Sarrera gisa, ikus Ekonomialarien politika zuzena (eta okerra!)
Segida:
Bill Mitchell-en RBA shows who is in charge as the speculators are outwitted
(http://bilbo.economicoutlook.net/blog/?p=47114)
(i) Sarrera gisa
While progressive-sort-of politicians, at least they say they are progressive, work out all the ways they can parrot mainstream macroeconomics textbooks about fiscal deficits and public debt to make themselves appear ‘credible’, even using credibility in the title of key fiscal rules they advocate, the world passes them by rather quickly. British Labour is crippled by, among other things like Europe, their belief that the City (finance) is powerful and the state has to appease the interests of the speculators. The Australian Labor Party is no different and so it goes everywhere. Give a traditional social democratic politician any latitude and they privatise, cut welfare spending, deregulate, give handouts to the top-end-of-town and more. We have four decades of this behaviour to back that accusation up. Well one of the more conservative central banks in the world – the Reserve Bank of Australia – is currently demonstrating what Modern Monetary Theory (MMT) economists have said all along – the financial markets can always be subjugated by the power of government, any time policy makers choose to exercise their capacity. It is time that these progressive types realised that and became much more ambitious and, yes, progressive, really progressive rather than adopting the sycophantic stance that the ‘financial markets will destroy our currency’, which has undermined traditional social democratic politics.
(ii) RBA delakoa eta defizit fiskalen finantzaketa
RBA funding fiscal deficits update
While the officials in the RBA deny that their government bond buying program, which will continue for at least another year after this month, is funding the higher than usual fiscal deficits, it is patently obvious to most that this is what they are up to.
And, about time.
Please read these blog posts for discussion of this topic:
1. RBA governor denying history and evidence to make political points (July 23, 2020).
2. RBA governor adopts a political role to his discredit (August 18, 2020).
3. The Australian government is increasingly buying up its own debt – not a taxpayer in sight (May 26, 2020)
The facts are pretty clear.
As of today, the RBA has purchased $A68,250 million worth of Australian Government bonds under its so-called – Long-dated Open Market Operations.
If it continues in this vein, then it will hold about 25 per cent of all outstanding Australian government debt by about August 2021.
The Government politicians have not been saying much about this program for obvious reasons.
They don’t want the public to know that one arm of the currency-issuing government is accumulating a large proportion of the liabilities issued by another arm (Treasury) to follow the rise in the fiscal deficit.
If they explained what was going on in the real world to the public, it would become very clear that the central bank is effectively ‘funding’ a significant proportion of the increase in the fiscal deficit than any notion of some taxpayer account or the reliance on private bond markets.
It would also disabuse the public of notions that such coordination between the central bank and the treasury, which is at the heart of the understanding you get from learning about Modern Monetary Theory (MMT), is dangerously inflationary.
In their information sheet – Supporting the Economy and Financial System in Response to COVID-19 – the Reserve Bank of Australia outlines a number of policy innovations they are pursuing to help protect the economy and the financial system.
Among these measures they write:
Provide Liquidity to the Government Bond Market
The Reserve Bank stands ready to purchase Australian Government bonds and semi-government securities in the secondary market to support its smooth functioning. The government bond market is a key market for the Australian financial system, because government bonds provide the pricing benchmark for many financial assets. The Bank is working in close cooperation with the AOFM.
You can also view their more detailed explanation of what they are doing in this regard at – Reserve Bank Purchases of Government Securities.
The RBA is simply crediting bank reserves (the Exchange Settlement Accounts in the Australian parlance) in return for bond purchases.
These bonds have been issued in the primary bond markets and then bought and sold generally in the secondary market where the RBA buys them.
In its explanatory note, the RBA seems they need to set up the smokescreen in this way:
The Bank stands ready to purchase Australian Government bonds across the yield curve to help achieve this target. The Bank purchases Government bonds in the secondary market, and does not purchase bonds directly from the Government.
They could have added – ‘As if any of that matters’!
The point is that the primary bond dealers can reasonably anticipate that the RBA will purchase debt from them.
The complete data set is available via the RBA statistics – Monetary Policy Operations – Current – A3 – then go to the worksheet “Long-Dated Open Market Operations”.
Here is the pattern of purchases of Australian Government securities by the RBA since March 26, 2020 up to today.
(iii) RBA delakoak beti kontrolatu ditzake etekinak
RBA can always control yields
The bond buying program has aimed to maintain a bond yield of 0.1 per cent on 3-year Australian government bonds, which the RBA says will “lower funding costs across the economy”.
The RBA said that:
The Bank stands ready to purchase government bonds to help achieve this target. The Bank purchases government bonds in the secondary market, and does not purchase bonds directly from the government.
So how does that work?
Australian government bonds are issued by the Australian Office of Financial Management (AOFM), which is a division of Treasury, via an auction or tender system.
The AOFM announces the terms of the auction, which included how much debt was available for sale, the maturity dates of the debt, and the coupon rate (the periodic interest to be paid on the face value of the bond).
The issue would then be put out for tender and then the bond dealers in the primary market would determine the final price of the bonds issued – thus taking discretion away from the elected government in terms of the yields that it would pay on government debt issuance.
As an example, imagine a $1,000 bond had a coupon of five per cent, meaning that you would get $50 per annum until the bond matured, at which time you would get $1,000 back.
At the time of issue, the bond market dealers desired a yield of six per cent to satisfy their profit expectations.
In this case, the initial specification of the bond is unattractive.
Prior to the adoption of an auction system (under neoliberalism), private bond dealers would avoid purchasing the bond under such conditions and the central bank would just provide the funds.
But under the auction system the private dealers could put in a purchase bid lower than the $1,000 to ensure they got the six per cent return that they sought on the price that they were willing to pay.
The bids will be ranked in terms of price (and implied yields desired) and the quantity requested in dollar terms.
The bonds are then issued in order of the highest price bid down until the volume the government desires to sell is achieved.
So, the first bidder with the highest price (lowest yield) gets their desired volume (as long as it doesn’t exhaust the whole tender, which is unlikely).
Then the second bidder (higher yield) receives their allocation and so on.
In this way, if demand for the tender is low, the final yields will be higher and vice versa.
It is important to understand that there is an inverse relationship between the traded price of a fixed income bond and its yield (rate of interest).
Why is that so?
The general rule for fixed income bonds is that when their prices rise in secondary markets, the yield falls and vice versa.
This is because if one pays more to purchase a bond, the coupon payments represent a lower return on the purchase price; on the other hand if one pays less, then the coupon payments represent a higher return.
Furthermore, the price of a bond can change in the marketplace according to interest rate fluctuations, even though the bondholder will still only get the face value of the bond back upon maturity.
When interest rates rise elsewhere in the economy, the price of previously issued bonds falls because they are less attractive in comparison to the newly issued bonds, which are offering higher coupon rates (reflecting current interest rates).
When interest rates fall, the price of older bonds increases as they become more attractive given that newly issued bonds offer a lower coupon rate than the older higher coupon rated bonds.
By way of example, assume a bond is issued at a face value of $1,000 and is paying 8 per cent per year for 10 years. The holder of that bond will recieve $80 per annum until maturity. This coupon yield remains constant throughout the life of the bond.
Now, suppose the bond is traded and you buy it for $800 in the secondary bond market.
Irrespective of the price you pay, the bond entitles you to receive $80 per year in coupon payments.
But now, the $80 payment per year until maturity represents a higher current yield than the coupon rate of eight per cent because it is based on your purchase price of $800.
The actual yield is $80/$800 = ten per cent.
The opposite happens when the central bank starts buying up the debt. It pushes up demand for the assets targetted which increases the price and as a consequence of the fixed coupon yield, drives yields down to whatever level the bank desires.
(iv) Merkatu ez finantzarioak eta RBA
Enter the ‘all powerful’ (not) financial markets who think they can outsmart the RBA
On March 10, 2021, the RBA Governor gave a speech to a financial markets summit in Sydney – The Recovery, Investment and Monetary Policy.
He told the audience that:
1. “The RBA’s policy measures have been keeping financing costs very low, contributing to a lower exchange rate than otherwise, supporting the supply of credit to businesses, and strengthening household and business balance sheets.”
2. “The Reserve Bank is committed to continuing to provide the necessary assistance and will maintain stimulatory monetary conditions for as long as is necessary.”
3. He made a lot of points about only altering the short-term policy interest rate when the labour market was back to full employment and that would require faster wages growth.
I wrote a bit about that last week – We need trade unions to grow again (March 15, 2021).
But the relevant parts of the speech for today’s blog post related to its bond buying program.
4. “the Bank remains committed to the 3-year yield target … the Board has, though, discussed the question of whether to keep the April 2024 bond as the target bond, or to move to the next bond – that is the November 2024 bond – later this year.”
5. “We are prepared to undertake further bond purchases if that is required to reach our goals. Until then, we remain prepared to alter the timing of purchases under the current programs in response to market conditions. We did this last week when liquidity conditions deteriorated and bid-ask spreads widened noticeably, and will do so again if necessary.”
So they will keep targetting the 3-year yield as long as they choose.
It has become obvious that some speculators in the financial markets formed the view that the RBA would not continue its bond buying program.
Some background is that in February 5, 2021, the Governor appeared before the Commonwealth House of Representatives Standing Committee on Economics to present the RBA Annual Report 2019.
The – Transcript – reveals a nasty exchange between the Governor and the Andrew Leigh, Labor party (Opposition) Shadow Assistant Minister for Treasury.
He drank the mainstream economics Kool-Aid at Harvard and is anti-MMT but has never really come to terms of what we are on about, choosing instead, to trade on the usual ‘money printing’ claims.
Leigh attacked the RBA claiming that it had failed to achieve its inflation target and could have created more inflation if it had increased its QE program.
This is straight (erroneous) mainstream macro logic – QE is ‘printing money’ and more of it will create inflation.
Tell that to Japan, the US, Britain, the Eurozone, and more.
The Governor shut him up but he continued to call the RBA “timid”.
The Deputy Governor also noted that the AOFM had “issued very little under five years” in recent months. I will come back to that.
Leigh went on to accuse the RBA of being insular – “the bank hasn’t made an external appointment at the senior levels since the Spice Girls got together” and said that “amateurs rather than experts largely populate the board.”
The Governor said:
Your point about the Spice Girls—regrettably, it’s wrong.
And explained why.
He also defended the Board against Leigh’s amateur accusation.
It seems that this interchange lead some speculators to form the view that the RBA was reluctant to extend the QE program.
Several traders in the financial markets who ring me from time to time told me that there was growing sentiment that the RBA would abandon its control over the 3-year yield.
I was given lectures by financial market economists I know about the RBA losing credibility in this regard, which is a mainstream ruse that pretends the speculators are all powerful.
Of course, it is nonsense, but it seems that a significant number of speculators believed their own myths that they were actually running the show and so they started creating trading bets that the 3-year bond yield would rise as the RBA lost control.
How did they do that?
They started short-selling them, which means they offered future sales contracts on 3-year bonds, at higher prices than they expected to be able to buy in the spot market when the contract came due.
If correct, yields would have risen and they make a tidy profit when it comes time to deliver the contract.
The plan came unstuck dramatically.
Why?
1. Go back to the comment above about the AOFM not issuing many 3-year bonds. You can find the AOFM data – HERE – which if you do some digging will confirm that the issuance of bonds with that maturity has ceased.
Why is that important?
Well for the short-sellers, they had to get access to supply so they could deliver on their contracts.
If the supply was drying up, then the ‘markets’ would have to get the bonds off the RBA which has been buying them up in considerable quantities.
2. At the end of February 2021 (see graph above), the RBA doubled its purchases of the bonds, which drove the price up and ade it very expensive for the short-sellers to access them and make profit.
It also brought the yields on the bonds down sharply, thwarting the speculators’ hopes that yields would rise and prices would fall.
3. Then, in the Speech I opened with, the RBA told the ‘markets’ they would be expanding the QE program for at least another year and probably beyond.
Ondorioak
(1) So this little piece of history tells us who is in charge.
(2) And it is not the financial market speculators.
joseba says:
Australia eta pribatizazioaren miopia
Bill Mitchell-en More privatisation myopia
(http://bilbo.economicoutlook.net/blog/?p=47110)
Australia was established a federation in 1901 after being a collection of colonies after the British consficated the land space from the indigenous population that had been here for more than 30,000 years. In 1916, the Australian government as one of the important early initiatives in establishing Australia as a nation under white rule created the – Commonwealth Serum Laboratories – as a national manufacturer of vaccines. Its early priorities was to produce antivenom to deal with snake bites, insulin and tetanus vaccines, and, later, vaccines for diptheria, whooping cough, and polio. It became a leader in manufacturing blood products for HIV and more. It was a jewel in Australia’s crown, guaranteeing that we could deal with the dangerous human conditions with our own capacity and without being held ransom by profit-seeking corporations. In 1994, the Labor government privatised the public body, claiming it did not have sufficient funds to update some equipment. The Government has now contracted this private corporation (CSL) to the tune of $A1.7 billion to supply the AstraZeneca vaccine, while at the same time, refusing to provide pandemic support to workers in the arts and university sectors.
Losing self-sufficiency on an ideological whim
Learning about our history is important because it brings things that are impacting now into relief.
The CSL story is indicative of why mainstream macroeconomics has led the world into appalling outcomes.
The advice has been wrong in a technical sense and the policy makers that have listened to the advice have been myopic in the extreme.
Myopia is a defining characteristic of this neoliberal era.
It is now becoming increasingly obvious to all that decisions taken under the guise of ‘saving the public money’ and ‘making things work better’ are now requiring significantly higher public outlays to redress dysfunctional outcomes.
In the 1992-93 annual fiscal statement, the Labor government announced it would sell CSL in its entirety to private interests.
The – Budget Paper No. 1 – summarised the privatisation frenzy that the Government was engaged in:
Included among these are:
Commonwealth Serum Laboratories Ltd (CSL) …
McLeod Repatriation Hospital in Melbourne;
Snowy Mountains Engineering Corporation Ltd;
the Moomba-Sydney gas pipeline system …
some more shares in AIDC Limited …
private sector financing of the DAS car fleet,
And this is after the big sell-offs of the public telecom company, the Commonwealth Bank, QANTAS, and more.
So the descriptor – frenzy – is apt.
The Labor government was trying to sell anything public that moved.
The justification was always the same:
1. The government cannot afford to invest in these public bodies.
2. They will be more efficient in private hands.
3. Why should the government own a vaccine company.
4. These bodies need to be internationally competitive and expand onto the world stage.
None of these justifications stacked up then, nor do they now.
Both sides of politics were gung-ho for privatisation.
When the CSL Sale Bill was into Parliament, David Connolly, a conservative MP (for Bradfield) spoke at the Second Reading on October 23, 1993 (Hansard Transcript):
The Commonwealth Serum Laboratories have played a very important role in the health of Australia and in Australia’s defences against disease for over 75 years. Obviously the health of the nation is a matter of the very highest national interest, and consequently the outcome of the sale of the Commonwealth Serum Laboratories, in view of its long historic and effective involvement in the health of Australians, is a matter of great concern to many people …
The coalition has consistently initiated and led the debate on the need for the privatisation of government assets, including the «CSL . There is no reason for the government to own a pharmaceutical company …
The fact that the Labor government was transferring public assets into the hands of private greed was a delight to the conservatives. Here was a so-called progressive government doing the work of the Right.
But we know the ‘Left’ started down this road in the 1970s and is one of the reasons the political parties have been fractured, missionless and unelectable.
On May 31, 1994, Labor’s Kim Beazley who was by then the Minister for Finance, gave the Parliament an update on their asset sales program.
He said (Hansard):
… I am delighted with the progress that has been made in fact in the last few days with the government’s asset sale program. On Sunday we concluded a very successful float of CSL … In fact, the government has a proud record of successful privatisations, privatisations which have not only incorporated a substantial return to the taxpayer …
… These are good developments which give us confidence that the government’s asset sales objectives for the forthcoming year and the subsequent years will be capable of achievement.
This was a Labor minister talking. The so-called political voice of the workers, handing over public assets, that the government had invested billions to ensure the organisations served the public, glowing about the transfer of these assets to the private sector for ridiculously low sale prices.
It was a very depressing time to be on the Left I can tell you.
The public body, CSL was established in 1916 as an arm of the quarantine service so that Australia could be self-sufficient in pharmaceuticals and anti-venoms.
These plasma products were derived from blood donations by the public to the Red Cross. CSL got the blood for free.
In 1994, as technology developed, the manufacturer wanted to invest in a best-practice Blood plasma fractionation facility in Melbourne.
The cost of that new capacity was $A209 million and the Federal government at the time paid $A150 million of it.
Just before the sale, the Federal government had injected a further $A42 million into CSLs production facility.
When the float occurred, the shares were sold for $A2.30 each (130 million were offered). The final sale price reached after deductions was $A299.
The paper by Clive Hamilton and John Quiggin – The Privatisation of CSL (published June 1995) provided some analysis of the sale.
The $A299 sale price was a absolute bargain given what the new owners of CSL gained:
1. Assets valued at $310.2 million – including the new plasma plant and upgraded facilities.
2. Indemnities against any claims on former products.
3. A 10-year contract guarantee on the supply of blood products to the Federal government (which could be extended to 15) at supply prices far in excess of what the Government previously paid the public company for the same products (these were plasma products that are used in hospitals etc).
4. As a result of the Government’s investment in the new fractionatoin plant, the future CSL profits were forcast to be much higher than previously recorded.
5. The land that the Government owned was bundled into the sale. A massive bonus.
Clive Hamilton and John Quiggin showed that the Government would still have to outlay $A45 million per year to CSL after the privatisation, so it would take just 6 years to ‘spend’ the sale receipts.
They argued that the net loss to the Government was in fact $A607 million, which defied the (flawed) rationale for selling it in the first place.
The private firm would recoup the entire sale price within 6 years.
And then it was so profitable that it started a worldwide asset acquisition itself, hoovering up large foreign companies in competition with it, on the back of the assets that were basically generated by Australian government spending.
The latest scam in this sorry tale is the $A1 billion agreement struck on November 16, 2020 between the Australian government and a company called – Seqirus – which is in their own words “a world leader in influenza vaccines”.
In this press release – Seqirus Will Build World-class, Next-generation $800m Influenza Vaccine Manufacturing Facility in Australia.
The deal is for 10-years to supply “influenza pandemic vaccines, antivenoms and Q-Fever vaccine.”
The Victorian state government helped the company with the land for the new plant.
Guess who owns Seqirus?
You guessed it: CSL.
Corporate interests prioritised over general health care
It is no news that health care services have been increasingly privatised and moved from being provided as a human right to being a for-profit commodity that extends the reach of corporate capitalism.
So it should come as no surprise that when a once in a hundred year health crisis hits, corporations see the dollar signs in their eyes and gouge enormous profits out of government procurement contracts.
And, this process is leaving millions of people in the world unprotected and furthering the divide between the rich and the poor nations.
One expression of this indecency is the debate about intellectual property rights.
Recently, India and South Africa, both nations ravaged by the virus, sought to invoke temporary waivers on patent protections of Covid-19 technology (vaccines and research results) – the so-called Trade and Intellectual Property Rules (TRIPS) – until the pandemic is over.
As soon as that request was made to the World Health Organization, the US government (yes, this so-called progressive Biden Administration) sought to block it.
Coming in behind the US were most of the other rich nations.
This news release (February 25, 2021) – Two-thirds of WTO members issue call for a TRIPS waiver – tells us that:
In support of putting billions of human lives before the profits and patents of Big Pharma, more than two-thirds of the World Trade Organization’s 164 members have issued a clarion call to support the proposed temporary TRIPS waiver to combat the COVID-19 pandemic by ramping up production of diagnostics, therapeutics and vaccines to ensure equitable and affordable access worldwide …
Medecins Sans Frontieres provides a map to visualise the nations that have blocked this initiative.
That wonderfully cosmopolitan European Union (at least that what the Europhiles tell us) is among the rich nations blocking the TRIPS request by the less well-off nations.
Their article (March 9, 2021) – Countries obstructing COVID-19 patent waiver must allow negotiations to start.
Ondorioak
The Australian government had all the currency capacity required to maintain these companies in the public sphere and ensure they would always be available to serve public interest rather than private profits.
The problem now is that the government is handing over cash to these private firms to provide
joseba says:
JobMaker = JobFaker
Bill Mitchell-en JobMaker equals JobFaker – barely an actual job in sight
(http://bilbo.economicoutlook.net/blog/?p=47120
JobMaker = JobFaker
The Australian government brought in a range of JobX policies at the onset of the pandemic in March 2020. We have JobKeeper, the wage subsidy program that is about to end next week, JobSeeker, the new name for the unemployment benefits, and then they announced – JobMaker – which was formally introduced as the Economic Recovery Package (JobMaker Hiring Credit) Amendment Bill 2020.
It was a “$74 billion” plan that the Australian government claimed was a “key element of the Government’s Economic Recovery Plan for Australia, designed to support a stronger economic recovery and bring more Australians back to work.”
Sounds impressive.
We were told that the JobMaker Plan would:
… support aggregate demand and more jobs in the near term while also starting to deliver the flexible and dynamic economy that we need to unlock Australia’s longer term growth potential.
Even better.
Effectively, it was a “new incentive for business to employ additional young job seekers” which gave employers “$200 per week for each eligible additional employee aged 16–29 years old inclusive.” and “$100 per week for each eligible additional employee aged 30–35 years old inclusive.”
Okay not sounding as good.
The scheme was deeply flawed and allowed firms to sack an existing full-time employee and replace them with a couple of part-timers attracting the subsidy for the second part-time worker.
There were incentives built in to the program to encourage a shift to precarious job creation.
The subsidy was low and left about 70 per cent of the total cost of employment uncovered. Why would a firm take on staff if there was little work just because they could get 30 per cent of the ‘loss’ covered?
There were lots of other issues that made the scheme ill-advised.
The government claimed it would create 450,000 new jobs over a 12-month period of operation.
Now, let’s look at some simple arithmetic.
The JobKeeper wage subsidy which ends next week, will mean around 150,000 workers who have been kept in employment will immediately lose their jobs as their firms have not yet recovered their business activity.
This figure was disclosed today in Senate Estimates when the Treasury head gave evidence – see Opening statement – Economics Legislation Committee.
Some have estimated that the figure could be as high as 250,000.
The stupid Labor Party Shadow Treasurer’s only input on this today was:
If they hadn’t wasted hundreds of millions on companies which didn’t need JobKeeper, there’d be room to support those which still do.
(All those who are doing the edX MMT MOOC would immmediately be able to discern the stupidity in that statement.)
Yes, some companies did well during the pandemic and pocketed the wage subsidy when they actually didn’t need it in hindsight. But the design of the program allowed them to do that – which just tells you that the scheme was not very well constructed.
But to tell the Australian people that the government has to cut the JobKeeper subsidy because it has run out of money, which is effectively what he is saying, is irresponsible and renders the Labor Party unelectable in my view.
The Australian government could keep JobKeeper going forever if it wanted to.
The decision to scrap it has nothing to do with not having the pennies and everything to do with trying to get back to their austerity ideology.
But, let’s get back to the arithmetic.
In the last few days, the Treasurer has admitted that the JobMaker scheme which should have already created 10,000 jobs (in the first 6 weeks of operation) has only generated – wait for it – a whole 521 jobs.
The media is now full of stories of leading firms saying they won’t go near the scheme.
The question is this: If the Government was serious about creating work, why not just introduce a direct job creation program supplemented with a Job Guarantee, and then link them to eligibility for unemployment benefit.
The guaranteed job becomes the work test, which also ensures there are the jobs required to be created.
JobMaker is just a way for the government to avoid taking responsibility for generating sufficient jobs.
joseba says:
‘Askatasun’ neoliberalaren ideologia
The ideology of neoliberal ‘freedom’ ends up damaging all of us – NSW Covid outbreak
(http://bilbo.economicoutlook.net/blog/?p=48046)
It has been a while since I updated my commentary on the new bi-weekly dataset using Australian Tax Office payroll data that the Australian Bureau of Statistics started publishing in March 2020, in order to provide more updated information on the state of the labour market during the pandemic. The Monthly Labour Force survey comes out in the third week of each month and relates to data collected around the second week of the previous month. With ongoing state government lockdowns being imposed with little warning having a significant impact on employment, this more frequent dataset was welcome. We are now in a situation where around 13 millions Australians are in tight lockdowns (over half the population), principally in Melbourne and Sydney. The latter, due to the incompetence of the conservative state government in NSW, has been in lockdown for weeks now and as the largest state, the reverberations are clearly going to be felt across the nation. Last week (August 5, 2021), the ABS released the – Weekly Payroll Jobs and Wages in Australia, Week ending 17 July 2021 – which provides the first glimpse of what the impact of the extended lockdown in Sydney (in particular) is having on the labour market. Employment in NSW shrunk by 5.1 per cent in the 3 weeks since June 26, 2021 (the start of the restrictions). Overall, employment has slumped by 2.4 per cent nationally. And the virus is spreading into regional NSW and things will get worse. The damage is being borne largely by our youth, given the occupation segregation in the ‘closed down’ sectors. The Federal government is demanding we all get vaccinated but due to its trying to ‘save money’ last year, there is insufficient vaccine available to supply the demand. Both the NSW and Federal governments have demonstrated their incompetence in the decisions they have taken in the name of ‘freedom’ and ‘fiscal surpluses’.
In terms of the coverage of the ATO Single Touch Payroll data, the ABS report that:
Approximately 99% of substantial employers (those with 20 or more employees) and 71% of small employers (19 or less employees) are currently reporting through Single Touch Payroll.
Past analysis of ATO Payroll Data
See links at the end of this blog post.
Overall jobs recovery uncertain
The ABS – Press Release – notes that:
Payroll jobs fell by 2.4 per cent nationally in the fortnight to 17 July 2021, following a 0.2 per cent fall in the previous fortnight …
While every state and territory saw a fall in payroll jobs across the fortnight, the falls were much larger in New South Wales (down 4.4 per cent) and neighbouring Australian Capital Territory (down 2.4 per cent) …
New South Wales usually accounts for around a third (32.0 per cent) of total payroll jobs and Victoria around a quarter (26.2 per cent). As a result, lockdowns in these two states contributed to a strong fall in payroll jobs nationally …
The Accommodation and food services and Arts and recreation services industries saw large falls over the fortnight, down by 19.0 per cent and 18.0 per cent in New South Wales and by 8.7 per cent and 4.5 per cent nationally …
As we saw in the early weeks of the pandemic last year, payroll jobs held by women and workers under 30 were particularly impacted, especially in New South Wales.
The impact was predictable.
Whereas the Premiers in the other Australian states have learned that at the onset of COVID cases, a short and sharp lockdown is necessary to meet the national targets of zero community transmission (and these lockdowns usually last a week or so), the NSW government, in their attempt to occupy the ‘freedom’ higher ground, delayed the decision to lockdown, despite being urged by most of the Australia’s leading infection experts to go early.
The result has been that the NSW government has now lost control of the virus and it is spreading into regional NSW from Sydney and the case numbers are rising quickly, with the inevitable rise in deaths.
Newcastle is now in lockdown (from this week) because the government failed to restrict movement between Sydney and the regions and so the virus spread (I am currently stranded in Melbourne in Victoria by the way).
So when the NSW government finally realised that they had to lockdown the employment consequences started to become obvious – the longer a state delays, the longer the subsequent lockdown and the worse will be the labour market impacts.
The other states/territories that use the short and sharp approach damage the labour market too but less so and the impacts are of shorter duration.
Here is what has happened to total employment in Australia since January 4, 2020 (the ATO data starts at the beginning of the year). The index is based at 100 on March 14, 2020 which appears to be around the peak employment, although it was slowing since February 29, 2020.
1. Overall, payroll employment is 2 per cent higher as at July 17, 2021 that it was on March 21, 2020. But in terms of the most recent peak (which was 4.8 per cent higher – on June 26, 2021), there has been a rapid deterioration in the next 3 weeks to July 17, 2021 – a fall of 2.6 per cent.
2. The first trough came in the week ending April 18, 2020 and the total employment loss was 8.5 per cent.
3. The second dip coincides with the extended Sydney lockdown before Xmas.
4. The third big dip that we are now witnessing coincides with the extended Sydney lockdown now being endured.
Gender trends
Here is the same series decomposed by gender.
While the pattern was almost identical for males and females up to March 22, 2020, the data for the earlier parts of April 2020 showed that the crisis was impacting disproportionately on females.
This bias was driven by the occupational segregation that has women dominating the sectors that were most impacted by the lockdown (accommodation, hospitality, cafes, etc)
As the lockdowns eased and businesses reopened, women started to gain jobs at a faster rate than men.
In terms of the decline since the most recent peak (June 26, 2021), male payroll employment has fallen by 2.3 per cent and female employment has dropped by 3.1 per cent.
So the ‘bias against females’ pattern that was evident in the big lockdown at the onset of the pandemic is repeating itself.
Wages data suspended
The ABS said that “Around the end of the financial year there is a greater variation in business reporting, as businesses finalise their employee’s earning information and the financial year is reset in payroll systems.”
This variability has led them to suspend the wages estimates.
However, tomorrow the Wage Price Index data is published and I will analyse that accordingly.
Comparison with prior cycles
The following butterfly graphs are constructed from ABS Labour Force data and provide a vehicle for analysing what happens to employment following a downturn.
They show for full-time and part-time employment indexes set at 100 for the peak in total employment in the downturns for 1982, 1991, GFC and now the COVID-19 cycles.
For the first three events, they show the trajectory for 90 months after the peak, capturing the dynamics of the cycle.
The pattern in a usual downturn are demonstrated in the first three episodes – even as full-time employment declines as the recession bites, part-time employment continues to grow for a while, until it becomes obvious that the recession is deepening.
At the peak before the 1982 recession, the ratio of part-time to total employment was 16.2 per cent. By the time, full-time employment had reached the peak level again (after 41 months following the peak), the ratio was 17.6 per cent (and rising).
The 1991 recession was particularly bad and there was a major shift away from full-time work. At the peak before the 1991 recession, the ratio of part-time to total employment was 21 per cent. By the time, full-time employment had reached the peak level again (after 65 months following the peak), the ratio was 22.3 per cent (and continuing to rise).
The GFC event was reduced in intensity by the substantial fiscal stimulus that the Federal government introduced. But the part-time ratio still rose and full-time employment took 23 months to return to its pre-GFC peak. The part-time to total ratio in February 2008 (peak before the downturn) was 28.3 JobKeeper cent. After 23 months, the ratio had risen to 30.1 per cent.
While the ratio is rising on a trend basis as the labour market is increasingly casualised and job protections are wound back under the aegis of government policy designed to tilt the playing field towards the employers, there is an acceleration in the ratio during recessions when employers scrap full-time work and replace it in the recovery with part-time, fractionalised and insecure work.
The COVID episode is different given the nature of the job loss – lockdowns – which have directly impacted on the sectors where part-time work dominate.
But it is clear from the observations we have (lower-right panel) that as the lockdowns were eased, part-time employment rebounded somewhat but full-time employment continued to struggle.
It is important to note that prior to the pandemic, overall growth was declining and the labour market was weak.
The pandemic has made matters worse but the problems were there before the onset as a result of the federal government austerity onslaught.
Age breakdown of Job Loss
The age breakdowns for Australia as a whole are shown in the next graph.
The blue line shows the total history since March 14, 2020 (when the index = 100) to July 17, 2021 by age category. So you interpret the graph as being deviations from 100.
The orange line shows the period June 26, 2021 to July 17, 2021, which is from the previous peak to the current point and starts to capture the impact of the renewed lockdowns, particularly the now extended Sydney restrictions. So you interpret this line as being deviations from the June 26, 2021 peak.
Overall, it is the youth 15-29 age group that has borne the brunt of the pandemic so far in terms of employment.
This is largely due to the industrial composition of the job losses – services, accommodation etc.
It is also clear that all age groups are suffering in the most recent period of lockdowns across the nation with younger and older workers enduring the greater percentage contraction in their employment.
The following sequence of graphs gives the age profiles of the job loss for each State/Territory.
The patterns are similar across all jurisdictions except that in Victoria, the short-sharp lockdowns in recent weeks has not yet damaged the youth cohorts.
You can also see that the current restrictions in NSW are having much more significant negative effects on employment across the age groups, particularly the young and old, than in other states/territories.
Industry job loss breakdown
The following graph shows the percentage decline in employment for the Australian industry sectors from March 14, 2020 to July 17, 2021 (blue bars) and from June 26, 2021 to July 17, 2021 (orange bars).
The latter period shows the impacts so far of the restrictions that have been imposed to deal with the Delta variant of the virus.
The worst hit sectors overall are Accommodation & food services (decline of 9 per cent), Transport, postal and warehousing (down 8.1 per cent), Information, media and telecommunications (down 5.8 per cent) and Arts & recreation services (down 3.5 per cent).
The recent lockdown period has impacted badly on those sectors, but has had a negative effect overall.
State and Territory job loss breakdown
The following graph shows the employment losses from March 14, 2020 to July 17, 2021 for the States and Territories (blue bars), while the orange bars shows what has happened between June 26, 2021 and July 17, 2021.
NSW overall, the largest state in Australia has experienced negative employment growth over the entire period and a sharp 5.1 per cent decline in the period between June 26, 2021 and July 17, 2021, which covers some of the most recent lockdown.
Victoria, which had a 110-day harsh lockdown last year (much harsher than the current NSW lockdown) has overall added jobs over the pandemic but in the recent period has contracted by 2.1 per cent (as a result of two short/sharp closures).
NSW began its lockdown on June 26, 2021, so this data is covering only the first 3 weeks. The situation has deteriorated significantly since July 17, 2021 (when this current data ends) as the infection rate has spread in Sydney and has now escaped to the regional centres, such as Newcastle.
The data suggests that it was foolish of the NSW government not to follow the short/sharp lockdown approach used by the other states/territories, which appear to be significantly less damaging and are successful in bringing the outbreak under control.
NSW is now in for an extended period of lockdown as the case numbers accelerate upwards and the death rate rises and the employment damage will compound.
Neoliberal ideology does it again!
Conclusion
The labour market is once again contracting, largely because of the errors the NSW government made in controlling the latest outbreak, which was a breach of quarantine.
They have failed to curb mobility and the infection rate is spreading into the regions.
They reluctantly imposed a lockdown but it was too late.
It will now be an extended contraction.
The other states/territories have all followed a different model of short/sharp lockdowns and are more successful in controlling the virus and limiting the labour market damage.
The NSW government, infested with neoliberal ideology about ‘freedom’ and under pressure from the big employers (clubs, racing etc) stayed open too long.
Now we are all suffering, given that NSW is the largest economy.
Relevant blog posts as I trace this data trail over time are:
1. “We need the state to bail out the entire nation” (March 26, 2020).
2. The government should pay the workers 100 per cent, not rely on wage subsidies (March 30, 2020).
3. A Job Guarantee would require $A26.5 billion net to reduce the unemployment rate by 6 percentage points (April 30, 2020).
4. Latest employment data for Australia exposes Federal government’s wilful neglect (May 5, 2020).
5. The job losses continue in Australia but at a slower pace (May 19, 2020).
6. Worst is over for Australian workers but a long tail of woe is likely due to policy failure (June 16, 2020).
7. Latest Australian payroll data suggests employment damage from shutdown is worse than thought (July 20, 2020).
8. Australia’s job recovery stalling and soon to head south again (August 12, 2020).
9. Payroll employment falling again as second-wave and inadequate policy response bites (August 25, 2020).
10. Federal government cutting spending as payroll data shows employment still in decline (September 10, 2020).
11. Latest employment data in Australia continues sorry tale and what I would do about it (September 24, 2020).
12. Australian labour market continues to go backwards as government sits idly by (October 20, 2020).
13. Australian labour market struggling with significant sectoral disparities (May 11, 2021).