Your rights at work.

This article was originally posted at http://www.menzieshouse.com.au

“Your rights at work” words that in 2007 brought down the Howard government. The idea that an individual statutory contract could remove pay and condition guaranteed under industrial awards and enterprise bargaining agreements was enough to get voters to take a chance on Labor. The idea that access to service or minimum conditions are “rights” has become so ingrained in our society that almost no one has challenged the notion that such conditions are rights or seriously raised the question do such rights violate peoples’ more fundamental rights.

This issue can be understood by comparing positive rights with negative rights. From the 20th century on, the definition of what could be considered a right has changed from negative rights which protect individual freedom, such as free speech, the right to a fair trial or the right to enter a contract to positive rights, such as the right to an education or healthcare. The problem with positive rights is that unlike negative rights they aren’t a person’s by birth. Positive rights usually require some restriction on another person’s freedom. For example, for me to have the right to education, that by definition forces someone else to pay for it. By comparison the right free speech is mine and all that right does is protect me from someone taking that right away from me.

If one accepts individual freedom as basis for all rights, then workers’ rights cannot be consider rights in the traditional sense. In fact, minimum wages and awards significantly restrict individual freedom. If I wanted to start a career working for a consulting firm but my current skill set doesn’t justify the minimum pay required by industrial regulation then my freedom and the freedom of the employer would have been significantly restricted. Most likely the outcome would be that I would remain unemployed.
A more relevant example to many disadvantaged jobseekers is the Food, Beverage and Tobacco Manufacturing Award 2010 which covers most jobs in the hospitality sector. Under this award it is illegal to pay someone less than $17.88 an hour for an adult employed in a casual capacity. While this may seem to be a small amount to many of us, for some people entering the labour market with insufficient education or life skills this can be a major barrier to employment. For example, someone who has never worked before may need constant supervision, in reality the time spent supervising this person initially may exceed the value of their labour. Preventing such a jobseeker from working at a price an employer is willing to employ them for is violation of their basic right to sell their labour and to enter into contracts.

Much of the industrial relations debate has been framed in the context of international competitiveness and profitability. These arguments have fundamentally missed the point. Employers have no more right to cheap labour then employees have rights to high wages. Ultimately, both parties should be free to pursue their self-interest. The argument against restrictive industrial relations regulations should be argued on the basis of individual freedom.

Why classical liberals should support carbon taxes:

(A post from http://www.econstudent.org pre my involvement in ALS)

If one accepts the science of global climate change then it is clear that overall carbon emissions must be reduced. The preferred method of reducing carbon emissions or more broadly reducing pollution has been either the use of pigouvian taxes (pollution/carbon tax) or an emissions trading scheme. I have explained the basics of both these measures in my environmental economics mini-lectures http://www.youtube.com/watch?v=8ID6IP2-gHc&feature=youtu.be and http://youtu.be/Z6xB5b-4MRI.

In both cases the cost of the pollution is internalised and becomes part of the cost of producing the good or service in a marketplace. This moves the supply curve for the good and this results in a new market equilibrium that accounts for the social cost of the pollution. What this means is the people gaining the benefit from the carbon emitting activity have to compensate society for the impact of the carbon. This gives firms an incentive to find less carbon intensive methods of producing their goods and raises the prices of carbon inefficient activities compared to carbon efficient activities.

Unfortunately, many classical liberals have seen the introduction of carbon taxes or less directly emissions trading schemes as a further grab of economic liberty by the State thus reducing individual liberties. Based on past form this is not an unrealistic view. Since the second world war the percentage of GDP occupied by Government in all industrialised countries has increased in-spite of the fact the overall size of the their economies have grown. Much of this growth has been in the form of income redistribution with the government taxing the income from individuals work to redistribute to those group the government chooses.

However, I would argue if the tax revenues raised through pollution taxes are offset by reductions on income tax then this is moving from taxing positive externalities to taxing negative externalities. If you view labour as a good being sold in the marketplace the purchaser of that good is gaining a consumer surplus and the worker does not receive the full benefit of their work, there is infact a broader benefit to a company hiring the labour and to society as a whole. I would argue that taxing individual income is perverse when there are alternative means of raising taxation that discourage negative externalities rather than discourage positive externalities.

The argument can be made that the atmosphere belongs to society as a whole and there is a limit to how much pollution can be emitted into it before serious harm is caused. The limited amount of pollution that is sustainable is therefore a scarce resource owned by society and by it is fair to charge those who use that resource. I would argue that for society to get a compensation for the use of its property is not in contrast with classical liberal beliefs.

I believe that it is unfortunate that the environmental movement is so closely linked to groups who have economically left-wing views and those groups that would seek an expansion on the role of government. Carbon will be one of many common-resources society must develop mechanisms to achieve a socially optimal level of demand. We have the opportunity to develop a system that pays for public goods through the taxation of negative externalities, increasing personal responsibility and reducing many of the perverse disincentives of the current taxation system.

Does Australia need industrial relations deregulation?

Last Wednesday I attended a joint Friedman/HR Nicol Society dinner arranged by the infamous John Humphreys. The guest speakers were Professor Judith Sloan and the former Howard minister Peter Reith. Both made the case for deregulation of the labour market and condemned the current Fair Work system as imposing excessive costs on employers and stifling flexibility. This is clearly a controversial issues and Labor is quick to remind people of workchoices.

Flexibility is one of those hot words when it comes to industrial relations. For many it’s code for employers being flexible with pay and conditions, while workers work harder in less certain jobs. For those who are employed in industries where they have little bargaining power and are working in jobs where little skills is required this is a likely consequence of a more flexible industrial relations system. Trade unions use the fears of such people to defend the arbitration system that gives them significant power.

What is often not mentioned in arguments about industrial relations is the cost of a highly regulated system to those people who are excluded from employment. Setting minimum standards for wage rates sets wages above the market rate, meaning that there are people willing to supply their labour for less than the award rate. Industrial laws actually make it illegal for people to work for less than the award rate. The result of this restriction on individual liberty means for those people who due to a lack of experience, training or ability are not productive enough to justify the award rate are excluded from the labour market.

The Government itself has all about acknowledged this by providing wage subsidies for its employment services to use. The ultimate effect of a wage subsidy is to reduce the cost the employer incurs employing people who lack experience or education. This method of creating flexibility has significant transaction costs to the employer and financial costs to the government. Wage subsidies have to be agreed to and both employer and jobseeker are at the mercy of government policy to determine if they are eligible for the subsidy. Ultimately the employer is getting taxpayer money for employing someone and the worker is getting a wage above market rates.

Another deficiency of the current system is that imposes a set of penalty rates on both employers and employees. Of course these benefits are popular with workers who earn extra money for working weekends, what often doesn’t get reported is the employment opportunities that never occur because employers choice not to open their doors. Rules that impose penalty rates and minimum hours eliminate opportunities for unskilled jobseekers to enter the labour market. While doing dishes for two hours on Sunday afternoon may seems like a “shitty” job to many of us, for others it is an opportunity to enter a new industry, gain some experience and a credible reference for their resume. This can be an important first step for some to enter the labour market. Unfortunately, “fairness” for workers at the bottom of the labour market comes at the expense of those excluded from the labour market. These are the true forgotten people in the industrial relations debate.

Is the medicare rebate middle class welfare?

I should start by saying this piece is more of debate about ideology rather than economics. The medicare offset known commonly as the medicare rebate can be seen as a subsidy of 30% to the holders of private health insurance. These people are mostly middle class or in a high income bracket. However, many people, especially those with health issues choice to purchase a private health insurance policy despite not having a high income. Alternatively, the policy could be seen as a way of giving health consumers choice. In that if people decide to insure themselves privately they can at least claim a deduction on their tax for the cost of the policy allowing them to pay with their gross income rather than net.

How a tax offset differs from a deduction is that a deduction reduces a persons reportable income on their tax return and results in a reduction of tax of whatever the top marginal tax rate the consumer was paying. So assuming the person who bought the policy was earning 200k the deduction would be 45% plus a reduction in of the medicare levy making a total tax deduction of 46.5% of the policy cost. This would mean that the wealthy would get a bigger deduction for purchasing health insurance than people not paying the top marginal tax rate. An offset instead is a blanket 30% of the policy cost regardless of who buys it. It’s for this reason and to reduce the cost of the policy the Howard Government would have chosen to have an offset rather than a deduction.

This with the fact its commonly known as a rebate has seen this policy portrayed as middle class welfare. This with the private vs public school debate really comes down to the question should people be able to opt out of government provided services? Clearly in health people still continue to benefit partially by the public system and will still continue to receive benefits from it, but should people who choose to partially seek healthcare through the private market be made to pay the full cost of the public system that they now are far less likely to use. Many people have the view yes, if people choose to use private services than they should still contribute 100% to the public system and receive no assistant/deduction for their private expenditure.

Another argument that is often used is the claim that people should pay their fair share. Too often a person’s fair share is their share and about four other peoples share and then are to be told they can’t access the service they paid for becomes of a means test. It’s apparent that the expansion of middle class welfare in the late Howard years was a response to the fact the middle class felt they were paying taxes into a system that wasn’t interested in helping them or their family.

As a libertarian I believe in a perfect world much more of the health system would be left to the private market with competitive pressures rather than a system that helps line the pockets of the medical profession. (I believe we do need a public helathcare system, probably similar to what Queensland had pre Medicare) However, we do not have that system, we probably will never have that system as the average person does not under that government funding of many medical services in the long run raises the price of those services. So as a next best solution those people who do not want take a chance with government waiting lists is to allow them to choose to access services through the private market. By allowing a 30% rebate of private health insurance means the individual gets a small deduction of their tax as an incentive, while they still continue to pay the medicare levy and a significant proportion of their taxes still goes towards funding the system.

Should alternative medicines be regulated?

Earlier this week I was listening to radio national and a group of doctors and scientists were campaigning for universities to stop teaching alternative medicines. Their argument was that universities teaching it gives these unproven and unverifiable practices legitimacy they don’t deserve. (Like Keynesian economics. Jokes……..) Readers of this blog should know that I am an atheist skeptic who can be very hostile to ideas I consider stupid. Most alternative medicines and religion come under this category. I am also a pretty hard line libertarian.

From the mid twentieth century on government has created an alphabet of regulation and departments to protect us the consumer from poor quality goods and services. In some cases these departments have done good in many others they have imposed significant cost onto both the taxpayer and the consumer. They have also protected monopolies but creating artificial barriers to entry for new competitors. In fact some experts have argued that the creation of new miracle drugs stopped about the same time as the establishment of the Food and Drug Administration in the United States. It is quite likely that modern medicine ran out of a low hanging fruit to pick around this time, but there is no doubt that the FDA has made it enormously expensive to develop new drugs.

The creation of regulators for consumer protection is a rejection of the idea that both the marketplace and the court system will provide an incentive for producers to make products that work. Regulation is a vote of confidence in the expert. In the case of alternative treatments sometimes they can provide effective treatment in spite of supporting evidence that such a treatment should work. This is nothing new and not limited to the alternative lifestyle types. Sister Kenny promoted physical therapy as a treatment for polio, her understanding of what polio was complete quackery. However, her treatments were effective in a time before vaccination. The medical establishment then as they do now tried to prevent her from offering this treatment. This was an example of the marketplace being ahead of medical science.

Like many government policies regulation of medical services has unintended consequences. The victims of an unregulated shocky service are loud and politically powerful. However, the people who are priced out of medical services due the increased in price caused by complying with regulation has no voice. Nor are those who die because medication were never developed.

Chiropractors are an excellent example, many people who use these services would love nothing more to see a pain specialist and Osteopath. Chances are those people can’t afford those services. Osteopaths and the broader medical profession resist Chiropractors operating in their area of specialty, they regularly attempt to get the government to regulate against alternative treatments and publicly attack alternative treatments as quackery. No doubt the medical profession would deny this about their financial interest and says something like, the government should fund people to see an Osteopath. Aghhh yes our old friend rent seeking.

The broader point is in the examples of chiropractors is to regulate them assumes people are stupid. That people would continue to see people throw away money on services that fail to deliver results. I’m sure as medical science develops betters ways of treating backpain the chiropractic profession will be dramatically reduced, however until then these professionals are delivery a service people believe work and that people are willing to regularly use.

Ultimately, in an age where people can use the legal system to sue business that fail to deliver services and were information by other consumers are readily available on the internet. Do we really want the Government whom response to vested interests telling us as consumers what we can and cannot buy. I don’t.

Negative Income Tax – An alternative to the welfare system?

I’m currently on holidays and have decided to spend my time productively, watching Milton Friedman’s hit 1980s series Free to Choose. http://www.freetochoose.tv/ About two years ago, I stumbled across a copy of the companion book for this series in an OP shop. I quickly grabbed hold of the book and guarded it in case someone else wanted to buy it. Surprisingly, the book looked like it had been on the shelf for a while and it did not create the kind of excitement used copies of Harry Potter can cause. The bewildered shopkeeper seemed surprised at my excitement. On another another occasion a staff member at an op shop seemed amazed when I was clearly excited buying a TI-84 programmable calculator for only $10.

Anyway, Friedman in an episode about the welfare state raised the prospect of a negative income tax. http://en.wikipedia.org/wiki/Negative_income_tax I have provided a link to information on this idea but basically instead of having welfare payments and a massive welfare bureaucracy to administer it, you would instead get paid the equivalent of your tax free threshold and the low income offset in cash if you weren’t working and this would be phased out the more income one earns. The idea is that this would remove many of the perverse barriers to work that the interaction between the welfare system and the tax system currently produce. It would also be dramatically cheaper, Centrelink and the Employment Services industry would be largely abolished leaving only minimal paperwork to confirm how much income one earned.

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Paul Krugman Drinking Game

In Australia, universities are currently on their summer holidays. This is a time where instead of allowing students to finish their degrees earlier, universities allow their lecturers to do their “real work” without all those pesky students to teach. In the absence of formal education students need to find fun ways of learning more about economics. In response to this need I have created the Paul Krugman drinking game. The rules of the game are simple.

1. First one person is chosen to read articles from Paul Krugman’s New York Times blog, the Conscience of a Liberal.
2. Everytime Prof. Krugman refers to one of his own papers or claims to have written about something before anyone else you have a drink.
3. Don’t drive home after this game as you will be very drunk.

Just to be fair to Paul Krugman I have enjoyed reading many of his papers, blog entries and his book return to Depression Era Economics.