
Issue No 93		27 April 2001

LaborNET	Ask Neale	Tool of the Week

Corporate

The Jobs Myth

Access Economics' Chris Richardson debunks employer claims that increased workers compensation premiums have a dramatic impact on jobs.

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You drew my attention to an article in today's Daily Telegraph, noting an estimate that an 0.8 percentage point rise in NSW WorkCover premiums might cost 60,000 jobs.

Access Economics recently assessed the potential impact of NSW WorkCover premiums on jobs. Our work (presented to WorkCover in December 2000, ahead of the current controversy) indicated that a 0.5 percentage point rise in NSW WorkCover premiums might cost 3,800 full-time equivalent jobs in NSW. The latter is a 10 year average, with a peak loss of jobs of full-time equivalent 4,900 in 2006.

Clearly the Access Economics study suggests a rather different result to that noted in today's Telegraph. Why might a rise in WorkCover premiums have only a moderate impact on jobs?

1. Even though employers sign WorkCover cheques, the true cost is spread. To the extent they can, employers raise the price of products they sell (pass costs forward), or slow the rate at which they raise wages (pass costs back). That soon limits the impact of any increase in premiums on company profits, and therefore on employment.

2. Premiums include an experience factor. The larger the firm, the more its WorkCover premiums depend on its claims history rather than the base premium rate. The higher the experience factor, the smaller is the actual impact of a change in the basic tariff. That means many firms would face smaller percentage increases in their tariffs than in 'headline' WorkCover premiums.

3. Premiums are levied on wages excluding superannuation. The latter also dilutes the labour cost impact (and therefore the employment impact) of changes in WorkCover premiums. At present Superannuation Guarantee premiums are 8%, and that will rise to 9% in 2002)

4. Some employers are self-insurers. This group accounts for some $9 billion in NSW wage bills. Again, they are not directly affected by changes in 'headline' NSW WorkCover premiums. Across NSW 's private sector, that further dilutes the labour costs impact of any change in workers compensation premiums by 11%.

For those reasons, I am confident that the impact on jobs of any change in WorkCover premiums would be rather less than that suggested in today's Telegraph. Indeed, while economic theory is firm in suggesting a link between wage-driven labour costs and jobs, the relationship is more complex with respect to on-costs such as workers compensation.

For example, a change in WorkCover premiums has similar economic impacts to a change in other on-costs such as payroll tax rates. Economists have long noted the latter to be an efficient tax, despite its reputation as a 'tax on jobs' I the business world.

As NSW Treasury has said, "Payroll tax is already one of the more efficient taxes operating in Australia", and "The economic literature on payroll tax suggests that many of the common criticisms of the tax are exaggerated or unjustified".

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Issue 93 contents

Corporate: The Jobs Myth
Access Economics' Chris Richardson debunks employer claims that increased workers compensation premiums have a dramatic impact on jobs.

Interview: The Workers’ Voice
When trade union stalwart Ian West took a seat in the NSW Upper House he was determined to be more than a bench-warmer. Then the Workers Comp legislation hit.

Unions: Postcard from the Pilbara
In the face of unprecedented pressure, BHP workers in the Pilbara are standing together and refusing to sign individual cotnracts.

Economics: Currency Unification: Dollarize or Die?
Dick Bryan asks what happens to an economy when it gives up its domestic currency.

History: Instant History
In his address to the Australian Labour History Conference, the SMH's Brad Norington asks whether there is still time for history.

International: The End of an Era?
The post-Cold War era is over. Something different is developing to take its place. John Passant writes.

Media: The Battle for Aunty
The CPSU's Graeme Thompson ouitlines the campaign to save the ABC and this week's emergency share-holders' meeting.

Review: Share-Holder Nation
A legacy of government-backed privatisations, demutualisations and stockmarket hype over the past decade is the creation of a nation of shareholders.

Satire: SOS: Save the Investment Banker!
Spare a thought for those less fortunate With redundancies at investment banks around the globe looming, now is the time for us to show the world just how much we care. It's just not right.

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