Research Papers

Making the Case for Private Enterprise

Written by
28 May 2020

Australia will live or die by the success of private enterprise.

According to the Australian Bureau of Statistics, 75 per cent of all jobs in Australia are created in the private sector, with the remaining 25 per cent in the public sector or the not-for-profit sector.

Additionally, 80 per cent of all economic activity is generated by private sector businesses, and more than 719 billion in wages were paid by private businesses over the past year which is the equivalent to 40 per cent of the entire economy.

On top of that it is only via the taxes levied on private enterprises, their workers, and the goods and services they produce that governments can afford to fund schools, roads, and infrastructure.

And it will only be through the growth of the private sector that Australia has any chance of paying down the $1 trillion in gross federal government debt that is expected to accumulate in the next three years.

This is the context within which the latest report, Jobs and Wages During the COVID-19 Lockdown, by Research Fellows Cian Hussey and Kurt Wallace was prepared.

Cian and Kurt analysed the Weekly Payroll and Wages data released by the ABS which is a new data series that the ABS first released at the end of April to keep track of how the economy is changing throughout the lockdown. A new set of data is released every fortnight.

Cian and Kurt analysed the difference in jobs and wages between the private and public sectors since the lockdowns first came into effect in the middle of March. To do this, they broke down employment by industrial classification, and then developed a methodology of weighting each industry by its contribution to total employment, to delineate between the public and private sectors. The industry used as a proxy for the public sector is what the ABS classifies as “public administration and safety” while the private sector is assumed to be all other industries (Cian and Kurt explain why they did this in more detail in the report).

There are two key findings:

  1. Since the week ending 14 March jobs in the public sector have decreased 1.7 per cent, compared to a 7.7 per cent decrease in the private sector. This means that the rate of job losses is 4.5 times higher in the private sector than in the public sector.
  2. Since the week ending 14 March wages in the public sector have decreased by 2.6 per cent, compared to a 5.7 per cent decrease in the private sector. This means that wage decreases in the private sector were 2.2 times larger than wage decreases in the public sector.

As I said in comments for Adam Creighton’s article in The Australian which covered our research:

“It is clear that we are not all in this together. There is no concept of shared sacrifice amongst the public sector workforce.

Not only are public sector workers better off than private sector workers, but it is those in the public sector who decide when those in the private sector are allowed to go back to work. This is a very worrying and serious moral hazard where those responsible for the lockdown measures do not suffer the consequences of those measures.”

You might be surprised that public sector wages and jobs dropped at all. But there are a couple of important points to remember. Firstly, while the “public administration and safety” industry is a reasonable proxy for the public sector, it is not perfect as approximately 17 per cent of those in that industry are private workers who, for example, provide work safety, fire warden, and first aid training, install safety equipment, and provide consultant work or advice to government.

And, secondly, the decline to jobs in the public administration and safety industry were very short lived. In fact, Cian and Kurt found that economic recovery has already begun in the public sector while the private sector remains depressed, as they explain in the report:

“Over the past month, public sector jobs have actually increased by 2.7 per cent compared with a 1.3 per cent decrease to jobs in the private sector, while wages have increased by 3.7 per cent in the public sector but decreased by 2.2 per cent in the private sector.”

This means that the public sector is almost already back to its pre-crisis levels.

To support private enterprise, governments must reduce Australia’s corporate tax rate which is the second highest in the OECD, cut red and green tape, make it easier for businesses to employ new staff by liberalising our industrial relations system, and getting electricity prices down by enabling the development of more coal-fired power stations and ending subsidies to wind and solar electricity generation.

Click here to download the full report.

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Daniel Wild

Daniel Wild is the Director of Research at the Institute of Public Affairs

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