Sunday, October 16, 2011

Spreading work and reducing unemployment

I read a report that in USA, some workers are putting in  70 hours a week. They work hard, so that they can keep their jobs. But, when those with jobs work long hours, there will be less jobs for the unemployed to take up. This is the problem about the free market system.

Countries with caps on working hours (beyond which the employer has to pay premium overtime rate) allows the available work to be spread to more workers. They also have controls over their immigration. A good example is Australia.

How do small business survive in a competitive world, when they have to pay adequate wages to their workers? They pay less for their premises (and avoid the inflated property prices in countries like Singapore and Hong Kong). They also compete in areas where they have competitive advantage, such as the resource and agriculture sector in Australia. By giving adequate wages and employment to their workers, they have an economy that is more sustainable.

My friend, who developed property in Australia previously, told me the restrictions on property development in Australia. 50% of new developments can be sold to foreigners, but these foreigners have to sell their property only to Australians. This helps to control the inflation of property prices due to the influx of foreign funds.

Other countries, such as Singapore, compete by depressing wages.  This is why the situation in Singapore is rather bad.


SimplyTerror said...

I've been studying in Australia for the past 4 years so I feel I have something to contribute to this discussion.
There is a difference between the economy of Australia and that of Singapore.
As Mr Tan has pointed out, Australia competes in the commodities export industry. Considering the high capital costs associated with mineral extraction and even agriculture as well as the current high price of commodities, increases in wages results in a minimal increase in total producer profitability.
Furthermore, the nature of these industries preclude the possibility of these industries migrating abroad to lower wage countries (ever tried to export a mine :) Hence higher wages should have a minimal impact on competitiveness of Australian exports and the health of the overall economy.
Singapore's economy is very much oriented towards manufacturing and 'value adding', of which labour costs could (I think) form a larger proportion of overall industry costs. Higher wages might be possible if offset by higher productivity, but there is always a risk that companies migrate their operations to lower wage countries, or at the very least, decide to direct future investment into operations into other lower wage economies. In my mind, this is a risk that the Singapore economy faces that isn't that relevant to the Australian experience.
It should also be noted that higher wages also leads to higher prices. In my experience, I could buy Australian made products from online stores in the States, airfreight it back to Australia and still pay less than if I were to walk into my local store in Brisbane. And it is actually more expensive to me to buy Australian mangoes in my local supermarket than it is for me to buy it back in Singapore. (AUD$5 for 1!) And speaking of food, a plate of Hor Fun here costs AUD$12 and that's a normal price of standard meal here. So there are costs as well as benefits to higher wages.
You can't really say that property prices in Australia is cheaper either. Just bear in mind that a 2 bedroom apartment costs in the region of AUD$400,000 for a decent location, maybe 20 mins away from the Brisbane CBD, and with mortgage interest rates of 6% plus, instalments aren't exactly that affordable either.
Finally, the question of sustainability. Is the Australian model sustainable? I hope so, but I do wonder what might happen if commodity prices collapse tomorrow, for example, if China's infrastructural growth were to stop overnight. But then again in that case, we're all in trouble :)
p.s. for budding economists out there, search google scholar for "Australia two track economy" on how the mining industry's burgeoning profits over the past few years could be distorting the overall economy.

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