#10 December 2005 - Melbourne Institute News

Melbourne Institute News December 2005 ISSN 1442-9500 (print)

ISSN 1442-9519 (online)

Print Post Approved PP381667/01204

Issue 10

Consumer Culture = Longer Working Hours Our consumer culture is forcing Australians to work longer hours in order to manage their debts and sustain high levels of consumption, according to a recent study by the Melbourne Institute.

Underemployed Are Suffering A new report by Dr Roger Wilkins shows that over one in three Australians who work part-time are underemployed.

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The HILDA Survey Research Conference 2005 Read some highlights from the HILDA Survey Research Conference 2005.

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Public–Private Partnerships An extract from the Melbourne Institute’s Australian Economic Review gives us an insight into the state of Australia’s infrastructure.

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Opinion by John Freebairn Our Director, Professor John Freebairn, gives his opinion on the taxation of petroleum products and motor vehicles.

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2005 University Rankings The Melbourne Institute has released its International Standing of Australian Universities Survey results.

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Using data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey, the paper shows that not only is there a significant proportion (22 per cent) of employed Australians working long hours—defined as regularly working 50 or more hours each week—but that for more than half of these people, it is a persistent phenomenon.

People working longer hours are generally ‘ideal workers’— managers and professionals with high levels of education, promotion opportunities, and flexible work hour arrangements.

Workers driving the positive association between professional occupations and persistently long hours include teachers, academics, lawyers, broadcasters, actors, journalists and pilots.

Long hours were also associated with several non-managerial and non-professional occupations, including road and rail transport drivers, suggesting long hours are not always connected to the ‘ideal worker’ norm.

‘It is startling how many employees are working such long hours year after year just to help pay off their debts’, said Professor Mark Wooden, Deputy Director of the Melbourne Institute and one of the study’s authors.

Entitled ‘The Persistence of Long Work Hours’, the paper also found that while fathers typically work long hours, there is actually no significant correlation between this and the age of their children. This was contrary to previous findings.

The paper, authored by Professor Robert Drago, Mr David Black and Professor Mark Wooden, is available online at www.melbourneinstitute.com.

www.melbourneinstitute.com Melbourne Institute of Applied Economic and Social Research - Page 1

Underemployed Are Suffering Econometric analysis was undertaken to estimate the effects of underemployment on measures of family income support receipt, family income, personal income, life satisfaction, wages and job satisfaction.

It is found that, while underemployment is not associated with as severe adverse consequences as unemployment, it nonetheless appears to be associated with detrimental consequences.

A recent study by Dr Roger Wilkins used the first wave of the HILDA Survey to examine the consequences of underemployment for the underemployed.

According to underemployment statistics from the Australian Bureau of Statistics, the number of underemployed people has grown in recent decades to the extent that they have in fact overtaken the number of unemployed people (600,000 vs 530,000).

In the context of this growth, a question that naturally arises is how concerned we should be about underemployment vis-à-vis unemployment. One factor to be considered in answering this question—which is the focus of this study—is how outcomes such as income, life satisfaction, quality of working life and income support for the underemployed compare with outcomes for the unemployed.

Dr Wilkins says that the effects of underemployment for part-time workers are generally more severe than for those who are underemployed in full-time work.

‘Involuntary part-time—and possibly casually—employed persons seem to be a particularly disadvantaged group in the community.

‘Underemployment deserves greater recognition as an economic and social problem in Australia.

‘Exclusive focus on the unemployment rate as the measure of labour under-utilisation is unsatisfactory.

‘Not only does underemployment represent a failure to utilise a significant share of the economy’s available labour resources, it is also associated with considerable adverse consequences for the individuals who are underemployed’, says Dr Wilkins.

The report, entitled ‘The Consequences of Underemployment for the Underemployed’, will appear in a forthcoming issue of the Journal of Industrial Relations.

This study begins by documenting the extent of underemployment evident from the HILDA Survey.

The notion of underemployment that the study seeks to investigate is what the International Labour Organization calls ‘time-related’ underemployment. This is a situation where an employed person would like to work more hours than currently worked, whether this be in the same job or in another job.

According to the HILDA Survey data, approximately one in six employed persons in Australia are underemployed.

Nearly half of part-time working men, and almost one in three women who work part-time, are underemployed.

Almost half of all employed women are working parttime, so the total number of underemployed persons is proportionally much greater for women overall.

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The HILDA Survey Research Conference 2005 nature of the HILDA Survey, core models in each wave and those introduced in different waves, and the possibilities of augmenting the sample of immigrants and moving to computer-assisted interviewing.

Professor Peter Lynn (from the UK Longitudinal Studies Centre) then provided some excellent insights into ways of assessing and communicating the quality of longitudinal surveys. He outlined a quality framework for longitudinal surveys, and discussed a range of difficulties linked with longitudinal studies and his unit’s analysis of quality-related aspects of the British Household Panel Survey.

The second plenary session included a paper entitled ‘Does Part-Time Work Make the Family Happier?’, by Professor Jan van Ours (Economics Department, Tilburg University) who was visiting the Melbourne Institute.

The Hon Sussan Ley MP, Parliamentary Secretary (Children and Youth Affairs), Department of Family and Community Services

2005 proved to be a significant year for the Household, Income and Labour Dynamics in Australia (HILDA) Survey.

HILDA is the largest panel survey ever conducted in Australia, a national longitudinal survey offering annual waves of data collection. The majority of surveys in Australia use only one wave, thereby limiting the scope of information.

HILDA data are collected annually from almost 20,000 individuals, representing a sample of the Australian population.

In September, the Melbourne Institute presented the second HILDA Survey Research Conference enabling both national and international-based researchers to impart their HILDA-based research findings to their peers.

Dr Ian Watson from the School of Business at the University of Sydney then gave a paper entitled ‘The Earnings of Causal Employees: The Problem of Unobservables’.

The Melbourne Institute’s recently appointed Head of Labour Economics and Social Policy, Professor Kostas Mavromaras, gave a critique of these two papers, both of which attracted considerable media and public attention.

Attendees then had to choose between three concurrent sessions (15 in total over the three days), all involving two papers, a critique by a discussant, and audience discussion. These sessions covered a range of issues including unemployment, income and poverty, marital separation, part-time employment, ageing, families, female employment dynamics, cohabitation, smoking and drinking, wealth, and lots more.

The last session in the conference was a panel discussion focusing on the future of the HILDA Survey.

Over 200 people—researchers, policy makers, service providers and other interested HILDA users—packed into the conference, which was held on campus at the University of Melbourne.

Mr Andrew Whitecross (Branch Manager, Strategic Policy Branch, FaCS) closed the conference on a most sanguine note saying that if HILDA continues to provide rewards, it will build up a good case for further funding.

The Hon Sussan Ley (above), from the Department of Family and Community Services (FaCS), opened the conference by emphasising the importance of high quality data for policy decision-making. She agreed, as have others, that HILDA’s value in this regard has already been well established.

The HILDA Survey is currently funded for eight waves with Wave 5 having commenced in August 2005. Data for Wave 4 will be released in February 2006. Planning for Wave 6 has begun with the major feature being the re-inclusion of the wealth module, previously included in Wave 2.

The first plenary session was given by HILDA’s Project Director, Professor Mark Wooden, who outlined the

Conference papers can be downloaded from www.melbourneinstitute.com.

Melbourne Institute of Applied Economic and Social Research - Page 3

Public–Private Partnerships

Pressures are mounting for an improved national approach to the provision of infrastructure in Australia.

In the December 2005 issue of the Australian Economic Review (AER), the Policy Forum looks at the issue of financing public infrastructure. The Editor, Professor Ross Williams, explains.

Major reports by the Business Council of Australia (2005) and the Committee for Economic Development of Australia (2005) emphasise the need for new and replacement infrastructure in order to both deal with current capacity constraints and to support future economic growth. The demands for better infrastructure reflect in large part the heightened competitive pressures on Australian industry arising from globalisation.

Governments also have recognised the need for a more coordinated approach, one which takes account of both infrastructure needs and how these needs might be met. The federal government’s AusLink White Paper (2004), for example, maps out a national transport plan.

Impediments to the supply of infrastructure can include funding issues, coordination problems between the three tiers of government (federal, state and local), and legal obstacles. The report to the Prime Minister on Australia’s export infrastructure (Exports and Infrastructure Taskforce 2005), for example, argued for simpler regulatory policies to reduce delays in the provision of export-oriented infrastructure.

Until the 1990s in Australia, public infrastructure in areas such as roads, railways, prisons and schools was financed out of current taxation revenue or by government borrowing. Actual construction may have

been undertaken by contracting out to the private sector but projects were managed and owned by governments.

Gas and electricity were usually provided by government trading enterprises.

The past decade has seen a growing involvement by the private sector in the provision of infrastructure. This commenced with the privatisation of utilities by several state governments.

The articles in the AER’s December 2005 Policy Forum are concerned primarily with infrastructure projects which involve private financing but not full privatisation.

Factors which have driven the move to the use of private finance include: • a reluctance of governments to run cash deficits; • the complexities of constructing and managing large infrastructure projects; • improved value for money by achieving an optimal allocation of risk; and • greater acceptance that the user pays principle improves allocative efficiency.

In Australia most of the early examples of private investment in public infrastructure were in urban roads, facilitated by the ease of applying the principle of user pays. More recently, however, there has been a marked increase in private investment in social infrastructure such as hospitals and educational institutions. In Australia the use of private finance in large public infrastructure projects began in New South Wales and Victoria, but other states and the Northern Territory have followed in more recent times.

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The question of who bears what risks is taken up again in the third article by Professor Kevin Davis. He argues that ‘any social value from financing arrangements must stem from different costs of bearing or managing particular types of risk’. It follows, Professor Davis argues, that for private investment to be justified the contractual arrangements must lower overall risk: an example would be penalties for non-completion lowering the risk of a project not being ready in time to meet an important deadline. Professor Davis raises concerns about the choice of discount rates that are typically used in comparing the present value of costs of public sector delivery with PPP proposals.

In the first article in the Policy Forum, Ms Nonie Malone documents trends and the diversity and size of current projects. The general term public–private partnerships or PPPs is introduced to cover all the complex sets of financial relationships by which private funds and operational expertise are used to provide public infrastructure. Ms Malone distinguishes seven types of these arrangements. She points out that a particular attraction of PPPs for the private sector is the long-term nature of the projects and the associated income streams.

In a section on the provision of infrastructure in education, Ms Malone explains that the advantage of using private funds for financing schools is limited by the duty-of-care requirements that restrict the scope of multi-use facilities, whereas multi-purpose developments in universities are not restricted in this way.

In the second article, Dr Christine Brown examines in some detail the various public–private funding arrangements that have been used to fund urban tollways in Australia. In several projects the private firms can elect to issue promissory notes in lieu of cash payment to the government until returns reach a defined level. Dr Brown presents a simple way of estimating the value to the private partner of being able to issue these promissory notes.

Dr Brown explains why the contractual arrangements for the early tollways in Sydney and Melbourne were more favourable to the private equity owners than were subsequent contracts. She notes, as do all the authors, the tendency over time for governments to shift more of the risk to the private partner.

The allocation of risks also forms the thrust of the fourth article by Professor John Quiggin. He argues that ‘the central argument in favour of PPPs is that they permit a socially desirable transfer of risk from the public to the private sector’. Poorly designed partnership arrangements can create new risks and destroy the advantage of a PPP. Professor Quiggin notes that recent PPP programs typically have had three characteristics: a bundled contract with a single partner, contracts for 20 to 30 years, and transference of demand risk to the private party. He argues for greater flexibility in contracts to recognise the distinctive characteristics of each project and the uncertainties involved. Professor Quiggin proposes a solution in the form of the inclusion in the contract of put and call options exercisable at intervals of say five years. Either party would then be able to terminate the partnership at the specified date with payments set by the exercise prices for the options.

Methods of financing which lie between full government financing and operation on the one hand and full privatisation on the other are an important and evolving option for providing infrastructure. The articles in this Policy Forum are important in that they clarify the issues and offer suggestions for ensuring that PPPs operate in a manner which entails maximum gain for society as a whole.

This is an edited excerpt from the December issue of the Australian Economic Review, written by Professor Ross Williams. All articles are available in full from the Australian Economic Review.

To subscribe to the Australian Economic Review, please contact Blackwell Publishing at customerservices@blackwellpublishing.com.

Melbourne Institute of Applied Economic and Social Research - Page 5

Taxation of Petroleum Products and Motor Vehicles, by John Freebairn costs of road damage by vehicles depend on the type of vehicle and the type of road, as well as the kilometres travelled, fuel use is only a crude measure of road usage.

Also, toll road users meet road costs directly, and vehicle registration fees are linked to vehicle type. The use of hub odometers with links to weight per axle would provide a more explicit and direct measure of road usage charge fees, not taxes, than fuel excise.

The doubling of world crude oil prices this year has raised questions about the level of, and the rationale for, government excise on most petroleum products used for road transport.

While the principal purpose of the petroleum products excise levy is seen as a government revenue raiser, it also can be argued to be a crude way of funding government-provided road infrastructure, and as a crude way of internalising the external costs of pollution and congestion associated with the use of motor vehicles.

By the way of background, there are two sets of special taxes levied on the use of motor vehicles. The commonwealth petroleum products excise is a per litre of fuel levy of 38.14 cents. Since March 2001 the excise rate has not been indexed for inflation. $13 billion was collected in 2003–04. The states collected in 2003–04 another $5.1 billion from stamp duties on the sale of motor vehicles, annual vehicle registration fees and licence fees. These special taxes are in addition to income tax collected from labour and capital incomes generated in the supply of motor vehicle services and other goods and services, and from the general sales tax, GST, levied on motor vehicles and most other goods and services.

In the big cities and during peak hours, traffic congestion causes large external costs in the form of time delays, extra fuel consumption and lost productivity. Some estimates place the total congestion costs in many billions of dollars a year, and marginal congestion costs exceed the average costs. New developments in electronic technology to track the location and time of vehicle use could form the basis of a more direct measure for imposing marginal traffic congestion taxes than a fuel tax which does not discriminate by time and place of vehicle use.

The burning of fossil fuels to propel motor vehicles, to produce electricity and heat, and for other uses in industry results in a number of pollution external costs, including greenhouse gases. A more comprehensive and generally applied externality tax, such as a carbon tax, would provide a more efficient, and arguably also a more equitable, way of internalising such pollution externalities than the present narrower based petroleum product excise on petrol and diesel used for on-road transport.

Granted the crude way in which the existing fuel excise and motor vehicle taxes represent the costs to society of providing road infrastructure and the external costs of congestion and pollution, in aggregate these special taxes likely underestimate the costs to be borne by motorists. Clearly, considerable efficiency gains are on offer to restructure these taxes as road user charges and marginal external costs taxes. In the meantime, the case for lowering the present petroleum products excise rate is weak, and a strong case can be made for restoring indexation of the levy.

Governments spent about $9.5 billion on the construction and maintenance of roads in 2003–04.

This represents just over half of the special tax revenues collected in excise and motor vehicle taxes. Because the

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2005 University Rankings

The ‘Melbourne Institute Index of the International Standing of Australian Universities 2005’ was released in November offering yet another insight into Australian university rankings.

The researchers have also improved the quality of data in some areas. One new measure in the 2005 report is the average Tertiary Entrance Score for all undergraduates.

The Australian National University and the University of Melbourne again shared the number one place—as in the 2004 Melbourne Institute study—with the University of Sydney also holding its position at number three.

Professor Ross Williams, a Research Fellow who works as a consultant with the Melbourne Institute and lead author of the study, said the 2005 rankings represent an improved measure of standing based on the characteristics of the world’s leading universities.

The Index is constructed from 27 different attributes that are characteristics of world class universities. The main determinants are research performance and teaching standards.

The top 15 universities in the ranking include the 14 Australian institutions ranked in the global top 500 universities by Shanghai Jiao Tong University (SJTU).

‘Even after giving additional weight to research in social sciences and business, the results are remarkably similar to the rankings of the well-respected Shanghai study which is biased towards the sciences’, he said.

Wollongong University is also in the top 15 according to the Melbourne Institute ranking.

Professor Williams also noted that the Index ‘hides some pockets of research excellence in lesser ranked institutions’.

Results from the index show that the ordering of these universities is also similar to the SJTU list.

The Melbourne Institute Index of the International Standing of Australian Universities was first produced in 2004 and has now been updated to reflect more recent data.

This report, authored by Professor Ross Williams and Dr Nina Van Dyke, is available online at www.melbourneinstitute.com.

2005 Rankings, Shanghai Jiao Tong University and Melbourne Institute Shanghai Jiao Tong University

Melbourne Institute

Australian Rank

World Rank

University

1

56

2

85

University of Melbourne

1

University of Melbourne

3

101–152

University of Queensland

3

University of Sydney

3

101–152

University of Sydney

4

University of Queensland

5

153–202

University of New South Wales

5

University of New South Wales

5

153–202

University of Western Australia

6

University of Western Australia

7

203–300

Monash University

7

Monash University

7

203–300

University of Adelaide

8

University of Adelaide

7

203–300

Macquarie University

9

Flinders University

10

301–400

University of Newcastle

9

La Trobe University

11

401–500

Flinders University

9

Macquarie University

11

401–500

La Trobe University

12

University of Tasmania

11

401–500

Murdoch University

12

Murdoch university

11

401–500

University of Tasmania

13

University of Newcastle

13

Wollongong University

Australian National University

Australian Rank 1

University Australian National University

Melbourne Institute of Applied Economic and Social Research - Page 7

Recent Melbourne Institute Working Papers November 2005, ‘Trade Liberalisation, Poverty and Inequality in South Africa: A CGE-Microsimulation Analysis’, 17/05, Nicolas Hérault.

November 2005, ‘A Micro-Macro Model for South Africa: Building and Linking a Microsimulation Model to a CGE Model’, 16/05, Nicolas Hérault.

October 2005, ‘Measuring Intangible Investment’, 15/05, L. C. Hunter, Elizabeth Webster and Anne Wyatt.

September 2005, ‘Is There a Unit Root in East-Asian Short-Term Interest Rates?’, 14/05, Chew Lian Chua and Sandy Suardi.

September 2005, ‘The Effects of Smoking Ban Regulations on Individual Smoking Rates’, 13/05, Hielke Buddelmeyer and Roger Wilkins.

Some Recent Melbourne Institute Successes Melbourne Institute staff have recently enjoyed a string of successes, winning six grants, through both government and the University of Melbourne. Congratulations to everyone involved.

ARC Grants Project Title

Total Amount

Grant Recipients and Partners

Labour Market Transitions and Dynamics in Australia: An Analysis of the Household, Income and Labour Dynamics in Australia Survey

$450,000

M. Wooden, J. Borland, K. Mavromaras

Uncertainty and the Success of Innovation

$305,000

E. Webster, J. Yong, P. Jensen, A. Palangkaraya, K. Collins, IP Australia

Experimental Evaluation of YP4—Is ‘Joining Up’ Services for Homeless and Jobless People a Net Benefit to Society?

$243,255

J. Borland, Y. Tseng, R. Wilkins, Hanover Welfare Service, Melbourne Citymission, Brotherhood of St Laurence, Loddon Mallee Housing Services

Early Career Researcher Grants Project Title

Total Amount

Grant Recipient

Examining the Impact of Health on Labour Supply and Wages

$17,000

L. Cai

Modelling Changes in Output Volatility in the Global and Domestic Economies

$10,000

P. Smith

Faculty Research Grants Project Title

Total Amount

Grant Recipient

Testing for a Unit Root in Short Rate Jump Diffusion Process

$10,500

C. L. Chua

Melbourne Institute News Views expressed by the contributors to Melbourne Institute News are not necessarily endorsed or approved by the Melbourne Institute. Neither the Melbourne Institute nor the Editor of Melbourne Institute News accepts any responsibility for the content or accuracy of information contained in this publication. Editor: Laura A’Bell, tel: 8344 2154, fax: 8344 2111, email: labell@unimelb.edu.au. Sub-Editor: Nellie Lentini.

Contributors: Mr David Black, Professor Robert Drago, Professor John Freebairn, Dr Nina Van Dyke, Dr Roger Wilkins, Professor Ross Williams, Professor Mark Wooden.

Level 7, Alan Gilbert Building, The University of Melbourne P: (613) 8344 2100 F: (613) 8344 2111 www.melbourneinstitute.com