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GUEST OBSERVATION
A key question for the government’s retirement incomes <a href="https://treasury.gov.au/review/retirement-income-review" target="_blank">review</a> is who ultimately pays for compulsory super contributions, especially since they are set to climb from 9.5% of wages to 12% over the next five years.
Legally, they come from employers, on top of wages. But employers’ contributions have to come from somewhere. Compulsory super was introduced in 1992 with the <a href="https://treasury.gov.au/sites/default/files/2019-10/afts_retirement_incomes_consultation_paper.pdf">intention</a> they would come out of funds that would otherwise have been paid out as wage increases.
Modelling by the <a href="https://treasury.gov.au/sites/default/files/2019-09/foi_2534_document_set_for_release_re.pdf" target="_blank">Treasury</a>, <a href="https://grattan.edu.au/report/money-in-retirement/" target="_blank">Grattan Institute</a>, and the <a href="https://www.cis.org.au/app/uploads/2016/08/32-3-potter-michael.pdf" target="_blank">private sector</a> has long assumed that is what has happened.
But until now there has been scant empirical evidence about who actually pays, and against the backdrop of chronic low wage growth and the imminent increases, the conventional wisdom has come <a href="https://www.futurework.org.au/abandoning_super_increases_won_t_boost_wages" target="_blank">under attack</a>.
Today’s new Grattan Institute study, <a href="https://grattan.edu.au/report/no-free-lunch/" target="_blank">No free lunch: higher superannuation means lower wages</a> fills the gap.
In an Australian first, it examines detailed data on 80,000 enterprise bargaining agreements over the three decades of compulsory super and concludes that, on average, 80% of each increase in compulsory super has been taken from what would otherwise have been wage increases.
Increases super comes from wages
In theory, super contributions could come from three sources:
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workers, through lower wage growth
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consumers, through higher prices
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investors, through lower profits.
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International <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3435377" target="_blank">studies</a> of similar schemes find that most, if not all, of the cost is borne by workers through lower wage growth.
Our study examined administrative microdata on 80,000 enterprise bargaining agreements filed between 1991 and 2018 sourced from the <a href="https://www.urban.com.au/property-observer" target="_blank">Workplace Agreements Database</a> maintained by the attorney general’s department.
We compared agreements whose terms spanned leglislated increases in compulsory super with those that did not.
Then we estimated what the wage rise in each agreement ought to have been based on detailed information about the agreement, the employer’s industry, and economic conditions at the time it was negotiated.
We were able to see whether there was a systematic difference in wage rises between the agreements that spanned step-up increases in compulsory super and those that did not.
On average 80% of the cost of increased compulsory super contributions was passed on to workers through lower wage rises than would have been expected over the life of those agreements. The long-term impact is likely to have been higher.
The graph shows the overall finding using data from 1992 to 2018 and also the results from subsets of the including the private or public sectors, big and small firms and the period since 1997.
In each case somewhere between most and all of the cost of super increases was passed through to workers in the form of lower wage increases.
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On average, 80% of super increases were at the expense of wages
<a href="https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
Notes: see report. Source: No free lunch Higher superannuation means lower wages, Grattan Institute, February 2020
It isn’t only enterprise agreements
Our study looked only at workers on federally-registered enterprise bargaining agreements, around <a href="https://www.ag.gov.au/industrial-relations/industrial-relations-publications/Documents/trends-report-june-quarter-2019.pdf" target="_blank">30%</a> of the workforce. Other workers are also likely to bear the cost of higher super through lower wages.
The Fair Work Commission – the body which sets award wages – has made the link between super increases and award wages <a href="https://www.fwc.gov.au/documents/sites/wagereview2013/decisions/2013fwcfb4000_statement.pdf" target="_blank">explicit</a>, saying that when super goes up, award wages grow more slowly than they otherwise would.
State enterprise agreements are unlikely to differ much from federal agreements, and workers covered by one-on-one arrangements are likely to experience similar trade-offs.
Future super increases are unlikely to be different
It is unlikely the leglislated future step ups in compulsory super contributions will be different from the earlier ones.
<a href="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt=""></a>
<a href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage" target="_blank">Source: Australian Tax Office</a>
Although wage growth is slower now than in the past, wages are nevertheless – by all measures – growing by more than 2% a year, offering ample room for employers to wind back wage increases in order to fund each of the five scheduled annual step ups of 0.5% in compulsory super contributions that begin on July 1, 2021.
In fact, if workers’ bargaining power has fallen recently - <a href="https://www.smh.com.au/business/workplace/lack-of-competition-between-employers-contributes-to-weaker-wages-20180902-p50197" target="_blank">as some suggest</a> - employers might feel they can push even more of the cost of higher super onto workers than in the past.
Our analysis shows previous increases in compulsory super came mainly from wages: they took money that would have been handed to workers as wage increases and handed it to fund managers to hold and invest until those workers retired.
The next set of legislated increases are likely to do the same.<img src="https://counter.theconversation.com/content/130797/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
<a href="https://theconversation.com/profiles/brendan-coates-154644" target="_blank">Brendan Coates</a>, Program Director, Household Finances, <a href="https://theconversation.com/institutions/grattan-institute-1168" target="_blank">Grattan Institute</a>; <a href="https://theconversation.com/profiles/matthew-cowgill-729072" target="_blank">Matthew Cowgill</a>, Senior Associate, <a href="https://theconversation.com/institutions/grattan-institute-1168" target="_blank">Grattan Institute</a>, and <a href="https://theconversation.com/profiles/will-mackey-604500" target="_blank">Will Mackey</a>, Associate, <a href="https://theconversation.com/institutions/grattan-institute-1168" target="_blank">Grattan Institute</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/think-superannuation-comes-from-employers-pockets-it-comes-from-yours-130797" target="_blank">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

Superannuation comes from your pockets, not your employers

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<img src="https://counter.theconversation.edu.au/content/77104/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The purpose of the “agile” working style is to help businesses adapt to turbulent markets by adopting a fast and flexible approach to work.
In one sense, it should come as no surprise that ANZ’s chief executive Shayne Elliot recently announced that ANZ will be shifting parts of its workforce to this style.
With the bank’s recent withdrawal from Asia and subsequent lower than expected revenues, this is part of ANZ refocus on its core business. In fact, each of Australia’s big four banks might be looking to become more efficient and responsive in the face of a tightly regulated market and slowly building retail banking competition from newer financial technology companies.
In another sense though, it’s surprising that one of Australia’s largest banks should signal such a profound change in work style. Finance is certainly not where agile got its start.
The origins of agile
The forerunners of agile stretch back as far as the Plan-Do-Study-Act method developed by Walter Shewart at Bell Labs in the 1930s and the Toyota Production System, based, in part, on the quality and systems thinking of Shewart’s student, William Edwards Deming.
However, agile as we understand it today is seen as emerging from software programming communities. It crystallised when 17 software developers gathered at the Snowbird ski resort in Utah in 2001 to share and refine their approaches to software development.
One of the participants had been reading a book on major companies coping with turbulent markets, called Agile Competitors and Virtual Organizations: Strategies for Enriching the Customer. Drawn to the agile’s connotations of speed and responsiveness, the group eventually adopted it as the moniker for their movement.
They published their views in The Manifesto for Agile Software Development, intending to help accelerate developers’ efforts to reliably produce software of the highest quality. Agile has since spread beyond the confines of IT to the other types of work and other organisations.
How to work in an agile style
As academics Rigby, Sutherland, and Takeuchi explain, agile now covers a broad range of methods, each varying according to their guiding principles and work rules. The three most well-known methods are scrum, lean, and kanban.
Scrum focuses on structuring teams to work across functions in a business, using creative and adaptive teamwork, daily stand-up meetings, and project reviews to quickly invent solutions and improve team performance.
Lean focuses on eliminating waste in systems and does not prescribe work rules to achieve this in the same way as scrum.
Kanban aims to shorten the time between the initiation and completion of work by visualising workflows, restricting the work being done at each stage in development, and measuring work cycle times to detect improvement.
ANZ seems to be most interested in the scrum method. ANZ’s Head of Product Katherine Bray stated:
There are vestiges of roles that we recognise, but with the underpinnings of hierarchy totally blown apart…[A scrum coach] is not your boss, that’s a coach, who is a peer. That product owner is not your boss, they’re a product owner who defines the how, and you galvanise around that.
Going back to the origins of agile and system thinking, it seems clear the agile approach is most likely to succeed where the organisation adopting it possesses structural modularity. Modularity proposes that organisations structure themselves in a way that allows teams to produce work that is layered, discrete, and testable.
This is what Bray is talking about - a radically new approach to roles and work styles at ANZ.
We might dismiss this whole reorganisation as marketing theatre, but intensifying competition and rapid change are all too real. This means many Australian businesses will have to come to terms with agile approaches if they are to remain responsive and competitive.
By taking up agile’s shift from top-down management to teams that organise themselves, and from a focus on compliance to a focus on innovation, ANZ is making its intent clear. It wants to achieve different results by doing things differently – surely a sane approach to change.
Yet this idea challenges the conventional structure and ethos of banks and similarly run businesses. These organisations are built to be secure and centralised in service of efficiency; modularity pushes them to be integrated and decentralised in service of innovation.
Modularity and agility are not easy to achieve. But they are fast becoming necessary if large companies, like ANZ, are to move with the times and adapt well to market turbulence.
<a href="https://theconversation.com/profiles/massimo-garbuio-369039" target="_blank"></a>
<a href="https://theconversation.com/profiles/massimo-garbuio-369039" target="_blank">Massimo Garbuio</a> is senior lecturer, University of Sydney.
<a href="https://theconversation.com/profiles/massimo-garbuio-369039" target="_blank"></a>
<a href="https://theconversation.com/profiles/dreu-harrison-369349" target="_blank">Dreu Harrison</a> is research assistant, University of Sydney.
<a href="https://theconversation.com/profiles/massimo-garbuio-369039" target="_blank"></a>
Both are authors for The Conversation.
<a href="https://theconversation.com/profiles/massimo-garbuio-369039" target="_blank"> </a>
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