Most Australians Still Picking Up an Honest Wage

By Mark Wooden

The Weekend Australian Financial Review,
5-6 May 2007, p. 63

According to new data released last week by the Australian Bureau of Statistics (ABS), the number of owner managers (that is, the self-employed) in November 2006 was little different from the number two years earlier. By contrast, the number of employees rose by almost seven and a half percent over this same period.

Even more striking, the number of owner managers that the ABS, in its Forms of Employment Survey, defines as working on a contract basis declined by 9 per. This group of self-employed contractors was already a fairly small group, numbering just 450,000 persons in 2004 (or only 4.7% of the employed workforce). But by 2006 it had shrunk even further, now numbering just 410,000.

Such trends fly in the face of the conventional wisdom pedalled by the critics of labour market reform. According to that line of argument, full-time permanent waged work will soon be a thing of the past. Instead, employment in the 21 st century will be characterised by increasingly ephemeral attachment between workers and employers. Many more jobs are expected to become temporary or short-term, and firms are expected to rely increasingly on external sources such as self-employed contractors or labour hire intermediaries to meet their labour requirements.

These recent ABS numbers clearly challenge such assumptions. Traditional wage and salary earner employment remains the predominant mode of labour market engagement.

Perhaps the decline in the number of self-employed contractors has been offset by a rise in the number of people employed through labour hire firms (and who would be defined by the ABS as being employees)? The Forms of Employment Survey does not provide data on this, but other data from the Household, Income and Labour Dynamics in Australia Survey for 2005 suggests this hypothesis should be rejected. Indeed, the estimated number of people employed through a labour hire firm or temporary work agency is both relatively small (just over 3% of all employees) and has declined in recent years (it fell by over 13 per cent in 2005).

A large part of the explanation for these recent trends is likely to lie in the healthy state of the jobs market. On the demand side, a shrinking pool of unemployed labour together with expanding shortages in some sectors has almost certainly forced companies to offer many workers more secure employment contracts as part of a strategy to retain skilled and valued labour. On the supply side, rising real wages have increased the attractiveness of more traditional employer-employee relationships over indirect arrangements.

It is also plausible that labour market reforms have had a role to play. If the various legislative reforms enacted by the Coalition Government have provided greater flexibility for employers in the way they hire and fire and in the way they are able structure relationships with their employees then it follows that employers will feel less need to resort to outsourcing. The greater freedom provided to employers to fire whoever they like under Work Choices is an obvious example here. That said, it needs to be borne in mind that Work Choices only became law at the end of March 2006, towards the end of the period covered by the data reviewed here.

In summary, traditional forms of employment remain the overwhelmingly dominant form of labour market engagement in Australia. Self-employed contractors, however, are not going to disappear. They will continue to remain a valuable option for many firms. The extent to which this type of labour engagement system is used will vary over time, depending on such things as the state of the economy, technological change and labour laws and institutions.

Mark Wooden is Professorial Research Fellow and Acting Director of the Melbourne Institute of Applied Economic and Social Research, University of Melbourne