Saturday, February 09, 2013

Why Australia's Fair Work Ombudsmen needs a reality check

I get very crabby sometimes. I don't actually like it; it usually means that something has prodded an existing sore spot.

A case in point was the release during the week by the Australian Fair Work Ombudsman of a report into unpaid work. This ABC news report, Fair Work launches crackdown on unpaid work, will give you something of the flavour. It begins: 

Unpaid job trials and internships are on the rise in Australia, with young graduates at particular risk of being exploited, according to new research.

The internships, which are common in the United States, have become increasingly popular in Australia but a new report out today says the arrangements are illegal.

Early in 2011, eldest studied at the Copenhagen Business School for a semester as part of her university course. While there, she did an unpaid internship with the Australian Embassy. This was not connected with her course, but was very valuable in giving her experience. Apparently, this type of arrangement is now illegal. Listening to the Fair Work Ombudsman Nicholas Wilson being interviewed about the report and the proposed follow up action made me wonder just what planet he lived on. Yes, I said that I got crabby if you poked a sore spot!

Yes, there has been a rise in unpaid work and that can lead to exploitation. However, the response is unreasonable. Here I want to focus especially on the professions, the area that I know best. Here I quote from the official summary of the report:

    • While unpaid internships are more prevalent in certain industries, the report concludes that the majority of professional industries are affected, including (but not limited to) print and broadcast media, legal services, advertising, marketing, PR and event management. Such arrangements are often considered a prelude to paid work.
    • The report concludes that there is reason to suspect that a growing number of businesses are choosing to engage unpaid interns to perform work that might otherwise be done by paid employees.
    • The report recommends that FWO focus on those businesses that are systematically using unpaid work arrangements to exploit workers, and gain competitive advantage over businesses complying with workplace laws.

Let's start with a basic fact. There are costs involved with all new staff members beyond salary. These include especially supervision time. It also takes time for a new staff member without experience to become productive. This is especially true for a new graduate.

Consider now a second feature. There are costs involved in working. You have travel costs, depending on the industry you have to look smart and that means dry cleaning; these may sound small things, but they add up.

Taken together, these things impose a natural constraint on the use of unpaid staff. They can only do certain things, there are costs involved for the business, and they will walk when they can't afford cash costs associated with the job or if they feel that they are being ripped off. With possible exceptions, events management or certain not for profits come to mind, you can't build a sustainable business or even increase your profit margins through systematic use of unpaid labour. The real world doesn't work like that.

You can actually see this in the difficulties that can arise in finding placements for students at all levels who have to do work experience as part of their course. They can struggle to find the placements they need. Why? It's all to expensive and complicated for the firms they want to work for. I remember at one point I was getting a dozen applications a week, including many from students at overseas universities, especially from those in France.

Turning to the other side, the labour market is both imperfect and very competitive. I have written a little on this and should write more. I worry a about my daughters, for they live in a credentialed world in which just just having a degree no longer guarantees work. For many, internships or unpaid work has become an investment in training and work experience.

The Fair Work Ombudsmen's blunt edge approach does not recognise any of this. As I said, the report prodded a sore spot. It just adds to the regulation that is choking us all. Mr Wilson need a reality check.   

6 comments:

marcellous said...

Jim

I think you are over-reacting on the basis of a second-hand report.

Any system of award wages has to be able to prevent deals where people work for free or less than the award.

Your daughter's internship in Copenhagen was almost certainly governed by Danish labour law. But on my reading of the Fair Work report it would be permitted in Australia, even if prima facie against the law as it presently stands: the test is really whether the employer is using such un-paid or under-paid labour as a substitute for paid labour in a substantially profit making venture. Commonplace examples are sandwich hands working for a week for free - but it is also becoming more prevalent in some white-collar areas.

Look at the problem from a different angle: how would your children have been able to have obtained jobs in the hospitality sector in their student days if potential employers had been able to staff their enterprises for free from Indian students on hospitality courses at TAFE who needed to get some work experience as a condition of their course which was in turn a condition of their visa?

The law is a blunt instrument but that is because of the ingenuity people to go against its spirit. The sense I got from the Fair Work investigation is that they are trying to work out ways of being less blunt.

The problem here is to guard against exploitation.

Exploitation itself is a relative concept. For example, if Maccas could employ eleven year olds at $4 and hour to take orders at the drive-through counter, you can bet that there would be eleven year olds who would be happy to take the job. They wouldn't feel exploited! But they are exploited in the sense that otherwise Maccas would need to pay an older person a bit more.

That's an easy example. More questionable is the enlistment of teams of interns by Fairfax to go through large amounts of government documents becoming available at the same time as they are letting a big proportion of their journalists go.

I'm not saying that the question of how people get their start-up experience is an easy one, but I don't think Fair Work is saying that either.

Jim Belshaw said...

Hi Marcellous. A very quick response. While I take the force of your comment and have yet to read the full report, my reactions are based especially on the official executive summary plus interviews I heard with the FWO. I also focused on the professions. I will come back with a fuller comment tonight.

Jim Belshaw said...

Marcellous, I have only had time to quickly skim the full report. I think that i stand by my position. You also raise other issues worthy of comment as part of the process of clarifying issues. But I am not going to manage this tonight!

marcellous said...

Jim,

I didn't mean to say your reaction was totally superficial.

The nub of your irritation is this:

"With possible exceptions, events management or certain not for profits come to mind, you can't build a sustainable business or even increase your profit margins through systematic use of unpaid labour. The real world doesn't work like that."

That is the issue which is really up for investigation. The real work may not work like that at present but if the practice is allowed to continue unchecked, it may. I think there is a bit of it going on already in some areas such as, for example, events management.

You also comment that work experience workers will walk when they feel they are being exploited. That may be true, but it doesn't solve the problem of serial exploitation. Suppose the workers walk once they realise they have been exploited. That stops them suffering further exploitation but leaves them unremunerated for the time they were "not" employed and the "non-" employer keeps the benefit of their labour and can just "not" employ another.

We can have an argument about how many "non-" employers there are like that and whether in turn such practices will, through competition, drive more employers to the same course. I think the Fairwork exercise is more about education and prevention of any increase.

Anonymous said...

Yes, I have to agree with Marcellous here. I followed the links and came away with the impression that it was the 'serial abuse' as M terms it that is the concern.

That is different in emphasis to some sort of general proscription of unpaid work experience - which I think any parent would support, but always with a careful 'eye on proceedings' as it were.

kvd

Jim Belshaw said...

kvd, this is an interesting case for i find that you and marcellous are coming at this from such different perspectives to mine.

That report strikes me as something of a dog's breakfast.

One part of it looks at the relationship between unpaid work including internships and the Fair Work Act. If I interpret the analysis here correctly, it makes unpaid work as work illegal. The way that Act was presented tends to confirm my view that it has silly aspects.

A second part of the argument seems to run this way. There have been problems overseas. We should prevent them emerging here. The evidence presented of the form and scale of the "problem" in this country is, as the report says, largely anecdotal.

The analysis mixes together a whole variety of experiences and categories. It is useful as a list, but fails to really focus on the distinguishing features of each category.

Of course we have to stop exploitation if it forms a pattern. Here I made a point based on the economics of work that there are only certain classes of work where unpaid work may yield a profit to the employer given that there are costs beyond wages. I had a particular focus on services since I know this area especially well.

Now here I want to focus on a few key points marcellous made. Here I begin with a quaote: "But on my reading of the Fair Work report it (your daughter's internship) would be permitted in Australia, even if prima facie against the law as it presently stands: the test is really whether the employer is using such un-paid or under-paid labour as a substitute for paid labour in a substantially profit making venture. Commonplace examples are sandwich hands working for a week for free - but it is also becoming more prevalent in some white-collar areas."

Now marcellous has articulated an important principle here that I am inclined to agree with. If the employer is substituting unpaid for paid labour, I am not sure that the profit making bit is relevant, then a problem may arise. However, if I interpret the report and subsequent responses correctly. the provisions of the Fair Work Act do not allow for discretion. The prima facie will be enforced even if the arrangement is of benefit to both sides.

Now marcellous's second point is more problematic. To begin with, if Indian students need to do some unpaid work as part of their course, it would appear (I stand to be corrected) that that is actually okay under current legislation.

In any case, it wasn't an issue. With exceptions, the costs involved are just too high. A far bigger problem with smaller operations is the cash economy.

I am a little frustrated on this one. This is one case where i really do know the economics, but i simply cannot afford the time to do the detailed analysis required!