The labour demand curve slopes downwards

If the Guardian thinks something is good, it is almost certainly bad.

Just take a look at this piece telling us Kelly O’Dwyer – yes, groan Ms Hyper-regulation – is doing something good by chasing down unpaid superannuation.

There is some rubberiness in the figures – maybe $17 billion over five years, which is actually small beer considering that annual GDP is edging towards $1.8 trillion – but let’s face it, the journalists there are not good with numbers.

But Kelly is on the case and will ensure that superannuation contributions are paid at the right amount and on time.  (Note that there is an element of lag in the figures; they are not always unpaid, just late.)

Now that’s all well and good but unless some miracle has occurred, this imposition will lead to job losses and/or fewer hours of work.  The firms that are not paying super are generally the most marginal (and small) so there will be an inevitable disemployment effect.

As long as she realises that is what is going to happen, then fine.  That the workers would actually prefer to have the 9.5 per cent wage add-on now will be disregarded.  According to the journalist, those few extra dollars in superannuation now will, after exorbitant fees and charges, make life in retirement so much better.

And as for removing the $450 per month cutoff point below which super is not paid, again bear in mind that the demand for labour curve slopes downwards.  This would involve a large jump of 9.5 per cent in the labour costs of these workers and a significant loss of employment/hours of work.

What O’Dwyer doesn’t seem to realise is that her campaign in relation to superannuation payments is being primarily undertaken for the benefit of the industry super funds which can’t bear to miss out on any funds inflow .  But let’s face it, she is the best friend of these funds having faffed around on making any changes to the governance or default fund status with no progress likely in the future.

Here is the woeful piece from The Guardian.

This week it was $17bn – that’s billion, with a ‘b’– being the amount of superannuation entitlements the Australian Taxation Office estimates has NOT been paid to Australian workers over the past five years.

Actually, that tax office estimate is considered by experts to be low-ball. Phil Gallagher, the former director of Treasury’s retirement income modelling task force has estimated the amount of unpaid super is closer to $5.6bn a year, with 2.7 million Australians missing out on money they are entitled to.

Gallagher has mapped where those workers are, the ones being robbed of a chance of a reasonable retirement by stingy employers not paying the 9.5% of wages required to be paid as superannuation.

In effect, it’s a map of disadvantage, a directory of areas of high unemployment and low-paid or insecure work, where workers are likely to be most desperately in need of the payments to avoid a miserable old age.

This parliament may appear paralysed with ever more outlandish citizenship revelations, and by the ever more tenuous arguments in a marriage equality survey we didn’t really need to resolve the issue, but this turned out to be one area where something was actually happening.

The financial services minister, Kelly O’Dwyer, announced a long list of changes to try to force employers to pay what they owe – from requirements to report what they are actually paying more frequently to giving the tax office more powers to go after employers doing the wrong thing.

“Employers who deliberately do not pay their workers’ superannuation entitlements are robbing their workers of their wages. This is illegal and won’t be tolerated,” she said in a statement as she announced the changes. Amen to that.

With an electorate increasingly of the view that “the system” is rigged to ensure that the well-off stay that way while ordinary workers struggle, it is a mystery why the government doesn’t make more of concrete efforts such as this to make things a little bit fairer. One foot in front of the other governing. Getting things done.

When it comes to super, that could also involve revisiting the $450 a month earnings threshold below which employers don’t have an obligation to pay super.

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25 Responses to The labour demand curve slopes downwards

  1. 1. Don’t read the Guardian. It will simply annoy you.

    2. Comparative statics: a useful excuse taught to high school economics students to justify not having to think about consequences. Guardian journos (and Fairfax, ABC etc) stopped learning at that point.

    3. Kelly O’Dwyer: Bubble.

  2. Tel

    In effect, it’s a map of disadvantage, a directory of areas of high unemployment and low-paid or insecure work, where workers are likely to be most desperately in need of the payments to avoid a miserable old age.

    That’s total BS. They are desperately in need of jobs right now, and if the young working poor could afford housing they might be more likely to also be able to afford to have babies who in turn would help out and avoid a “miserable old age”.

    The most miserable outcome I can think of is sitting lonely having worked your whole life while other people took your money, and you end up owning nothing and getting a fraction of your own money spooned slowly back to you while some smart arse at the Guardian (who never worked a real job, yet strangely feels great “empathy” with working people, based on imagination and nothing more than that) tells you what’s good for you and how to live.

  3. Walter

    Supposed finance experts constantly misunderstand Super: Even Judith gets it wrong “And as for removing the $450 per month cutoff point below which super is not paid, again bear in mind that the demand for labour curve slopes downwards. This would involve a large jump of 9.5 per cent in the labour costs of these workers and a significant loss of employment/hours of work.”

    The 9.5% Super payment is actually withheld wages of people earning over $450 per Month. The employer does not “Pay” the 9.5% as suggested here, they withhold it from wages and send it to Super Accounts. If they don’t pay Super they are stealing the money from their employees. So, Changing the law to deduct Super from these low income workers is not costing employers more, just giving the kids less to spend to put less than $40 into their Super to be eaten up in fees.

  4. a happy little debunker

    1a. Comment regularly at the Guardian – it will annoy their readership into uncontrolled fits of indignation & outrage.

  5. Tel

    So, Changing the law to deduct Super from these low income workers is not costing employers more, just giving the kids less to spend to put less than $40 into their Super to be eaten up in fees.

    No, in Australia most low wage jobs are price-fixed so the employer cannot adjust the rate. Thus, all those jobs which become uneconomical simply cease to exist and the employees get $0, the Super funds also get $0 and in their “miserable old age” a big $0 is waiting for them.

  6. Judith Sloan

    You’re right Tel

  7. Tezza

    The super industry push to remove even the $450 per month (gross) trigger for the super guarantee to become payable is utterly shameless, as we have come to expect from an industry gorged and lazy on government conscription of its ‘customers’. A student or school leaver working a few shifts in a café earns enough to initiate forced superannuation savings, locked away for 40 or more years.

    The $450 per month trigger has been unchanged since its introduction in 1992, when it corresponded to the $5,400 annual tax-free threshold in the income tax scale. That threshold has now more than tripled to $18,200. If the SG threshold had merely been indexed by the CPI, it would now be over $810 per month. To use different markers, the SG is now below 20% of the minimum wage and less than half of the dole. It is clear the $450 SG threshold is now compelling engagement in super saving at much lower real and relative levels than originally intended.

    The rent seeking by the super industry to abolish the threshold is part of a pattern.
    1. The Government gouges super savers with tax increases.
    2 Then super industry goes quiet, conceding the increase. Its boards of trustees, responsible for looking after members’ interests and ensuring the industry can deliver the retirement benefits savers contracted to receive, go on a very long lunch.
    3 After and indecently short interval, the industry wheels out a range of outrageous claims for even more compulsion on its customers or unjustified concessions from Government.
    4 Government discovers the ‘problems’ raised by the industry, and starts to talk them up preparatory to delivering the industry’s demands.
    5 The circle is closed, super savers are screwed coming and going, and the cycle commences again.

    In summary, the entire super industry has been corrupted by the super guarantee, which should be completely abolished.

  8. John Constantine

    Wasn’t the threshold below which super deductions were not made because those little amounts were just evaporated in super fund paperwork?. Money for jam for the super finds.

    A landmine the trumbullites could leave for the left would be to announce a Royal commission into the theft of proles superannuation by industry super funds, and its use for social engineering.

    Also what happens when the weekly super deductions arrive in the super funds hands, and it has to be got rid of?.
    This super theft money drives demand for investment ideas, and we see things like the distortion of farmland when super funds move in, and become startled when we consider if they distort shares and investment property the same way.

    Royal Commission into the distortion effect of forcing working people to have to allow idiots and cronies to steal their money and squander it on social engineering and bribing politicl maaates and distorting investment indicies.

    Ai software/ blockchain/robot investment algorithms should be slashing the cost of managing super, why isn’t it?.

    The only thing stopping their trumbullites from launching a Royal Commission into the way their left have occupied super funds as part of the great global leftist imperial settlement program, is that their trumbullites feel it would be quite nice to get onto this gravy train themselves.[ after they are decimated from parliment.]

  9. John Constantine

    Good point Tezza.

    If not abolish the super guarantee fund, then lift the threshold to what it would be if it was indexed for inflation from the start.

    Have to be a votewinner, screw the superfunds, spend your own money now and generate taxable profit when the money is spent in small amounts instead of squandered on windmills.

    What use to retirement will be the tens of fucking billions of dollars stolen from the proles and put into windmills that double the price proles have to pay for electricity?.

    Demand for rentable investment properties is driven up by the proles super, stolen and chasing too few investment ideas, the proles cost of living goes up because of the distortion effect of their own stolen money.

    The compulsory super tax shows us what happens when demand side economics feels it can do investing by granting crony maaates buckets of money to chase politically correct ideas with.

  10. John Constantine

    A common meme for a long time is that a massive stock market plunge will occur when the super theft tax chasing stocks becomes less than the selling stocks to fund retirement pensions.

    Cut the super theft tax now, to prevent the stock market plunge later.

  11. PhillipW

    I would argue that for many businesses, including mine, compulsory super has always been a top-up to the wage or salary paid. For example, you employ someone on $100,000 + super. This has resulted in employment costs being higher than they would be otherwise. Now I know you can argue this is equivalent to nearly a $110,000 package, but employees tend to think of the actual salary figure.

  12. Tel

    In summary, the entire super industry has been corrupted by the super guarantee, which should be completely abolished.

    I agree, but try not to forget the much worse alternatives out there:

    * Look at US Social Security which is pretty close to being broke and although probably in nominal terms they will keep paying something to someone… just for appearances sake… in real terms the “Millennial” generation won’t get anything out of it remotely close to to what they are being forced to put in.

    * Look at the various US Municipal Pension Funds some of which have already gone broke (Chicago for example) because each administration simply promises something that will be a problem for the next administration.

    * Consider the employer-sponsored pension funds (such as Chrysler) where they end up dragging down the whole company… ultimately only resolvable in bankruptcy court.

    In comparison, Australia’s system isn’t too bad, although far from perfect. But the most important thing is to maintain a strict hands off attitude toward the politicians who want to mess with it. Absolutely the key to long term confidence is not messing around with what we have got and brutally punishing anyone who starts to get the “sticky fingers” mentality. And yes, the super guarantee threshold should be locked to the lowest tax threshold so they both adjust for inflation.

  13. Marcus

    When it comes to super, that could also involve revisiting the $450 a month earnings threshold below which employers don’t have an obligation to pay super.

    Yes, they should make it a good deal higher. The $43-odd a month someone on those numbers would be getting in super will hardly set them up for retirement, but it does cause a lot of hassle to the small business owner who has to pay it, especially as most small businesses don’t have separate payroll departments.

  14. notaluvvie

    Ms O’Dwyer’s “article” reads as if it’s a superannuation industry press release. Oh wait, that’s basically what it is. It must be so easy “working” at the Graduina, just print what somebody else wrote and not intellectually critique it. The next thing you know Ms O’Dwyer will continue to ignore The Graduina’s own tax avoidance schemes.

  15. Chris

    Kid gets job in newsagent or pizza shop.
    “Do you want cheap accident/life insurance with this Super policy? No extra cost!”

    Kid then moves on, four years later they get a letter saying their balance has been exhausted in the insurance premiums…

    The small contributions are being LOOTED by fund managers this way.

  16. Diogenes

    Walter

    Supposed finance experts constantly misunderstand Super: Even Judith gets it wrong “And as for removing the $450 per month cutoff point below which super is not paid, again bear in mind that the demand for labour curve slopes downwards. This would involve a large jump of 9.5 per cent in the labour costs of these workers and a significant loss of employment/hours of work.”

    Nope, even you have it wrong. It is INCOME TAX foregone. That is what the High Court says as it is the only reason that the Feds can legislate at all in this area.

  17. jock

    Just a couple of thoughts. If 17bn is lost over 5 years then this relates to about 160bn of income. Or about 32bn per annum. If someone isnt paying super then he probably isnt paying salaries either. But even then i am surprised that phil is using a model. You would think these amounts missing would be noticable.

    Also i am surprised evenvthe talentless kelly has not devised it such that earners up to $37k can opt to receive the super guarantee as salary. Lets face it they can use the extra cash and it v would wedge the unions and industry super. These guys will be on the pension anyway so no real loss.

  18. Annusara

    There is nothing wrong with the article. If super is compulsory and there are compulsory deductions thats the law. You cannot have one law for one crowd and have illegal exemptions. Pull your head in. The article is almost impossible to fault as quoted. While the demand for labour is downward sloping like any demand curve, still there are ways of boosting employment, that any competent economist ought to understand.

  19. Pyrmonter

    Huh?

    Since when has a market economy been about fraud? Because that’s what not-paying superannuation involves: it’s short payment for sevice rendered, due well in arrears. Whatever complaints you may have – that we may share – about the price of labour, arbitrarily short-paying a small class of employees – mostly those of businesses that later fail – is hardly a sensible answer. By all means press for employment cost reforms; but this isn’t it.

  20. Haidee

    No miracle has occurred – so, fewer hours of work

  21. Econocrat

    Judith, she’s a minister and a mother don’t you know!

  22. max

    Compulsory Super was introduced not because of some altruism on the part of the government of the day

    This week I saw the annual statement of one 18-year-old who had $60 taken out of wages for super contributions. That paid for $26 of life insurance premiums, $17 in government tax, and $17 for ”administration fees”. After earnings, the preserved retirement benefit for this employee is $1.52.
    In other words the whole transaction was run for the benefit of the government and the fund. Thankfully the superannuation contribution was only 9 per cent of wages. Soon it will go higher. These are compulsorily taken from the wages of low paid and part-time workers. It is never going to fund their retirement.
    The reason there is no great outcry about this system is that so many well-paid people profit from it. The people who do the best are the funds managers. They are allocated money by the super funds to invest in stocks and bonds. The more money they manage, the more they get paid. They also get bonuses if they ”outperform” the industry average.
    Next come the people employed in the industry. They get well paid for administering the schemes and allocating money to funds managers. They report to trustees who are largely appointed through connections to employers or trade unions, which gives the whole enterprise a bit of bipartisan political cover.

    by Peter Costello

    The government wants to get their hands on your super and they don’t want you to get as much of it.

    For over three years we’ve warned you that the government is coming for your retirement savings.

    Of course, they won’t just grab it. They’re smart. They’ll do it by stealth. Even claiming it’s in your best interests…or the interests of society in general (that’s how governments always justify a wealth grab).
    First they took the retirement savings of foreign workers who have left Australia. Then they took the retirement savings of Aussies’ lost super. And according to the latest Treasury draft paper, next on the list is the lost super of public sector employees. But that’s just for starters; what’s next?

    To pay for Welfare state government need cash.

    The answer is clear – a retirement savings grab.

    It’s a trend we’ve seen worldwide. Argentina, Ireland and Hungary are just three examples of countries nationalising private wealth.

    Kris Sayce

  23. Haidee

    “The government wants to get their hands on your super . . .”
    Those words always make me feel uneasy

  24. Snoopy

    Chris
    #2486958, posted on September 3, 2017 at 10:25 am
    Kid gets job in newsagent or pizza shop.
    “Do you want cheap accident/life insurance with this Super policy? No extra cost!”

    Kid then moves on, four years later they get a letter saying their balance has been exhausted in the insurance premiums…

    The small contributions are being LOOTED by fund managers this way.

    Isn’t the insurance deduction automatic unless the ‘member’ opts out?

  25. Empire GTHO Phase III

    A landmine the trumbullites could leave for the left would be to announce a Royal commission into the theft of proles superannuation by industry super funds, and its use for social engineering.

    Why waste money on a RC? As soon as an ISF uses member funds for political purposes, the trustees have failed their fiduciary duty. Prosecute them.

    While the demand for labour is downward sloping like any demand curve, still there are ways of boosting employment, that any competent economist ought to understand.

    Spell them out for me. What would you do, Annu?

    Since when has a market economy been about fraud?

    Ever since criminals leveraged trade unions and the strike threat to steal shit from others. Don’t be obtuse. This campaign is not for the benefit of marginalised low income workers. This campaign is for the IR club.

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