Research shows ‘human costs’ of public sector cuts

Dr Genevieve Knight from Flinders University’s National Institute of Labour Studies.

Following the Australian Government’s announcement that it will be making swingeing cuts to the public sector in its first Budget, Flinders University’s National Institute of Labour Studies is drawing attention to research showing that the human costs to public servants will last for years.

NILS researcher Dr Genevieve Knight, who has more than 20 years’ experience working as an economist, also said that there was no consensus within Australia about whether the cuts would have the desired effect – and that some economists believed they could in fact have a contractionary, or negative, effect on economic growth.

“This contraction of public services has formed an explicit part of the Government’s austerity plan to restore public finances to health,” Dr Knight said.“It has generally been argued that this contraction will be at least balanced, and probably exceeded, by growth of employment in the market sector.

“The underlying assumption is that this public sector contraction will not lead to a large increase in unemployment, but rather to a restructuring with many former public sector employees finding new jobs in an expanding market economy.

“This idea of rebalancing seems to assume that the people who lost their public sector jobbut still have a job are, in a way, going to be ‘all right’ – because they are not unemployed. But this ignores the personal costs that very probably arise when job changes and cross-sectoral moves take place.

“These costs may include lost income, derailed careers, or personal dissatisfaction. Before we can come to a judgement about the equity and efficiency of restructuring policy we need information about the scale of these costs.”

Under the Coalition Government’s first budget, 16,500 public servants will face unemployment or be shuffled into other positions within the public service over the next three years. This is the biggest cut to the public service since the 1990s.

The NILS research was conducted by Dr Genevieve Knight and Dr Zhang Wei and looked at 80,000 records for 6,000 Australian workers over nine years from 2003-2012. It showed public sector workers were badly affected by job changes, and that it took them more than three years to return to the same level of pay.

“Our research on job changes, drawn from the Household Income and Labour Dynamics in Australian Panel Survey and titled The Individual Consequences of Australian Labour Mobility, shows the significant human cost to public sector job changes,” Dr Knight said.

“In the first year after these changes, our research suggests public sector workers who move to the private sector will lose 6.5% of their earnings, on average.

“Even those who remain in the public sector but with a different employer (those who are shuffled) will lose 3.8%, or an average of $2,200. Three years later, the data shows they will still be earning 2.5% less than workers who remain in their jobs.

“As our research shows the balance of involuntary and voluntary job changes, this reflects the best case scenario because while 2012 ABS data shows that about one third of Australian job changes were involuntary while two thirds were voluntary, these public sector changes will be involuntary only.

“It has been indicated that these public sector job changes will not now be met through attrition. In addition, these figures do not account for further income losses from inflation. Nor do they reflect the costs for those workers who end up in unemployment or out of the labour force.

“Our data also shows significant psycho-social costs to public sector workers who move jobs, with lower overall job satisfaction resulting from lower satisfaction with job security.”

Dr Knight said the Government had yet to present a clear cost-benefit analysis with an argument linked to improved productivity about what the cuts were intended to achieve.

She also said the scale seemed severe given that Australia is not in a recession or heavily Government-debt burdened (private debt is another matter), and that other countries such as the UK and Greece implemented such austerity changes in a recession context.

Dr Knight said the NILS research did show that in a few years, those who move from the public to private sector – assuming they find a job – can end up with higher earnings than those who stay in the same job, but only as a result of further subsequent job changes in the private sector. In spite of this, however, they were still less satisfied because of decreased job security.

Dr Knight said the Australian cuts were reminiscent of the ‘bonfire of the vanities’ budget savings made by the Coalition Government in the UK.

Under the Australian cuts, parts of seven national, cultural institutions will be merged while the Royal Australian Mint and Defence Housing Australia could be privatised.

Dozens of other organisations will be merged, including the Administrative Appeals Tribunal, the Classification review board, the Migration review Tribunal and Refugee Review Tribunal.

Customs will also become part of the Immigration Department, as announced by Immigration Minister Scott Morrison.

This NILS research uses unit record data from the Household, Income and Labour Dynamics in Australia (HILDA) Survey. The HILDA Project was initiated and is funded by the Australian Government Department of Social Services (DSS) and is managed by the Melbourne Institute of Applied Economic and Social Research (Melbourne Institute). The findings and views reported in this paper, however, are those of the author and should not be attributed to either DSS or the Melbourne Institute.

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