#6 December 2002 - Melbourne Institute News by The Faculty of Business and Economics, The University of Melbourne

ISSN 1442-9500 (Print) ISSN 1442-9519 (Online)

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Issue 6 December 2002

Melbourne Institute Celebrates 40th Anniversary December 15 was the 40th anniversary of the foundation of the Melbourne Institute. In the early 1960s economists at the University of Melbourne were looking at ways to increase the profile of applied Professor Henderson economic research at the University. A visiting academic from Cambridge, Ronald Henderson, proposed the establishment of a group along the lines of the Department of Applied Economics at Cambridge. When the University subsequently adopted this proposal and asked Ronald Henderson to return to Australia to head up the new research institute, he readily accepted the challenge. Ronald Henderson became the founding Director of Australia’s first independent institute for applied economic research on 15 December 1962. In 1969 this new Institute of Applied Economic Research amalgamated with the Department of Research in Social Studies and became the Institute of Applied Economic and Social Research. In 1972 the Institute was formerly established as a research department within the University with its own university statute. Ronald Henderson was foundation Director of the Institute for 17 years, until his retirement in 1979. Following his retirement, Professor Henderson’s successors were Dr Duncan Ironmonger, Acting Director from 1979 to 1984; Peter Dixon, Director from 1984 to 1991; and Richard Blandy, Director from 1992 to 1994. In 1996 Peter Dawkins became Director and the name of the Institute was formally changed to the Melbourne Institute of Applied Economic and Social Research. In the 1990s between appoint-

ments, Professor Ian Harper and Professor Peter Lloyd served as Acting Directors. To help celebrate this important milestone event, the 40th anniversary of the Melbourne Institute, current staff of the Melbourne Institute invited all previous employees to join them at a cocktail function at University House on 12 December. At this function, memories were shared, friends re-acquainted and the Melbourne Institute’s successes over its 40-year history celebrated. Speakers at this event were Richard Scotton and Daina McDonald, both former staff, and the present Deputy Director, David Johnson. In February 2002 a further celebration, in the form of a formal dinner at Ormond College, will take place. On this occasion, as well as celebrating the past, the future research agenda of the MelProfessor Dixon bourne Institute will be a major focus. Guest speakers will include Dr Ken Henry, Secretary of the Treasury in Canberra, and Mr Paul Kelly, Editor at Large, The Australian. As part of this 40th anniversary celebration in February 2003, Paul Kelly will be speaking about the book he has co-edited with Melbourne Institute Director Peter Dawkins, which is to Professor Blandy be launched in February and is based on the proceedings of the Towards Opportunity and Prosperity Conference

Melbourne Institute of Applied Economic and Social Research The University of Melbourne, Victoria 3010 Australia Phone: +61 3 8344 5330 Fax: +61 3 8344 5630 Email: melb-inst@unimelb.edu.au WWW: http://www.melbourneinstitute.com  2002 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research

which was held in April this year; this conference was jointly run by the Melbourne Institute and The Australian. The title of this book, Hard Heads, Soft Hearts: A New Reform Agenda for Australia, is used as the Melbourne Institute’s motto: Hard Heads, Soft Hearts. This phrase is drawn from a book by Professor Dawkins US economist Alan Blinder. Before then the famous British economist Alfred Marshall coined the phrase ‘Cool Heads, Warm Hearts’ representing much the same idea. It also reflects the Melbourne Institute’s fundamental belief in the need to be hardheaded in the analysis, but to have soft-hearted objectives. At this important milestone in the Melbourne Institute’s history it is our plan that this idea will continue to shape the research agenda at the Melbourne Institute in the years to come.

★★ Inside Stories ★★ •

New Chairman of Melbourne Institute Advisory Board appointed. See page 3

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HILDA first wave results launched by Senator Vanstone. See page 4

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New ARC grant. See page 4

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Launch by Tony Abbott MP of report on unfair dismissals. See page 5

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Melbourne Institute forecasts of economic activity. See page 5

Hard Heads, Soft Hearts: Director’s Letter In my seventh year as Director of the Melbourne Institute, I was fortunate in obtaining four months away from administrative duties under the University’s special studies program. I have just returned from this leave which was spent mainly at the University of Nottingham, with shorter visits to the Brookings Institution and the Austrian Institute of Economic Research. My main activity was to edit a book jointly with Paul Kelly, Editor-at-Large, The Australian, based upon the April 2002 Towards Opportunity and Prosperity Conference. This will be published in February 2003 by Allen & Unwin. I also worked on papers on topics such as welfare re-

form, jobless households and higher education policy. I return renewed and refreshed and looking forward to the 40th anniversary celebrations, and a number of other major projects including the second joint Economic and Social Outlook Conference with The Australian to be held on 6–7 November 2003. Meanwhile, many thanks are due to David Johnson for acting as Director in my absence.

13 December 2002

Professor Peter Dawkins Ronald Henderson Professor and Director

Some Reflections on Calculating Poverty by David Johnson, Deputy Director The Debate on Poverty Measurement Early this year there was vigorous debate about the extent of poverty and trends in poverty in Australia. The welfare group The Smith Family published a report prepared by NATSEM (see Harding, Lloyd and Greenwell 2001) claiming that the poverty rate had risen from 11 per cent to 13 per cent of the population over the 1990s. These estimates were strongly attacked, particularly by staff from the Centre for Independent Studies (CIS), who criticised many aspects of the report, including the selection of benchmarks, the reliability of data and the interpretation of the results (Tsumori, Saunders and Hughes 2002; Saunders 2002). Following the debate, and extensive media exposure to the issue of poverty measurement, the Senate announced the terms of reference for an inquiry into measurement of poverty and inequality. A key aspect of the debate concerned the selection of a poverty line from which rates of poverty are calculated. The poverty line is the threshold income level below which a family is believed to be poor. The protagonists debated whether the most appropriate poverty line was one that was a proportion of mean or median income, though as I will argue, these are neither the only nor necessarily the best selections. The Smith Family chose a reference poverty line at 50 per cent of mean income, while the CIS claimed that 50 per cent of median income was a more generally accepted international standard. Professor Ronald Henderson, the first Director of the Melbourne Institute, recommended the regular publication of poverty lines in his First Main Report to the Commonwealth Inquiry into Poverty (see Commission of Inquiry into

Poverty 1975). Since then the Melbourne Institute has published updates of the poverty lines every quarter. The Henderson poverty lines are not a constant proportion of either mean or median income, though they are updated by movements in a measure of average income (per capita household disposable income). Almost from their inception the Henderson poverty lines have come in for criticism, much of it related to their use in the calculation of poverty. While accepting that many of the criticisms are valid, the Henderson poverty lines still have a role setting a benchmark with which individual circumstances may be compared. 1 Key Issues The contentious nature of poverty measurement is not new but it is important. There are several key issues: the role of individual value judgements; the reliability and representativeness of data; and the interpretation of levels and trends in poverty. Foremost is the role of value judgements. All measures reflect the value judgements and choices of the researchers. Particular choices may reflect societal attitudes better than others, but there is no objective measure of poverty. The reliability of data is the second matter of importance. There are valid concerns about the reliability of existing income and expenditure data that mean that researchers have to be very careful about the inferences they draw from calculations based on these data. It is certainly true that the apparent difference between reported 1. Johnson (1996) provides a full discussion of the role, use and limitations of poverty lines.

income and expenditure for very low income earners seems implausible and data for very high income earners are also suspect. Underreporting of income is likely to be one of a number of reasons for these problems. However, in measuring trends in poverty, the underreporting of income levels may not be so bad— so long as they are consistently under-reported. The third important matter is the interpretation of both the level of and trends in poverty. A key issue is whether poverty is treated as a relative concept, an absolute concept, or reflects both notions. Absolute poverty refers to the idea that poverty can be measured in relation to some fixed standard of need, for instance the number of calories required to maintain health. By contrast, relative poverty refers to standards set in comparison to prevailing societal standards (so that if general standards of living rise, then so does the standard of living afforded by the poverty line). Modern societies are concerned about both absolute and relative poverty, or to put it another way, about both material standards of living and the relativity between people. If this is true then poverty research should report both, clearly distinguishing between them. Interpretation of Poverty Results Poverty rates at a point in time are often published and discussed in the media. They are of great public interest. Unfortunately, debate about them is often fairly meaningless. Since there are no generally accepted reference poverty line or equivalence scales, the choices are entirely at the discretion of the researcher. Effectively the (continued on page 7)

News on Staff and Other Developments Peter Jonson to Hand Over to Tony Cole as Chair of Advisory Board After 10 years service as Chair of the Advisory Board, Dr Peter Jonson will be handing over to Mr Tony Cole in 2002. The Director and staff of the Melbourne Institute wish to express their thanks for the commitment that Peter gave to the Institute over that period. The Advisory Board has played a very important role in the life of the Institute. Peter’s service to the Institute has been recognised with his appointment as Emeritus Chairman. Mr Tony Cole who will be taking over the Chair of the Advisory Board has been a member of the Board for seven years and has been Chair of the Melbourne Institute Business Economics Forum and Co-Chair of the Melbourne Institute Public Economics Forum. He is Principal – National Practice Leader of William M. Mercer Investment Consulting and is a former senior public servant, including for example Secretary of the Commonwealth Treasury. Melbourne Institute Advisory Board SubCommittees Established The Melbourne Institute has grown substantially in size over the last three years in terms of its research agenda, staffing and budget. Delegation of responsibility to a second level of management commenced with the definition of three research programs, each with its own budget and program manager, and this year has continued with the establishment of three sub-committees of the Advisory Board. The role of these sub-committees is to provide advice to each research area. Mr Phil Ruthven, Executive Chairman IBISWorld, is the chairman for the Enterprise Performance program Advisory Board sub-committee. Mr Ian Little, Secretary of the Department of Treasury and Finance in the Victorian Government, heads-up the sub-committee advising the Labour, Social and Fiscal Studies area. Mr Glenn Stevens, Deputy Governor of the Reserve Bank of Australia, chairs the sub-committee advising the Centre for Business Cycle Analysis. Each of the subcommittees will meet annually to review their respective program area’s research agenda, advise on strategic objectives and performance, and offer comments on specific proposals. Two New Research Fellows Dr Jongsay Yong joined the Institute as a Research Fellow in May 2002. Prior to this he was

Ben Jensen and Jongsay Yong

a Senior Lecturer in the Department of Economics at the National University of Singapore, where he started his academic career after obtaining his PhD from the University of British Columbia in Canada in 1993. Jongsay’s research has primarily been in applied microeconomics, including areas such as industrial organisation, regulation, transport, environment and health economics. His work at the Melbourne Institute will focus on two principal areas: health economics and regulatory and competition issues. In June Ben Jensen returned to the Melbourne Institute as a Research Fellow after some time as Assistant Professor of Economics at Hartwick College in New York. Ben has an honours degree in commerce and was a Ronald Henderson Scholar of the University of Melbourne from 1999 to 2001. He has recently submitted his PhD. Ben is working in the Labour, Social and Fiscal Studies area of the Melbourne Institute.

most widely known for his 1986 report on liquor reform to the Victorian Government. The report’s acceptance and enactment by the Cain Government in 1988 transformed and liberalised the industry, enabling the growth of European-style premises. In 2000 John was made a ‘Special Legend’ of the Victorian Food and Wine Industry in recognition of his work. In 1983 John also chaired a State Government Review of Revenue Raising in Victoria. John’s contribution to the Melbourne Institute will include assisting with research grants and the Working Paper series, as well as with development and marketing issues, especially in regard to special events, conferences and seminars. Prestigious Downing Fellowship Alan Duncan, a Professorial Fellow of the Institute, was invited by the Faculty of Economics and Commerce to deliver the 16th Annual Downing Lecture in September 2002. The Downing Fellowship was established in 1978 in memory of Richard Ivan Downing, who was Ritchie Professor of Research in Economics at the University from 1952 until his death in 1975. This Fellowship provides the opportunity for distinguished visiting economists to present their views ‘for the purpose of promoting analysis and discussion of economic and social research policy’. The topic of Alan’s lecture was Promoting Employment through Welfare Reform: Lessons from the Past, Prospects for the Future. Staff Promotions

Dr John Nieuwenhuysen Joins Melbourne Institute In August the Melbourne Institute was delighted to welcome Dr John Nieuwenhuysen as a Principal Fellow. John holds a Master of Arts from Natal University, a John Nieuwenhuysen PhD from London University and is a Fellow of the Australian Academy of the Social Sciences. From 1996 to 2002 John was Chief Executive of CEDA (Committee for Economic Development of Australia), and from 1989 to 1996 he was Foundation Director of the Commonwealth Government’s Bureau of Immigration, Multicultural and Population Research. John is

Two research staff members have recently been awarded academic promotions. Rosanna Scutella is now a Research Fellow of the Melbourne Institute and Dr Guyonne Kalb has been promoted to Senior Research Fellow. Congratulations are extended to both of them.

Rosanna Scutella and Guyonne Kalb

Labour, Social and Fiscal Studies The HILDA Survey Data from wave 1 of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, Australia’s first large-scale, nationally representative household panel survey, were released by the Hon Amanda Vanstone MP, Minister for Family and Community Services, at a launch held in conjunction with the Melbourne Institute’s Public Economics Forum in Canberra on 15 October. The first wave of HILDA has generally been acclaimed as a great success, with 7682 households participating. This has generated a data set comprising almost 14,000 individuals. With over 3000 variables about these individuals, the HILDA Survey provides what is arguably the richest single source of data about income, work and families in this country. Accompanying the launch was an Annual Report summarising progress and outcomes to date. In addition, the report provides a short summary about some of the more interesting findings that emerge from an initial inspection of these data. A confidential version of the unit-record data set has been prepared by the HILDA project team and is now available to academics, government agencies and other approved persons for research purposes. Wave 2 is currently in the field, and the HILDA Project Team is working closely with ACNielsen to minimise attrition. While researchers have not had the data for long, the Melbourne Institute, in conjunction with FaCS, is organising a conference on the HILDA Survey data for 13 March 2003. A number of visiting academics from overseas will be speaking, including Professor Dan Hamermesh from the University of Texas and Professor Stephen Jenkins from the University of Essex. For more information about the HILDA Survey, see the comprehensive and up-to-date pages maintained on the Melbourne Institute website. New ARC Grant: The Dynamics of Economic and Social Change The results of Australian Research Council (ARC) Discovery Grants for 2003 were announced in October, and a project headed by Mark Wooden was among those awarded funding. Titled ‘The Dynamics of Economic and Social Change’, the project will use the HILDA Survey data to address a large number of research questions of fundamental importance to

Australians and the way they live. These questions cover three main areas: (i) income, poverty and well-being; (ii) labour supply and work incentives; and (iii) the changing nature of work. The project is to extend over three years and a total of $360,000 was provided. Co-chief investigators are Professor Jeff Borland, from the Economics Department, and Professor Alan Duncan, who, while based at the University of Nottingham, is a very active Professorial Fellow of the Melbourne Institute. FaCS Social Policy Research Contract One of the Melbourne Institute’s larger ongoing research contracts is its Social Policy Research contract with the Federal Department of Family and Community Services. Now nearing the end of its second year (the initial contract is for four years), 31 projects have been started and seven of these are now complete. Projects fall into three main streams: (i) empirical studies of the interaction between the labour market and the social security system; (ii) economic and social analysis of families and communities; and (iii) the supply of and demand for income security. Examples of projects recently completed within each of these streams now follow. Reliance on Income Support in Australia This project examined the issue of welfare dependence, and in particular how pervasive and persistent it is. It was found that, over the course of a year, one-third of the Australian population aged 15–64 years is at some stage reliant on welfare, with one-sixth reliant for an entire year. This represents a significant increase in welfare dependence since the early 1980s, when less than one-quarter of the workforce-age population was reliant at some stage of the year. The study also found that once a person becomes heavily reliant, exit from that state becomes very difficult. For example, over 80 per cent of persons reliant on welfare for over half of one year are also reliant for over half the following year. (See Working Paper 6/02, Reliance on Income Support in Australia: Prevalence and Persistence by Yi-Ping Tseng and Roger Wilkins.) Understanding and Improving Data Quality Relating to Low Income Households The recent announcement of a Senate inquiry into poverty is likely to lead to a focus on its

measurement. In the past, estimates of poverty have generated a great deal of controversy, with the quality of data, particularly that reported for the poor, argued to be unreliable and thus not justifying many of the inferences about poverty made by researchers. This issue was at the centre of the Senate inquiry. Clear evidence of under-reporting of income was found, but this was just one of a number of reasons for apparent inconsistencies in data. It was concluded that great care needs to be taken when using the data and that a process of triangulation be used in relation to making inferences from results. (The chief investigators are David Johnson and Rosanna Scutella.) Incidence and Trends in Jobless Families This study examined the distribution of employment across households over time. It found that employment is becoming increasingly polarised across households, with growth in both noearner and two-earner households. Moreover, the shift to smaller households only explains part of this trend. The trend is of particular concern in households with children, where this dramatic polarisation of work and incomes is likely to have consequences for welfare costs and children’s opportunities in the next generation. (See Working Paper 9/02, Employment Polarisation in Australia by Peter Dawkins, Paul Gregg and Rosanna Scutella.) Health Research Health research at the Melbourne Institute has had a long and illustrious history. Much of Medibank, the predecessor of the present Medicare system, was conceived and developed at the Melbourne Institute in the early 1970s. Following this tradition, the Melbourne Institute launched a number of new research initiatives in health economics in 2002. These include projects commissioned by the Victorian Department of Treasury and Finance to provide an overall assessment of the Australian health care system, and development work for the preparation of an application under a new NHMRC funding initiative on Interfacing Health Research with Health Policy and Practice, of which the first round is a five-year $10-million program on the Economics and Financing of Health.

(continued on page 7)

Business Cycles and Forecasting Business Cycle Centre Continues to Achieve International Recognition

Economic Forecasts and Report on Unfair Dismissals

Work being undertaken in the Business Cycles Centre is continuing to be noticed internationally, as is evidenced by invitations to speak at international conferences. Don Harding was invited to speak at a two-day colloquium in Luxembourg in November. The Colloquium on Modern Tools for Business Cycle Analysis was organised by Eurostat, the statistical agency of the European Union, and took place on 28–29 November. Don’s paper, which is available on our website, is Non-Parametric Measures of the European Business Cycle. On 20–21 June Pete Summers attended a conference in Manchester on Growth and Business Cycles in Theory and Practise. This conference was organised by the Centre for Growth and Business Cycle Research at the University of Manchester. Pete then attended the 22nd International Symposium on Forecasting, held at Trinity College in Dublin, on 23–26 June. He presented a paper entitled On the Interactions Between Growth and Volatility in a Markov Switching Model of GDP at this meeting. Don Harding presented findings from his research at a number of important international conferences during 2002. In late July he attended the Latin American meetings of the Econometric Society in Sao Paulo, Brazil, where he presented a paper entitled The Comparison of Two Dating Methods. Immediately following this meeting he attended the Conference on Common Features in Rio de Janeiro, where he presented a paper called Synchronisation of Cycles. From 24–28 August Don attended the European meetings of the Econometric Society, which were held in Venice. At this meeting Don presented a paper entitled Extracting, Using and Analysing Cyclical Information. (All of the papers mentioned here are jointly authored with Professor Adrian Pagan of the ANU and UNSW.)

The Business Cycle Centre’s latest economic forecasts presented at the December Business Economics Forum and published in the Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends 4.02 are shown in Table 1. The highlight of the Business Economics Forum in Melbourne on 29 October was the launch, by the Hon Tony Abbott MP, Minister for Employment and Workplace Relations, of an important report by Don Harding on unfair dismissal laws. This report, entitled The Effects of Unfair DisPete Summers at the Melbourne Institute missal Laws on Small and Medium Sized BusiBusiness Economics Forum nesses, was commissioned by the Federal The key reasons she gives for this are: Department of Employment and Workplace Relations. • fair treatment at work is a reasonable expecDon presented an overview of the report at tation for all workers; the Forum. The findings are based on statistical • the survey does not prove that UFD is a analysis of a carefully designed survey of 1800 major concern of small business, although it small and medium sized businesses (less than does indicate that employers would prefer 200 permanent employees) throughout Austo have fewer obligations towards employtralia. The report suggests that the unfair disees, as might be expected; missal (UFD) laws cause both adverse equity • there is no objective evidence of the effect of and efficiency effects. The adverse effects arise UFD on employment, particularly in light of because the UFD laws discourage businesses the existence of state jurisdictions long befrom hiring certain types of job applicants— fore the introduction of federal laws and the those that change jobs frequently for no apparassociated political campaign; and ent reason and the long-term unemployed. The • while there may be a cost associated with adverse efficiency effects arise because the UFD providing fair treatment of employees, the laws impose costs on firms. The lower bound on survey does not ask whether this provides the estimate of these costs for the economy as a benefits to the business, including retention whole is $1.3 billion, which is about 0.2 per cent and better workplace relations. of GDP. According to Don, the best estimate of the costs is likely to be substantially above this The report on unfair dismissals is available in lower bound. The average cost impost was $296 full on the Melbourne Institute website. per full-time employee. As can be seen in Figure 1, the cost impost varies considerFigure 1: Average Cost Per Full-Time Employee ably by industry, being highest in accommodation and lowest in re- $ per year 500 tail trade. 450 The ACTU’s Linda Rubenstein responded to Don’s 400 report findings at the 350 Table 1: Melbourne Institute Forecasts of Economic Activity, Forum. She stated September Quarter 2002 to June Quarter 2004 (per cent) 300 that the ACTU does 2002 2003 2004 250 not believe that the Sept. Dec. Mar. June Sept. Dec. Mar. June 200 survey strengthens GDPa 3.1 2.7 2.6 2.6 2.7 2.5 2.5 2.5 150 the case for exempt2.7 2.6 2.6 2.5 2.2 2.2 2.2 2.3 Inflationa 100 ing small business Consumptiona 5 4.9 4.7 4.2 4.2 4.2 4.2 4.2 50 from UFD laws, or Unemploymentb 6.2 6 6 6 6 6 6.1 6.1 0 for making any other 1.9 1.9 1.3 1.5 1.4 1.6 1.6 1.6 Employmenta e n e h 90-day bill rate 5 4.7 4.7 4.7 4.7 4.7 4.7 4.8 on ring ions on port rade changes restricting alt ctio nanc trad t ati ati t u s He stru il od fact ica ecre an sale Fi a r n t m T workers’ rights n Notes: (a) Per cent change from same quarter in previous year. R le m nu Re mu Co co ho Ma om (b) Unemployment rate, per cent of labour force, average for quarter. W Ac C under the law.

Industrial Economics Management and Industrial Relations in the 21st Century

Business Use of the Internet in Australia

Four papers (which are summarised below) from a research program series entitled Management and Industrial Relations in the 21st Century have been released as working papers by the Enterprise Performance area during 2002. This project is supported by the Australian Research Council, the Business Council of Australia and the Committee for Economic Development of Australia. These working papers are discussed below. (The views expressed in these papers represent those of the authors and not necessarily the views of the collaborative partners.) Industrial Relations Reform and Business Performance

From left: Joanne Loundes, Tim Fry and Kelly Jarvis

The first of these papers, Working Paper 2/02 (see page 8), looks at industrial relations reform and business performance. While there appears to be widespread consensus, at least among industry and government, that enterprise bargaining has been beneficial for productivity, many academics have argued that the link between the type of bargaining structure and workplace productivity is a contentious one. In this working paper Mark Wooden, Joanne Loundes and Yi-Ping Tseng present their findings from a review of the literature in this area. They conclude that there are no clear-cut findings and that much of relevant research literature is poorly developed. Industrial Relations Climate in Australian Enterprises A second working paper (Working Paper 7/02) looks at factors affecting the industrial relations climate in Australian enterprises. Joanne Loundes and Beth Webster have used enterprise level data to investigate the factors that are associated with cooperative industrial relations climates within major Australian enterprises. Climate is commonly measured along a uni-dimensional scale ranging from adversarial to cooperative, and there is a view in the literature—albeit not a consensus—that more cooperative climates are more productive. The authors show that organisations which have well-developed and bilateral channels of communication between managers and employees, and those companies that use systematic

and analytical methods for making major decisions, tend to have the most cooperative relationship climate between management, employees and unions. The degree to which a company has embraced industrial relations reform was not found to be associated with industrial climate.

Combining aggregate data from the ABS with micro data from the Melbourne Institute Business Survey, Joanne Loundes has commenced a series of studies on Internet use by the business sector (see Working Paper 20/ 02). The existing literature suggests that Internet use is only beneficial to an organisation when it is incorporated into an overall strategy. However, Joanne’s research shows that organisations that are competitively strong in at least one area (e.g. operational excellence, customer intimacy or product leadership) are more likely to use particular features of the Internet than the rest of the sample. Previous research also indicates that there are significant differences in Internet adoption by company according to type of industry. Joanne’s evidence suggests that Internet usage does indeed vary across industries, with manufacturers more likely to use the Internet for the coordination of delivery arrangements than service industries, which are more likely to use the Internet for customer selfservice and personnel benefits. Intangible and Intellectual Capital

Are Pro-Reformers Better Performers? There appears to be widespread consensus in industry and government that a switch from centralised bargaining to an enterprise-based system benefits productivity. However, research suggests that the link between bargaining structures and worker productivity is dubious and that empirical research has been unable to discover a relationship between them. In this working paper (Working Paper 18/02) Tim Fry, Kelly Jarvis and Joanne Loundes have used enterprise data to examine the links between performance and a range of human resources, industrial relations and management variables to determine whether bargaining structures do impact on performance. In particular, they looked at whether organisations that have incorporated aspects of the industrial relations reform agenda have outperformed organisations that have not. The results from the application of a treatment-effects regression model indicate that organisations adopting the industrial relations reform agenda report significantly higher levels of self-assessed labour productivity relative to their competitors, even after controlling for a number of different factors.

As part of her combined role with the Intellectual Property Research Institute of Australia (IPRIA, see http://www.ipria.org/), Beth Webster has undertaken a review of theoretical and empirical academic economic studies on the meaning and importance of intangible and intellectual capital (Working Paper 10/02). Her review appraises measures of the importance of intangible and intellectual capital; whether optimal levels of investment in intangible and intellectual capital can be said to exist; and, accordingly, whether governments should intervene in the market. On balance, theory favours the view that, for reasons associated with uncertainty, non-mortgageability and economies of scale, there is an under-investment in these types of investment. However, the extent to which this is true will differ according to the prevalence of uncertainty, non-mortgageability and scale economies for each type of capital item. The most common policies to stimulate the production of intangible capital, especially intellectual capital, are government grants, subsidies and research consortia. Optimal policies adjust the incentive to produce so that the marginal costs to society are equal to the marginal benefits.

Some Reflections on Calculating Poverty (continued from page 2) researcher picks the poverty rate. In this context discussion of what is the ‘correct’ current poverty rate is simply a matter of opinion. To justify a particular level the researcher has to justify the level of the poverty line. It is probably better to report the rates of poverty that arise from a range of poverty lines, and leave it to the reader to choose which level they think appropriate. Trends are also of great interest and are not quite so subject to the discretion of the researcher. While it remains true that the researcher chooses the poverty line and equivalence scales, it is likely that a range of choices will produce consistent trends. References Commission of Inquiry into Poverty 1975, Poverty in Australia, First Main Report (Chair, R.F. Henderson), AGPS, Canberra. Harding, A., Lloyd, R. and Greenwell, H. 2001, ‘Financial disadvantage in Australia 1990 to 2000’, NATSEM and The Smith Family, downloaded from www.smithfamily.org.au Johnson, D.T. 1996, ‘The application of poverty lines to the measurement of poverty’, Australian Economic Review, no. 113, pp. 110–26. Saunders, P. 2002, ‘Poor statistics’, Issues Paper no. 23, Centre for Independent Studies, April, downloaded from www.cis.org.au

Tsumori, K., Saunders, P. and Hughes, H. 2002, ‘Poor arguments’, Issues Paper no. 21, Centre for Independent Studies, January, downloaded from www.cis.org.au Appendix: A Strategy for Measuring Poverty A strategy for measuring trends in poverty is as follows. First, pick a level of a poverty line at a point in time—it doesn’t much matter which, since the choice is always subjective. Overseas (European) researchers often use somewhere between 50 and 60 per cent of mean or median income. The Henderson poverty line for a standard family (two adults and two dependent children) is about 60 per cent of average earnings and will do for most purposes. Next, use equivalence scales to calculate poverty lines for different household types. Equivalence scales show the level of income needed for a household type other than the standard, relative to the standard. There are many choices here. Probably the best source of new information reflecting current Australian conditions for updating equivalence scales is the work by Peter Saunders and others from the Social Policy Research Centre on budget standards. Derive relativities from that work or choose some very simple system (e.g. 1 point for the head, 0.6 for

the second and subsequent adults, and 0.3 for all dependents). Choose an index to update the poverty line over the period of interest. For the relative line, movements in average household incomes per head are a good choice, and for an absolute line, choose movements in consumer prices. Finally, choose an index for measuring poverty. The simplest is to count the number of people below the poverty line—known as the head count. The head count suffers from a number of problems and is particularly sensitive to concerns about quality of income data. An income gap measure that adds up the total amount of income shortfall is probably best for most purposes. More sophisticated measures that give greater weight to the poorest people may also be chosen, but most trends will be revealed by an income gap measure. The above procedure may be used with data from both income and expenditure surveys. Expenditure data have been less criticised than income data, but nevertheless have problems of their own—there are all sorts of difficult issues in relation to assets, interest, depreciation, and there are also known problems with reporting of particular items (gambling, alcohol and tobacco). David Johnson, Deputy Director

Labour, Social and Fiscal Studies (continued from page 4) Education Research The Melbourne Institute has recently expanded its research related to the education sector. With funding from the Victorian Department of Treasury and Finance, research has been conducted into various elements of the Victorian primary

and secondary education sectors. This work will continue in the new year, with a focus on the drivers of student and school performance, the labour market for educators, and the funding of primary and secondary education. Under the leadership of Emeritus Professor Boris Schedvin, an Associate of the Melbourne

Institute, we are also bringing together many leading thinkers in the area of education with a view to organising a major conference in 2003 and publishing a book, provisionally entitled Education and the Knowledge Economy in Australia.

Melbourne Institute Business and Public Economics Forums The Melbourne Institute operates three Forums. The Business Economics Forum (Melbourne) and the Business Economics Forum (Sydney) focus on the economic outlook and a range of special economic topics. The Public Economics Forum (Canberra) is oriented towards public policy. Three levels of membership are available: Gold, Associate and Individual. All memberships include attendance at the quarterly breakfast/luncheon Forums and a year’s sub-

scription to the Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends. Additional benefits that can be added to the basic package include: • publications from the extensive catalogue produced by the Melbourne Institute • discount registration at Melbourne Institute public conferences • access to consultancy by researchers of the Melbourne Institute • other benefits negotiable.

Attendance at the quarterly Forums is possible for non-members also. Those wishing to attend on a casual basis can enter their details on a mailing list via our website to receive invitations. For further information on either the Melbourne Institute Business Economics Forums or the Melbourne Institute Public Economics Forum, please contact Penny Hope on (03) 8344 7885.

Melbourne Institute Publications Journals The Australian Economic Review (quarterly) Australian Social Monitor (quarterly) Mercer – Melbourne Institute Quarterly Bulletin of Economic Trends Macroeconomic and Social Indicators Westpac – Melbourne Institute Indexes of Economic Activity (monthly) Westpac – Melbourne Institute Survey of Consumer Sentiment (monthly) Melbourne Institute Survey of Consumer Inflationary Expectations (Sponsored by the Reserve Bank; monthly) Westpac – Melbourne Institute Survey of Consumer Sentiment: NSW, Vic., Qld, WA (quarterly) ING – Melbourne Institute Household Saving Report (quarterly) Melbourne Institute Wages Report (quarterly) Poverty Lines: Australia (quarterly) Working Papers, 2002 Most of our working papers can be downloaded from the Melbourne Institute website. 1/02 How Unreasonable Are Long Working Hours? by Mark Wooden and Joanne Loundes 2/02 Industrial Relations Reform and Business Performance: An Introduction by Mark Wooden, Joanne Loundes and Yi-Ping Tseng 3/02 The Dynamic Performance of Australian Enterprises by Derek Bosworth and Joanne Loundes 4/02 The Relationship between Juvenile and Adult Crime by Guyonne Kalb and Jenny Williams 5/02 The Net Benefit to Government of Higher Education: A ‘Balance Sheet’ Approach by David Johnson and Roger Wilkins 6/02 Reliance on Income Support in Australia: Prevalence and Persistence by Yi-Ping Tseng and Roger Wilkins 7/02 Factors Affecting the Industrial Relations Climate in Australian Enterprises

by Elizabeth Webster and Joanne Loundes 8/02 Estimation of Wage Equations in Australia: Allowing for Censored Observations of Labour Supply by Guyonne Kalb and Rosanna Scutella 9/02 Employment Polarisation in Australia by Peter Dawkins, Paul Gregg and Rosanna Scutella 10/02 Intangible and Intellectual Capital: A Review of the Literature by Elizabeth Webster 11/02 A Cost Function for Higher Education in Australia by John Creedy, David Johnson and Ma. Rebecca Valenzuela 12/02 Work and Family Directions in the US and Australia: A Policy Research Agenda by Robert Drago, Rosanna Scutella and Amy Varner 13/02 Measuring the Local Impact of Electronic Gaming Machines by David Johnson 14/02 New Estimates of the Private Rate of Return to University Education in Australia by Jeff Borland 15/02 Firm Performance and Investment in R&D and Intellectual Property by Mark Rogers 16/02 Perceptions of Job Security in Australia by Jeff Borland 17/02 Intransigencies in the Labour Supply Choice by Mark N. Harris and Alan Duncan 18/02 Are Pro-Reformers Better Performers? by Tim R.L. Fry, Kelly Jarvis and Joanne Loundes 19/02 Optimal Employee Turnover Rate: Theory and Evidence by Mark Harris, Kam-Ki Tang and Yi-Ping Tseng 20/02 Business Use of the Internet in Australia by Joanne Loundes 21/02 Regime Switches in GDP Growth and Volatility: Some International Evidence and Implications for Modelling Business Cycles by Penelope A. Smith and Peter M. Summers 22/02 Intellectual Capital: Accumulation and Appropriation by Laurie Hunter

23/02 Public Capital, Congestion and Private Production in Australia by Lei Lei Song 24/02 Estimation of Labour Supply Models for Four Separate Groups in the Australian Population by Guyonne Kalb 25/02 The Effect of a Reduced Allowance and Pension Taper Rate: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator by Guyonne Kalb and Hsein Kew 26/02 The Effect of a Reduced Family Payment Taper Rate: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator by Guyonne Kalb, Hsein Kew and Rosanna Scutella 27/02 Economic Analyses of Families: Existing Research Findings by David Johnson and Guyonne Kalb 28/02 Factors Affecting Return to Work after Injury: A Study for the Victorian WorkCover Authority by David Johnson and Tim Fry 29/02 Cost Focussed Firms and Internet Usage by Joanne Loundes Other Publications Melbourne Institute Annual Report and Outlook Household, Income and Labour Dynamics in Australia (HILDA) Survey Annual Report How Big Business Performs: Private Performance and Public Policy (contact Allen & Unwin) R&D and Intellectual Property Scoreboard 2002: Benchmarking Innovation in Australian Enterprises (contact IPRIA, University of Melbourne) Downsizing: Is it Working for Australia? The Contours of Restructuring and Downsizing in Australia Policy Implications of the Ageing of Australia’s Population (contact the Productivity Commission) The Economics of Intangible Investment (contact Edward Elgar) For further information or a copy of the publications brochure please contact the Melbourne Institute on (03) 8344 5330.

Enquiries relating to the Melbourne Institute may be directed to Melbourne Institute of Applied Economic and Social Research The University of Melbourne, Victoria 3010 Australia Phone: +61 3 8344 5330 Fax: +61 3 8344 5630 Email: melb-inst@unimelb.edu.au For further information on the Melbourne Institute and its products and services, log on to http://www.melbourneinstitute.com