Workforce casualisation: the discussion we have been avoiding

October 22, 2013

In the rush to embrace the growing casualisation of work, we seem to have forgotten to talk about who will pay for the people who fall off the work wagon.

There is no doubt that business greatly benefits from an ability to shrink and grow employee numbers at will. By replacing permanent jobs with casuals and contractors, they can cut wage and employment costs with very little fuss and respond more quickly to market changes.

Economist Stephen Koukoulas, a former chief economist for Citibank and senior economic advisor to former prime minister Julia Gillard, says that labour costs that used to be borne by employers are being shifted to the public purse.

About 35 per cent of Australia’s workers are now employed as casuals or contractors. They usually don’t get paid for sick leave, holidays, jury service or personal carer’s leave.

They can also have their employment terminated with minimum notice.

While casuals get a loading to make up for this, it is human nature that whatever appears in the bank account becomes something to be thought of as a person’s ordinary pay. (Just ask the bankers who had to sell up when their bonuses disappeared.)

There would be few who would put away a set proportion every week to prepare for illness or a much-needed break.

Says Koukoulas:”People who are casuals are generally low wage earners and they live week to week. Workers may do 40 hours a week one week, but the next week, they may only do 10 hours, or get no income at all. They still have rent to pay.”

However, it could be argued that this is a worker’s responsibility: that even though they are more likely to be lowly paid, they know they are paid a higher rate as casuals and it is up to them to fund their holidays and sick leave.

Putting this to one side, they are also more likely to be out of work because they do not have the greater protection of full time employment when demand for their services falls.

Public shift

This is where the costs really shift to the public purse.

An employer may be more likely to hang onto permanent employees to ride out dips in demand – due to the costs of retrenchment and rehiring – and they may be prepared to retrain permanent employees into new jobs.

But there is little incentive to do that with casuals and contractors. After all, that is the point of having them in the first place: they are easy and cheap to get rid of when no longer required.

As a result, it could be expected that the government will be expected to carry a greater share of the responsibility as casuals and contractors are tipped out of their jobs at a faster rate, says Koukoulas.

“One part of me says it’s great to have firms with flexibility. And some [workers] are really happy with the flexibility. For some people, it works.”

However, there are a large number of people (particularly those on low incomes or those who have young families and large mortgages) who need a sense of certainty and a steady income, he says.

Debate is in its infancy

Koukoulas says there needs to be a reasoned, apolitical discussion about how Australia, as a society, handles the casualisation of work.

“I think the debate is in its infancy” he says.

“I don’t know what the solution is … but because the solution is difficult to find doesn’t mean it is not important.”

One of the consequences of the lack of security is lower consumer confidence and household spending.

Talent shortage

While the growth of casualisation seems unstoppable, there is one thing that could lead to a slow down, or even reversal, of the trend: when the talent shortage again takes hold, employers may want to tie down their people with permanent employment.

And, while there may be 700,000 Australians now looking for work, Koukoulas says it would take very little before talent shortages start presenting a real problem once more for a wide variety of roles.

Talent shortages were having a serious impact on business performance before the global financial crisis, when the unemployment rate was at 4.5 per cent. “With our rate at between 5.5 per cent and 6 per cent, that is not far away.”

“All it would take is 12 months of a better economy,” he says.

“We are still reasonably close to full employment. If we had 12 to 18 months of 3.5 per cent GDP growth, you would get unemployment down to 5 per cent and it doesn’t take much for the risk of skills shortages to emerge.”