the Productivity Commission has shown, John Howard’s WorkChoices saw a substantial slump in labour productivity that was only reversed once Labor abolished it. Labour productivity improved significantly under the last Labor government; the current “crisis” only dates from the middle of the Coalition’s term in office.

Really, Gurner and Michelmore’s comments are from another era (as Brickworks’ managing director Lindsay Partridge observed). They have the flavour of the 1980s, a period of persistent warfare between a radically bigger and stronger union movement, some elements of which were still controlled by communists, and employers — warfare that saw massive numbers of industrial disputes and strikes racking most industries. Workers would be routinely scolded by business and business media commentators for being lazy, greedy and militant. It was the era of Singapore leader Lee Kuan Yew’s sneer that we were becoming “the poor white trash of Asia”.

Funnily enough, labour productivity growth in that benighted period from 1973-85 when the Hawke government’s accord began changing our industrial relations landscape was significantly higher than under WorkChoices — and higher than over the last 10 years. One might be tempted to conclude that industrial relations doesn’t actually have much to do with productivity at all.