The poverty of aggregates

Ian Watson, The University of Sydney

J. Borland, B. Gregory and P. Sheehan, Work Rich, Work Poor, Inequality and economic change in Australia, Centre for Strategic Economic Studies, Victoria University, 2001 (252 pp). ISBN 1-86272-583-7 (paperback) RRP $34.95.

Looking back on the 1990s, the Australian labour market performed quite badly. Unemployment stayed above 8 percent until the late 1990s, and it had barely dropped to 6 percent during the millennium before it began its upward climb again. Even if Australia avoids another recession in the next few years, it is clear now that unemployment is not going to fall below 5 percent, and hopes for the restoration of full employment seem bleak indeed.

Once we move behind the unemployment rate to consider a broader range of measures, the health of the labour market appears even shakier. It is clear that the aggregate unemployment rate, disappointing as it is, is not the best measure anyway of the health of the labour market (Watson 2000). The fundamental problem in the Australian labour market is not just a lack of jobs, but a lack of well-paid, full-time, stable jobs. Problems of precarious employment and under-employment should be ranked alongside unemployment; together they constitute multiple facets of a long-term crisis in the Australian labour market. The recent book, Work Rich, Work Poor (hereafter WRWP) catalogues these multiple facets in great detail and rejects the conventional wisdom that all that matters is the aggregate unemployment rate. It is particularly good in its analysis of the failure of the Australian labour market to produce full-time jobs:

Only 25 per cent of all new jobs added in the 1990s were full-time jobs, and the growth rate of these jobs was only about one-quarter of that in the 1980s. Thus the 1990s was the decade of the part-time job, even though the average earnings from such a job continued to fall relative to that from a full-time job (p. 10).

Not only was there a much greater proportion of part-time jobs in the labour market, but they increasingly paid worse wages and involved far less knowledge for their execution:

In general [from 1986 to 1996 there] appears to have [been] a decline in the quality of part-time jobs in Australia, for both men and women, at least if generalised knowledge intensity is taken as an indicator of job quality (p. 232).

Finally, the vast majority—some 75 percent—of all new jobs created during the 1990s were casual jobs. Particularly notable was the dramatic growth in full-time casual work: it more than doubled during the 1990s. While there is considerable debate about what constitutes a ‘casual’ job, there is a broad consensus that these kinds of jobs do not offer the security of employment which ‘permanent’ jobs have traditionally offered.

The growth in part-time work and in precarious employment, and the declining quality of the new jobs, have important consequences for social and economic inequality. This is the real strength of WRWP: its emphasis on inequality in the labour market is sustained and insightful. We already know about the problems of under-employment—that at least a quarter of the part-time workforce wants more hours of work. Now, thanks to WRWP, we also know that the relative earnings of part-timers and their opportunities to undertake more skilled work are also in decline. The chapters on low paid employment, on growing earnings inequality and on family inequality all reinforce the picture of polarisation in the labour market. The sensitivity of WRWP to the connections between this economic polarisation and its wider social impact is evident in many chapters. In the opening salvo, for example, the editors pinpoint the inadequacy of aggregate measures:

This social crisis in the midst of a buoyant economy is evident from many signs in Australia’s cities, towns and rural areas. These range from manifest inequalities in entry to, and rewards from, economic activity to increasing demand on emergency relief agencies, public hospital casualty wards, crisis centres and services for the homeless…

To those who focus on aggregate economic indicators talk of a social crisis, especially one driven by trends within the economy, is incomprehensible. After all, for much of the past decade employment and average real earnings have been growing strongly, and unemployment has been falling … But the disadvantage and distress in many Australian communities is real indeed, and the fact that the crisis has developed through a period of strong economic growth has been one of its most distinctive, and most disturbing, features (pp. 2 & 3).
The aggregate unemployment rate is not the best measure of the health of the labour market.

The answer to this conundrum lies in qualitative changes in the Australian labour market. In short, the growth of part-time jobs, of casual employment and of other forms of precarious employment, alongside the decline in the skills component and earnings of part-time jobs, all surface with very rough edges within Australian communities on a daily basis. They are experienced as a social malaise, and taken together with growing earnings inequality, they point towards a future in which social fragmentation is widening. These insights into the connections between economic activity and social life are absent in most of the writings to be found in the field of labour economics and it is refreshing to find a collection of labour economists drawing these connections so strongly.

WRWP is particularly good on breaking down the aggregates. The book moves beyond the stereotypical male full-time wage earner to closely examine the economic circumstances of families and women. Disaggregation by occupation, industry, age and ethnicity is common (two chapters, for example, deal with immigrants). Yvonne Dunlop’s analysis of low-paid employment is particularly good at disaggregation, highlighting which groups of workers are most vulnerable to cycles of low pay and joblessness. Not surprisingly, ‘women, workers with no post-secondary educational qualifications and younger workers are over-represented in the low-paid group’ (p. 99). And, not surprisingly, low paid jobs are strongly characterised by part-time and casual employment status. One of the most disturbing findings in WRWP surfaces in Dunlop’s chapter where she reports that amongst the low-paid workers drawn from the ‘jobseeker group’ (a group vulnerable to cycles of unemployment), the casual employment rate was 70 percent.

The one area where WRWP does not break with the aggregate picture is in terms of regional labour markets. Admittedly, this is an area of research where good data is scarce, but it is also an area where the aggregate picture is most misleading. For example, published ABS labour force statistics show that at a time when the national unemployment rate hovered around 7 percent (the late 1990s), the unemployment rate in NSW was around 6 percent while the unemployment rate in Tasmania was over 10 percent. Even within Sydney—the powerhouse for the NSW economy—the same diversity was evident. North Sydney had unemployment rates around 2 percent while South West Sydney was sitting on rates over 12 percent. To borrow the old verse, the aggregate is ‘more honour’d in the breach than the observance’.

As well as the regional neglect—and one can only ask for so much in any volume—WRWP has a more a serious major weakness: its analytical framework. Many of the authors are disenchanted with the explanations to be found within mainstream labour economics, but they have nothing to put in its place. Authors like Peter Sheehan, for example, recognise that earnings inequality cannot be explained by the ‘skills premium’ which technological change is said to have induced. But he and his colleagues seem to have little in the way of convincing alternative explanations. Sheehan hopes, for example, that ‘new conceptual tools’ might be forged which take account of the ‘global knowledge economy’ and the reality of ‘market imperfections’ (p. 57).

The overall impression left by WRWP is that the discipline of labour economics in Australia is now paying a high price for not working through the shortcomings of human capital theory and other superficial explanations for wage differentials. The failure to break decisively with the core categories of orthodox economic analysis has meant that other promising analytical approaches have not been pursued. Despite an awareness of the theoretical lacunae which bedevils labour economics, WRWP does not itself provide any key insights into the generative mechanisms which are restructuring the Australian labour market in such fundamental ways. The analytical framework of WRWP does not even encompass interesting institutionalist or post-Keynesian arguments. (A surprising omission from WRWP is any reference to the work of James Galbraith and his colleagues at the Texas Inequality Project (Galbraith 1998).)

Low paid jobs are strongly characterised by part-time and casual status.

This analytical weakness in WRWP is unfortunate because the book is very rich empirically, making available some very good contemporary material on labour market developments. It is also disappointing because there have been some promising developments in economic thinking during the 1990s including contributions from Brenner (1998), Botwinick (1993), Harrison (1994), McMurtry (1999), Standing (1999), and Schmid (1995). These thinkers offer powerful insights into some of the core reasons for the labour market outcomes documented in WRWP, particularly the problems of inequality, precarious employment and under-employment. A common feature of these new analyses is a reconsideration of the notion of competition, drawing on the insights of the classical notion of competition rather than the neoclassical understanding. This perspective leads to a powerful argument that the intensification of competition is one of the main factors driving wage inequality in the labour market (Watson 2002).

Empirically it is certainly the case that over the last twenty years the Australian economy has been exposed to intensified competition. Some of its has been driven by ‘globalisation’, some has been domestically based, and some has even been supervised by Australian governments (National Competition Policy, for instance). If it is indeed the case that intensified competition generates greater inequality, then policy responses to the problems of the Australian labour market—particularly the various forms of polarisation charted in WRWP—must involve a rigorous confrontation with the principles of competition. Rather than seeking to extend the reach of competition, sound labour market policies need to focus on how best to manage competition. This raises questions as to how an economy might be organised such that the benefits of competition are preserved, whilst its pitfalls are contained. Historically, Australia achieved this reasonably well through its system of industrial tribunals and extensive trade union coverage. With these industrial institutions now marginalised, and with competition largely unchecked in the labour market, a major policy vacuum has emerged. The sorry tale of a work rich and work poor society revealed in this book makes the task of filling this vacuum even more urgent.


Botwinick H. 1993, Persistent Inequalities: Wage Disparity under Capitalist Competition. Princeton: Princeton University Press.

Brenner, R. 1998, ‘The Economics of Global Turbulence: A Special Report on the World Economy, 1950–98’, New Left Review, no. 229.

Galbraith J. K. 1998, Created Unequal: The Crisis in American Pay. Chicago, University of Chicago Press

Harrison, B. 1994, Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility, Basic Books, New York.

McMurtry, J. 1999, The Cancer Stage of Capitalism, London, Pluto Press.

Schmid, G. 1995, ‘Is Full Employment Still Possible? Transitional Labour Markets As A New Strategy of Labour Market Policy’, Economic and Industrial Democracy, vol. 16, no. 3.

Standing, G. 1999, Global labour flexibility: seeking distributive justice, Macmillan, Basingstoke

Watson, I. 2000, ‘Beyond the Unemployment Rate: Building a Set of Indices to Measure the Health of the Labour Market index’, Australian Bulletin of Labour, September, Vol. 6, No. 3.

Watson, I. 2002, ‘Wage Inequality and Underemployment: Australia in the 1990s’, Journal of Industrial Relations, 441, March

Weeks J. 2001, ‘The Expansion of Capital and Uneven Development on a World Scale’. Capital and Class No. 74, Summer.

Ian Watson is a Senior Researcher at the Australian Centre for Industrial Relations Research and Training (ACIRRT) at the University of Sydney. His current research includes examining wage inequality in Australia.