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.

Posted in
Corporate Engage News Politics and Public Policy Research

2 thoughts on “Research shows ‘human costs’ of public sector cuts

  1. There is a lot of good will that has been lost from the public service in recent years. One of the impacts of reducing work positions is that others have to increase their workload assuming additional duties as experienced staff depart and departments and agencies focus more and more intensely on their ‘core business’ activities. This in turn creates conditions where the silo mentality flourishes and consumer satisfaction and quality programs go by the wayside. It seems strange that at the same time that governments are implementing information sharing guidelines to protect children and vulnerable individuals, they are creating conditions where staff who want to provide good quality services are being constricted in the name of efficiency so the services are a very long way from optimum. Yet as a society, we are paying more in fees and taxes and individually shouldering costs than ever before. Outsourcing and shifting the costs to the private sector has certainly made some individuals very wealthy but it has come at the expense of social values and public goods. Charging more for a service or making individuals pay co-contributions does not always translate into better or more efficient services. On a side note, there was a trend in SA Health to rename jobs with fancy names so the agency heads couldn’t or wouldn’t slash positions. It’s very easy to cut a ward clerk or admin officer as they sound like run of the mill paper shufflers but rename that role as a ward co-ordinator and it suddenly sounds on paper like a position you wouldn’t cut if you were sitting on a slash and burn task force and trying to cut staff to cut costs. Now most of these roles were classified as ASO1 or ASO2 levels but the level of responsibilities and expectations placed onto these staff were greater than those at much higher pay levels at times and there is a flat line in opportunities for advancement within that sort of work. Having said that, the responsibilities attached to some positions in some areas were not distributed fairly between staff. Three admin staff in one area, paid at the same level, could be required to do vastly different work and expected to assume extremely different levels of responsibilities. Concepts of team centred work places are very much altered in the need to preserve and protect your own patch. The other implication in health is that people often don’t know what jobs other people are employed to do – even if they have job descriptions that are similar and at the same level. I worked in places where the admin staff are set up against each other by management because they can control their staff better but it costs in time and friction and frittered energies protecting your back. This secrecy is the foundation of distrust within that sector because if you don’t know what the person next to you is doing then you can’t assess if they are doing their job effectively or if it is a position that can be classified as excess or worthwhile but in some skewed way they then label this as healthy competition and a form of incentive when in reality favouritisms flourish. It seems that this government is dedicated to implementing an ideological based policy platform however if your staff are living and working in constant fear and instability, where they don’t have the chance to rest, their workflows are constantly high paced and their rewards for effort are not based in tenure and security, the work is repetitive, and neither financially or emotionally satisfying then it reduces efficiencies and creates very sick cultures where domination and oppression flourish. In the public service, the last generation of departmental heads were placed onto employment contracts, where they have had to meet KPI’s and prove efficiencies which has meant that programs are implemented and staff shuffled around to create the appearances of economic efficiencies rather than creating environments that are innovative with genuine benefits flowing from just rewards. Many sectors experienced privatisation of business units and outsourcing of these units to industry with the expectation that they could be more efficiently conducted in the private sector. However, there are some areas of business that are just a part of running services and they can’t expect to make each business unit independently profitable. There is no real justification for the implementation for some of these changes other than the ideological pursuit of Libertarian principles and values irrespective of the human costs.

  2. I work in the public service, although I’ll admit I think my job is relatively safe. Without a doubt, there is a LOT of incompetence/dead wood in the service (created by 2 things – (1) arbitrary red tape that introduces (unjustified) process and people overheads. (2) A Centralised focus (most federal public service has the attitude that pollies think the closer you are to Parliament house the more important you are [Centrelink is in Tuggeranong – but that’s another story]). As long as I have been in the service, I have pushed for decentralising where possible, to increase the potential skills market, and reduce cost (one of the problems with Canberra’s small population and high demand for public servants is an inflated price for often ordinary labour). I think there is a lot of money wasted in the public service, and I think some of that is on people who are not adequately qualified for the posts they hold. That said, having someone paid to essentially do nothing is not unlike some of the benefits available to people.
    One of the problems with these sort of cuts, however, is that they’re arbitrary. Where do politicians pull 6,000 or 12,000 or 16,500 from? It’s not an analysis of what jobs are required, and which might be the result of bloating, but rather arbitrary figures essentially based on finance that hasn’t necessarily been though through. So, where do these cuts come from? From Random places, because the emphasis is on numbers not necessity of the position. Even under a “Natural Attrition” model, the problem is that the people leaving aren’t necessarily the positions you need to get rid of, and are often skilled position (Finance, IT, Legal, Human Resourcing, probably others) that can’t simply be replaced by any other body already in the public service. Further, in a lot of these skilled areas, resources are already thin on the ground, and the demand to quickly deliver new results actually increases as the resource pool shrinks. This means that departments are forced to hire contractors to fill in the gaps. On paper, contractors are very effective, but the Public Service is spectacularly bad at using Contractors properly, and tends to renew their contracts again, and again, and again to the point where they are essentially public servants, except with a far greater take-home pay (although admittedly without some of the benefits of permanency). These contractors then establish themselves as experts, refuse to take permanent positions and essentially hold the service to ransom demanding that their pay continue to rise and they not be let go because of the critical organisational knowledge that they’ve developed over 5,6 or even 10 years. One of the biggest savings the Public Service could make is to harden up on Contractors: Let them sit on the bench unpaid when there’s nothing else to do; and be prepared to stop renewing their contracts if they reject offers of permanency. There are many, many, many other savings they could make with some small adjustments at the lower Executive level (EL1/EL2) with just a more stringent grip on how their staff spend money (with travel I think being the most obvious abuse of the public purse).

    I could go on all night, suffice it to say that there are massive savings possible in the Public Service that would minimise unnecessary loss of jobs, and could create a more efficient system that is not bogged down by red tape (with middle level managers scared to make decisions for fear of the repercussions of making a decision that’s bad – or worse still, simply unpopular). The public service is BADLY broken, but deadwood is the LEAST of their problems, and the numbers being bandied about on the number of people they can afford to let go are fairly extreme…..

Leave a Reply

Your email address will not be published.