Month: September 2006

Australia’s surprisingly secure workers

~ Andrew Norton ~ 14 Comments

Writing in the SMH this morning, Labor MP Tanya Plibersek says:

…job insecurity is bad for workers’ health. Fran Baum from Flinders University followed the fate of Mitsubishi Motors workers who faced losing their jobs. Their health was clearly affected by the insecurity. These new work laws, which make it easier to sack workers, may contribute to worse health in companies that threaten to make use of the new provisions. Employees in companies with fewer than 100 employees can now be sacked for any reason, or no reason; and companies with more than 100 employees can be sacked for anything as long as it’s called an “operational reason”.

I’ve no doubt that the prospect of losing one’s job is stressful (I remember election night in 1998…), and sustained stress can contribute to poor health. The issue that interests me here is whether the new industrial relations laws will contribute to job insecurity in any significant way. One of the curious things about the modern labour market is that the rise of a large, easily sackable casual workforce has not had the effects on job security that many people suppose.

Indeed, despite casualisation, and despite the impending WorkChoices legislation, when Roy Morgan Research did its survey on job security late last year it found the highest level of perceived job safety since it started asking the question back in 1975 – 83%. Morgan doesn’t disaggregate its data by employment type (its strength is a 30 year time series) but other surveys have, and consistent with Morgan’s aggregate result they find that the difference in job security perceptions between casual and permanent workers is much lower than we might have anticipated.

For example, in the 2005 Australian Survey of Social Attitudes, 46% of casual workers and 49% of permanent workers said that they did not worry at all about losing their job. Taking those who worried ‘a little’ as reasonably secure, overall 73% of casuals and 83% of permanent workers felt secure in their jobs. In the HILDA survey (pdf) respondents were asked to give a percentage chance of losing their jobs in the next 12 months. On average, permanent workers thought they had an 8.5% chance of losing their jobs, and casual workers 13.2%.

It’s not obvious that official work contract status in itself produces even these modest differences in job security perceptions, given that casuals are disproportionately represented in occupations where labour demand fluctuates. That is, they are employed as casuals because they are in jobs that are inherently less viable, rather than casual status itself producing a significant amount of additional insecurity. If your employer is losing money your job is at risk regardless of your permanent status, as the Mitsibushi workers were; if your employer is doing well and you are performing OK you will be reasonably secure, even if you are a casual.

It follows from this that WorkChoices in itself probably won’t add much to job insecurity, which is primarily a product of the laws of supply of demand, and not the laws of the nation.

Should education be tax deductible?

~ Andrew Norton ~ 14 Comments

Among the Australian Industry Group’s suggestions for spending $1 billion on skills (pdf) was one that gets surprisingly little discussion in the education sector: tax deductibility for education expenses.

The current rule is that you can claim self-education expenses related to your current job, but not for future jobs you might hope to get on the strength of new qualifications. According to an ABS survey (table 4) of reasons for study, that disqualifies most people from a deduction, even though three-quarters have at least some vocational rationale for their study. The AIG thinks that you should be able to deduct from current income for a future job.

The logic of tax deductibility for education is that otherwise the tax system is biased against spending on human capital. If you buy a physical asset you can normally depreciate it over time and claim the annual amount of depreciation as a tax deduction. Arguably, vocational knowledge is quite similar; it is an asset that helps you earn your income, but one that fades in value over time as technology, techniques and circumstances change. Yet unless you happen to be already working in your field of study, the tax system won’t recognise your spending as an expense involved in earning your income.

Like most aspects of education finance, these rules seem to reflect a past time. When education was free, obviously its tax status was irrelevant; similarly where there are significant subsidies it is hard to say that the government is creating a bias against human capital investment. And writing off the whole lot in one year looks like an accounting convenience from an era when education expenses rarely amounted to significant sums – just short training courses and the like, and not multi-year degrees.

When I wrote my book on higher education policy, which was published in 2002, I was sceptical of the tax deductibility idea. This was partly because I thought the progressive tax system introduced distortions of its own, as those on high tax rates would effectively pay less for their education than those on low tax rates. But the way the tax system has been reformed since reduces the impact of progressive tax, with people earning less than $75,000 a year paying 30c in the dollar. Back when I wrote the book the 30c rate ended at $50,000. With an average bachelor degree holder working full-time earning $64,000 a year, most of them will fall below the 40% tax rate, greatly reducing the potential distortions caused by the tax system.

If deductions were to occur, they should be depreciated, instead of the current – and AIG favoured – all in one year claim. The logic of human capital is that it is an asset that will earn income in the future, and therefore it should be deducted against that future income. From the prospective student’s perspective, if they plan to study full-time they probably won’t have any significant income during the study period, and so a one-off tax deduction is of no use.

The microeconomic attraction of deductibility is that directly tax-financed education is, for political reasons, bogged down in price control and Soviet-style allocation of places. By further facilitating the full-fee market through tax deductibility, more students could bypass the dysfunctional state sector and make a more appropriate investment in their human capital. In some disciplines, like law and commerce, the subsidies are down to such low levels anyway that most students would probably be better off paying full-fees in market rather than state-oriented faculties and deducting the cost later on. There are a lot of details that would need to be worked out – for example, how many years should depreciation be spread over, and its interaction with student loans schemes. But conceptually I think there is more to this idea than I did back in 2002.

Would you take a happy pill?

~ Andrew Norton ~ 15 Comments

Our friends at the Australia Institute have put the results of their happiness survey online, with a few points worth noting.

As reported in the SMH at the weekend, nearly 40% of Australians think that the overall quality of life in Australia is getting worse. I offered a couple of theories as to why on Saturday: the information bias concerning what’s happening to other people, and the cognitive difficulties we experience in comparing over time. But perhaps partisan sentiment also plays a part in these judgments. Labor voters were nearly twice as likely as Coalition voters to think that things are getting worse (51% versus 26%), just as Labor voters are much more pessimistic than Coalition voters about their standard of living over the next six months. To some extent this could be confusing cause and effect – people may have become Labor voters because they think things are going downhill. And perhaps Labor voters are more likely to genuinely believe that things are not as good as they used to be (less union power etc). But when unexpectedly asked to make judgments without being offered any assisting factual information it would not be surprising if people resorted to their party allegiance to help them give an answer – if my party is in power, things must not be going too badly, but if the other lot is in then things must be getting worse.

Very usefully, there is a surprisingly rare direct question about what factor the respondent believes ‘is most important to you with regard to your own happiness and well-being’. Only 4% rated ‘money and financial situation’ as the most important thing, with ‘partner/spouse and family relationships’ the clear winner on 59%. When asked about aims over the next five years back in 2005 money did somewhat better, with 22% nominating a higher income as their first choice. The results aren’t inconsistent: if you are already happy with your family life, more money might be what you need to improve well-being overall, even if it is not the most important factor contributing to your happiness.

My favourite question, however, was this:

If there was a legally available drug that could be bought over the counter, that made you feel happy, and did not have any side-effects, do you think that there would be occasions when you would take it?

This is putting to the general public a version of a question that has been put to many philosophy students, most famously via Robert Nozick’s Experience Machine that would make us happy, even though we would not actually be doing anything. As Wikipedia puts it:

Nozick seeks to attack hedonism by means of a thought experiment. If he can prove that there is something other than pleasure that has value to us and affects our well-being, then hedonism can be seen to be defeated.

And the answer from the Australian public? Overwhelmingly, they would not take the happy pill, with 73% saying no. The only partial exception are the Ecstasy-taking 18-29 year olds, with 18% saying ‘definitely yes’ and another 21% saying ‘yes, probably’. I often think the public gets it wrong, but on this question I agree with the majority.

Is the quality of life in Australia getting worse?

~ Andrew Norton ~ 4 Comments

According to today’s SMH happiness coverage, four out of ten Australians think that the overall quality of life in Australia is getting worse, while a quarter think it is getting better. The text of the question looks to be from a Newspoll series:

Thinking now about the overall quality of life in Australia, taking into account social, economic and environmental conditions and trends, would you say that life in Australia is getting better, worse or staying the same?

But if as a pollster you were asked to design a question to get junk answers you couldn’t do much better than this one. It is very vague – compared to when? (one of the earlier surveys found that people were inclined to regard the years of their early adulthood as the best general period, which suggests that personal experiences rather coloured perceptions of the overall social climate). It also requires respondents to do two things that they are not very good at – comparing over time, as I discussed earlier in the week; and assessing how other people are going, where they suffer from information bias – the media is more likely to report negative than positive stories, for example. As a result, when you ask people to judge trends in time for verifiable social or economic circumstances or events they almost always gets it wrong.

Should governments try to make us happy?

~ Andrew Norton ~ 20 Comments

To me, happiness research is looking rather like the social capital research of the 1990s – intellectually interesting, but yielding very little in the way of worthwhile policy recommendations. But the Australian population, long inclined to looking towards the state, does not agree. According to a new poll reported in today’s Sydney Morning Herald:

77 per cent agreed with the proposition that a government’s prime objective should be promoting the greatest happiness of the people rather than the greatest wealth.

I’m briefly quoted in another story in the today’s happiness coverage disagreeing with the idea that happiness should be an objective of government. This isn’t because there is nothing at all happiness research can tell us about policies conducive to well-being, but because I think there are a range of reasons why, given Australia’s current situation, this objective is not likely to lead to long-term changes in average national happiness:

1) Few significant and lasting benefits for most people. On a 0-10 scale, about three-quarters of the Australian population will rate themselves as 7 or above in happiness or life satisfaction surveys. They are happy already, and while various positive events or changes in their lives could give them a boost, they are likely to adapt back to their genetically-influenced set range. Many of those below 7 will be suffering temporary setbacks, from which they will recover in any case. The main scope for improvement is among the people enduring persistently low levels of well-being.

2) Not easily accessible by policy. People without partners tend to have low well-being (pdf, p.11), particularly in the middle years of life. But what can government sensibly do about this? For a start, there is some reverse causation – not surprisingly, people who were unhappy to begin with find it harder to form relationships. So the government’s job will be to match Australia’s least attractive personalities with mates, and be more succesful at it than all the traditional methods plus the new online search tools. Even the left’s quixotic faith in the state’s capacity to do good isn’t likely to extend to thinking government can achieve anything here. Short of re-introducing arranged marriages, I can’t see that there is much scope for even massaging the statistics. And if divorce laws were tightened, it probably would not increase happiness – people would be unhappy in marriage rather than unhappy in divorce.

3) Redundant additional arguments. There are some causes of ill-being that can be affected by government policy, such as removing causes of unemployment or providing medical assistance to those suffering from illnesses that affect their well-being. But governments are already trying to alleviate these problems. Another argument for trying to remedy them is redundant; the only interesting issues surround how we should go about dealing with these issues.

4) Dubious arguments. Many of the various odds-and-ends policy ideas for improving happiness collected in documents like the Wellbeing Manifesto are not clearly supported by research. For example, it proposes a maximum 35 hour working week, when the research (pdf, p.5) does not show even those working much longer hours than that with low average well-being and, as reported in yesterday’s Australian, most people settle into hours that suit them over time. Nor do I know of any research showing that restricting advertising would have any discernible effects on well-being, or that stopping ‘turning universities into businesses selling degrees and make them the critic and conscience of society’ would help – indeed, it would probably reduce the number of people capable of carrying out the ‘secure, rewarding jobs’ the manifesto, in all its banality, thinks are a good thing. Being a ‘critic and conscience’ of society no doubt appeals to the kind of people who write well-being manifestos, but demand for such services is limited.

Governments should focus on what they can realistically achieve. Given the nature of the instruments they have available to them, this means that their activities will be biased toward the material – redistributing money, creating incentives etc. Changing how people feel is much tougher, and attempts to do so are likely to join the long lists of failed government policies.

What’s going on with graduate earnings?

~ Andrew Norton ~ 10 Comments

Jenny Macklin is using the latest OECD Education at a Glance to give the Howard government a ‘F’ for higher education. She says that:

??The Report … shows Howard Government HECS hikes mean Australian university students are now paying the second highest fees in the world.

Fees paid by Australian students are now second only to the United States ??? a higher education system which John Howard is hell-bent on copying here.
??

But if, as Labor MPs are fond of pointing out when it is taxpayers’ money being spent, education is an ‘investment’ then what matters here is not just what students spend, but what they get in return for their money. One reason US universities have been able to charge relatively high sums is that the income premium from having a degree is high in America compared to other countries. In Education at a Glance it is put at 81% more than people with ‘upper secondary and post-secondary non-tertiary education’, while Australian graduates in 2001 earned only 43% more. Australia’s high minimum wage is part of the explanation, but perhaps also a disinclination by Australian employers to pay too much for the standard-product Australian graduate.

Without any politicians noticing, the ABS has recently issued the latest Education and Training Experience survey, which we can compare with earlier surveys. Intriguingly, this suggests that the income premium for bachelor degree only holders over people with Year 12 education only (I can’t replicate the OECD comparison on the published figures) went down between 2001 and 2005, from 50% to 47%. Using the RBA’s handy inflation calculator I estimate that average full-time bachelor degree holders’ income went up in real terms by a miserable $4 a week in those years, compared to $21 for people with a Year 12 education only (2005 $).

What could be causing this sluggish performance in a strong economy? It is true that universities and the immigration department continue to push up the number of graduates in the economy. As the ABS Education and Work survey shows, the share of the workforce with a degree increased by about two percentage points in those years. And while the absolute number of graduates working in jobs that are very unlikely to require degrees increased by about 40,000, that was a slight decline in the overall percentage.

One possible explanation is not that under-utilised graduates are pulling bachelor-degree average earnings down, but that higher-income earners are being increasingly counted elsewhere, among those with a postgraduate degree as their highest qualification.

Like that other deregulated ‘US style’ market, overseas students, postgraduate enrolments have boomed over recent years. As DEST’s data shows, postgraduate course completions more than doubled between 2000 and 2004. And unlike bachelor degree holders, their weekly income did increase significantly between 2001 and 2005, by $86 a week.

This is probably not just the return on their human capital investment; it is also likely to be related to experience. Compared to 2001, the proportion of 45-54 year olds in 2005 with a bachelor degree as their highest qualification went down, while the proportion with a postgraduate degree went up. In the 35-44 age group both groups went up as a proportion of the total, but the postgraduate degree group grew more. So weak bachelor degree only earnings growth is partly because compared to the past they are, on average, a younger, less experienced, and perhaps less able population.

Blog number 53,800,001

~ Andrew Norton ~ 33 Comments

Technorati claims to be tracking 53.8 million blogs, so I am not exactly a trendsetter in establishing my own blog. But through my years at Catallaxy I can make some claim to be a veteran Australian blogger, and I hope some of the people who read me there might read me here – and that my pro-civility comments policy will encourage ‘lurkers’ who were put off commenting there by the less-than-perfect manners of a few of the regulars to do so here. Aside from that, I expect my posts here to be similar in subject and style to my Catallaxy posts. There are a couple below, one of which is an updated version of a guest post I wrote at Stephen Kirchner’s Institutional Economics.

I’m still struggling with the technology – I have already seen more than my fair share of ‘500 internal server error’ (whatever that means) messages – and haven’t figured out how to get the comments sidebar going. But I hope the site’s appearance will improve over time.

Are Australians happier now than a year ago?

~ Andrew Norton ~ 3 Comments

According to the latest Sensis consumer report 32% of us are ‘more stressed’ than we were a year ago, and 22% of us are ‘less stressed’, creating an overall trend toward greater stress. On the other hand, 28% of respondents in the Sensis survey report being happier than they were last year, while only half that proportion, 14%, felt less happy than twelve months ago.

But as Daniel Gilbert argues in his book Stumbling on Happiness, we are very bad at remembering our past emotional states. When researchers keep contemporaneous records of how people feel, and then ask them how they felt at earlier points in time, the respondents often misreport their own previous state of mind. This, he argues, is because rather than using direct recall of our emotions we use theories of how we would feel in particular circumstances, which are often wrong or neglect factors that would have affected us at the time.

The Sensis survey also asked its respondents why they felt less or more stressed or less or more happy, and we can see here mostly plausible theories as to why they may feel differently to a year ago. Leading the stress factors is a ‘heavier workload’, followed by ‘financial concerns’, a rather catch-all ‘everyday life’, and ‘more study’. It might be the case that these things have actually caused more stress, but also that because we are working harder, or facing high interest and petrol bills, we assume that we must be more stressed than we were before.

For the question on happiness, it seems to be that while more money is a minor factor explaining why people think they are happier than a year ago (9% ‘better financially’ perhaps plus 15% ‘new job/promotion’, though there other reasons beside money for a new job improving happiness), it is a big factor explaining why people feel less happy than twelve months ago (25% ‘cost of living’, 12% ‘financial worries’, 11% ‘petrol prices’, or nearly half – 48% – of all nominated reasons). This could be because of loss aversion, our tendency to feel losses more intensely than gains. But it could also be that in identifiying what has changed over the last year some respondents note their added financial pressures and assume that these have made them less happy than in the past.

Without keeping records of particular respondents it is hard to sort out exactly what’s going on here, but the large discrepancy between those who say they are happier and those who say they are less happy is a little suspicious, given what else we know about subjective well-being measures.

Subjective well-being tends to be quite stable over time at the population level – that is, the averages will be very similar from survey to survey. For example, in the Australian Unity Well-being Index (pdf) it varied through 14 surveys only by 3.1 points on a 0-100 range, and usually no more than 1 point survey-to-survey. In the HILDA survey, which does actually track the same respondents, their annual report (pdf) indicates that through three surveys the life satisfaction average varied by .1 on a 0-10 scale. So while about a quarter of respondents did show a significant shift in life satisfaction over a 12 month period, the ups and downs tend to cancel each other out to get the same average. The Sensis result would seem to suggest that ups significantly outnumber downs, pushing average happiness up. It could be that this is in fact the case, that the last 12 months have been a good year. But memory playing tricks is also a likely explanation.

The political health of the Medibank Private sale

~ Andrew Norton ~ 12 Comments

Despite its name, Medibank Private is owned by the Australian government, which wants to sell it – though not now until after the election.

One thing we can be sure of, though, is that public opinion won’t support it. In the 1980s, there was some popular support for privatisation, but it went into decline after major privatisations began in the early 1990s. Asked at an abstract level in 2005 (in the Australian Survey of Social Attitudes) whether privatisation brought more benefits than costs, 53% disagreed and 17.5% agreed. On more specific privatisations, some of the ‘don’t know’ respondents say ‘no’, with about two-thirds typically against the two main recent sale proposals, Telstra and Medibank Private. This was seen again in an ACNielsen poll published in yesterday’s Fairfax broadsheets, with 63% against selling Medibank Private off and 17% in favour. Newspoll recorded almost the same result back in April.

Politically, I believe that marketisation and privatisation are contrary agendas – though in a policy sense they are synergistic agendas. The pragmatic Australian electorate wants reliable, cheap services, and as I argued last year in Telstra’s case if things are broadly ok people will stick with the safe status quo. Telstra’s service levels have improved significantly since the telecommunications market was opened up, and so removed the ‘do something, anything’ frustrations that were probably driving pro-privatisation opinion. Similarly, Medibank Private operates in a competitive market already so it is hard to see how privatisation will create any significant consumer benefits, and indeed as the Newspoll found most people think premiums would rise if it was privatised (though in reality competitive conditions in the industry will be the main determinant of prices).

The government isn’t likely to win this debate, but far more significant privatisations than Medibank Private have proceeded without obvious political cost, so they may as well take the cash from a sale if and when they can.