Casualisation of work is rooted in the economic system

By Joe Montero

According to the Australia Institute’s Centre for Future Work, ABS data from 2012 to 2017, shows that full time work with leave entitlements has fallen to 49.97 percent and just 38.9 percent for those under 30. Part time work is the highest ever, Taking up 31.7 percent of the workforce.

These are some of the disturbing numbers in the Centre’s report, “Dimensions of Insecure Work” by economists Tanya Carney and Jim Stanford.

Standford notes that “Insecure work has become the new normal.”

Data also shows that the claimed creation of new jobs is barely enough to keep up with the increasing population and does not bring down the proportion in insecure work.

The economic and social implications are enormous. Many Australians are now being prevented from properly contributing their skills to society or experiencing the reward from this participation. It is a tremendous waste of a valuable resource and denial of an adequate quality of life for many.

In the last 5 years, this has resulted not only in a steep rise of insufficient incomes. It has been tied to the denial of once taken for granted benefits, like paid holidays, sick leave and superannuation.

The report attributes this to an insufficient quantity of work available, compared to the number of people looking for it and the widening gap between the two. The suggested solution is to have a stronger jobs market, where people can say no to inadequate jobs, and for this to be backed by laws that ensure the protection of secure work and provide minimum wages.

It is not the first time these suggestions have been raised. In themselves, they appear reasonable enough. After all, job creation will allow proper participation and reward for the individuals and put into play a resource that works to build Australia into the future.

The difficulty is that this does not account for why the present situation has come to be. It is often passed off as being caused by the greed of employers. Individually, employers may or may not be greedy. This is secondary. When the problem is economy wide, it suggests that something is not right with the fundamentals of this economy. The purpose of the work by Tanya Carney and Jim Stanford has not been to go into this. Anyone wanting real solutions, must understand that they need to pay attention to these fundamentals.

One observation that seems to counter this reality, is evidence of huge profits currently been made by large corporations. One must be careful about extending this too far. Among those that dominate their industry and have the capacity to exercise monopoly power, there are those that are doing very well. Some industries are doing better than others. Manufacturing is at the worst end. Finance is at thew top end, followed by hospitality. It is a different story for medium and small businesses. They are doing it tough.

The advantage has been for those in the best position to not only use their monopoly position, but to also be in the best position to apply a higher level of capital intensity to what they do. This means, those in the best place to replace labour by computers and automation. Doing this provides the advantage of lowering the costs of production, relative to the competition.

But this is only an advantage if you operate on a sufficient scale. Both the orthodox interpretation of fixed and variable (Labour) costs or the Marxist constant and variable costs tell a similar broad story. Increasing capitalisation works best on the larger scale and this drives business to get bigger. By spreading the fixed or constant cost over more units, the overall or average cost goes down. Labour costs cannot be spread out in this way. The incentive is then to further reduce the proportion spent on labour.

The graphs below provide a simplified illustration of what goes on.

Fixed Variable and Total costs

 

Two brief explanations are needed. Labour (variable) costs are non-existent without any output and increase with the quantity of output. Fixed (Constant) costs are still incurred with no output and remain constant regardless of the volume of output.

In the next graph, Fixed (Constant) costs are increased.

We can see that by increasing this cost, the total cost rises across all volumes out output.

A problem that is countered, by either increasing the pace of work (raising productivity), getting rid of jobs, or both. In an economy that is already highly capital intensive, the capacity to raise the pace is limited, and the focus turns to getting rid of jobs and rewarding less to those who are working.

The decreasing labour share means that the return in the form of net profit per unit is less. The reason is that prices are only in part determined by demand and supply conditions.

Total costs much always equal total revenues in the economy. This is important. You can’t create something out of thin air. Produce more and the total will increase. But it won’t affect the equality between costs and revenues. Accountants largely realise this through the balance sheet. Economists sometimes forget this basic truism.

Increasing investment in Fixed (Constant) capital leads to a fall in the costs of production, leads to a fall in the per unit or rate of return to the business owner, because the contribution made by labour per unit is less. The transformation of inputs into something more than the inputs into something more requires human  agency, and it is this, that determines the largest part of its value. If the value is reduced through shedding labour, and both labour and employer lay a claim on the same source, there is going to be less to go around.

This is countered by increasing the volume,  and those in the best position to do this, are able to come out in the best position. If it goes too far though, the increased volume will eventually saturate the market and add an excess of supply to the problem. Shedding labour lowers demand. Put the two together, and economic growth slows and may even contract. More jobs will be shed.

These have been the key drivers for the rise of insecure work. It cuts labour costs in a direct way, with the added factor, that a reserve workforce in a position that they have no choice to accept less, pulls down the labour force that remains in permanent traditional work. The casualisation of labour becomes a means to raise the profit component in the equation.

Corporations exercising monopoly are at the lead of this transformation, and this does not seem make sense with their increasing share of the total profit created in the whole of the economy. It occurs, because monopolies can to use their position in the market to capture a larger portion of the new value created by the whole of society. The mechanisms that allow this to happen are too complex to show here. It will be enough to just say,  they play a big added role in the determination of price and quantity. Even more important, is that they can use control over trade and finance, to press their advantage,swallow rivals and take their share.

Everything said here, suggests that an answer to the growth of insecure work, requires action to overcome the forces that are pushing businesses to go down the present road, and taking on power of the monopolies. In this context, laws to protect jobs and conditions, embarking on job creation projects, and by implication, the exercise of sufficient control over financial institutions, will have their place.