Convid, essential workers and the concept of value in wage determination

Covid and the Labour market

The Covid pandemic is now in its third year. It disrupted the Australian labour market in ways normally associated with major economic downturns¹ By April 2020 Labour market indicators had dropped to their lowest levels since the GFC²  Since then they have recovered and by June 2022, the all persons unemployment rate stood at 3.5% and participation rates were at 66,3%³. On face value the system has fully recovered, and Covid-19 was just a temporary blip on the stability of the Australian labour market.  But I do not think so.  These are atypical times. The Covid impact came into a labour market already facing several structural challenges. These challenges include.

• Increasing unequal income distribution
• wage stagnation and or real wage declines for a considerable number of workers
• casualisation of the workforce,
• capital deepening in the form of automation and artificial intelligence.
• and high and increasing graduate unemployment.

Income distribution and the concept of the value of work are at the heart of these issues. The Covid period accentuated most of these existing challenges as well as introducing two new labour market challenges that are still playing out.

• reorganising the working space {home or the office?}
•  the concept of an essential worker?

These two points are related, both to each other and to the other issues facing the labour market.

The concept of economic value

The covid experience has re united consideration of value in economics and how this translates into income distribution and wage determination.

 Economic value is a measure of the benefit provided by a good or service to an economic agent. It is measured relative to units of currency, and the interpretation is therefore “what is the maximum amount of money a specific actor is willing and able to pay for the good or service?”

Historically and currently, this assessment of value has taken place with a market and the value of work is determined by its marginal value product to a buyer This simple relationship has become interrupted by signalling mechanisms such as formal education (which is seen as an indicator of potential productivity), industrial structure (marker power of the employer)  and worker associations such as the trade unions. Older factors that once effected wages, such as the disutility of wages seem less important. Currently those with the highest earnings also have the best working conditions, however, in all the complexity and intersecting factors that determine wages, nowhere is social value or “essentialness” considered as a significant criterion. This leads to the question “Is there currently a social value market failure in wage determination and has the covid highlighted it?

Essential workers in a pandemic

The definition of an essential worker varies but may be summarised as one who fulfils a role regarded as vital for the community, especially in the health, education, security, and infrastructure sectors:  These definitions encompass a wide variety of occupations and related incomes, ranging from the highest paid workers in Australia, surgeons, to amongst the lowest, age care attendants, but they are united by two common characteristics.

• They are all front-line workers.
• They work on-site.

Not so essential otherwise

In pandemics these features are essential within at least part of to maintain the economy, but in less dramatic time, they are not considered important, at least in the pecking order of wage determination. This is because once the lock downs and border closures ceased the wage determination process it goes back to those factors of education and status, and ingrained views on human capital and its relationship to value. The result is that large number of workers in aged care, retail, emergency services and community services remained in low paid and insecure jobs, despite their acknowledged social value⁴.

The perils of underpaying and undervaluing some “essential” workers and maintaining them in insecure jobs became apparent during the initial stage of the pandemic. Throughout the world the disease spread most rapidly thorough age care facilities⁵. The same facilities that are most likely to exhibit chronic labour shortages, underpaid workers and conditions that lead workers to hold multiple jobs. This latter condition contributing to rapid spread of the disease through multiple age care homes and then out into the community.

Bringing social value into the wage equation

Covid, highlights the role that some occupations. Front-line workers play in the orderly operation of society but who are arguably undervalue by a wage determination system that ignore or downplays social value. Well before covid struck, Hotchkiss and Rupa Singha (2016) were asking.

We conjecture that individuals’ social capital in the form of “sociability” and “altruism” may play a role in the determination of their wages, directly through the value employers place on these attributes, and indirectly through self-selection into occupations based on preferences reflecting various levels of social capita”⁶

These authors had in mind the group of bachelor level tertiary educated workers such as nurses, teachers, social workers, and paramedics whose work is regularly lauded for social value but are not paid commensurately. They were regarded as essential workers and undertook a disproportionate share of risk from the pandemic. This experience has made many of them weigh up their wage structure against the disproportionate share of Covid risk society was asking them to take. The net result has been an increased in turnover and quit rates among nurses and an ensuing crisis level shortage⁷.

The Growth of Non-front-line work

Conversely, many of those who were shielded from most risk by working from home were in jobs that were not considered essential. Claire Lehman writing in the Australian identified the substantial number of non-essential jobs that are currently receiving above average wages in the public service. For example, she discovered 17.000 positions in the NSW public service for diversity officers on salaries above the Australian average.⁸ None of these positions were considered essential for the short-term maintenance of the economy during the Covid crisis.

The Universities continue to produce far more law and business graduates, and increasingly medical graduates⁹ than can be absorbed by the Australian labour market and 25 percent of all the unemployed are university  graduates.¹⁰ Yet wages in these professions in a real or relative sense have not noticeably declined. This is because of the institutional legacy of wages based on qualifications and previous conventions induces downward wage stickiness and leads school leavers to continue to seek out increasingly difficult to obtain jobs in the promise of high wages and better working conditions¹¹.

At the same time there is chronic shortages for age care workers, nurses, agricultural workers, train drivers and hospitality workers because of a culture of low wages, low status, and unsociable conditions. Even at the height of the pandemic, some of those labelled essential workers received no monetary rewards, all that was on offer was a thank you from politicians often delivered on-line from the safety of working at home.¹²

Society clearly has a problem in integrating concepts of social value and essentialness into the wage determination mechanism. In the past, migrants could be relied upon to provide the low paid. contingent and periodically “essential work” that society needed’ Not so currently. If we continue in the traditional way and reward workers based on formal supply characteristics rather than societal needs our ability to withstand the expected continued shocks and crises will continue to diminish.

This is not to suggest that skill and training should not be adequately rewarded. It is arguing that the regimen for determining wages, especially at the institutional level, should be broadened to reflect societal needs and essentialness.  Robotics raises the possibility of reducing unpleasant and difficult jobs (and resist pandemics), which will raise significant issues of distribution for those made redundant, but the present system of wage determination is not working in a way that will strengthen the ability of society to resist shocks such as Covid. Currently we have designed a system that produces an over-supply of “non-essential workers” and an under-supply of essential workers.

Appendix

Table 1 Labour Market Comparisons April 2020 to June 2022

Source; Employment and unemployment | Australian Bureau of Statistics (abs.gov.au)

 John Mangan

University of Queensland and Economic Planning and Impact Consultants

1. See the initial assessment of the impact of Covid-19 by the Australian Bureau of Statistics https://www.nationalskillscommission.gov.au/reports/shape-australias-post-covid-19-workforce/part-1-labour-market-update/11-impact-covid-19-aus. ↩︎
2. Opinions on the relative significance of the GFC versus Covid differ, with the Australian Treasury saying Covid was 6 times worse and the Prime Minister saying 30 times. ↩︎
3. See appendix 1. ↩︎
4. See, “Implications of Labour Market Shortages in the Aged Care Industry? Acil-Allen (2022) ↩︎
5. “impact of Covid-19 on Aged Care” Royal Commission into Aged Care Quality and Safety, Impact of COVID-19 on aged care | Royal Commission into Aged Care Quality and Safety ↩︎
6.  See, Hotchkiss, J and Rupa Singha, A. “Wage determination in social occupations ‘the role of individual social capital= Federal Reserve Bank of Atlanta,  ↩︎
7. See, “Hamlin,  K.(2021) “Why is there a Nursing Shortage” Nurse Journal November  and “The impact on the economy of the nurse shortage”, American Association of Colleges of Nursing, Impact of the Economy on the Nursing Shortage (aacnnursing.org) ↩︎
8. Lehman, C (2022 “Overpaid woke jobs must be first for the chop’ The Wentworth Report Overpaid woke jobs must be first for the chop | The Wentworth Report ↩︎
9. See, “Australia’s New health Crisis; too many doctors” Australia’s new health crisis – too many doctors – Monash University   ↩︎
10. See, Small, A., Shaw, A and McPhail, L, “1 in 4 unemployed have a degree; how did we get to this point? The Conversation 1 in 4 unemployed Australians has a degree. How did we get to this point? (theconversation.com) ↩︎
11. See, Featherstone, T “Why do students enrol in massively over supplied university degrees” Sydney Morning Herald August 10, 2016 ↩︎
12. See “Scott Morrison and Anthony Albanese thank essential workers ttps://www.theguardian.com/australia-news/2020/dec/24/scott-morrison-and-anthony-albanese-thank-essential-workers-in-christmas-messages” ↩︎
13. Seasonally adjusted data ↩︎