‘The way they manipulate people is really saddening’: study shows the trade-offs in gig work

Uber Gig workers saw their work as  
flexible but also with its risks. Reynaldo Vasconcelos/Newzulu/AAP

Uber driver Michelle, thinks her job is fantastic when she’s only after part-time hours. But she’s given it a couple of months and she says she’s not getting anywhere.

To be able to earn A$800 she has to actually pull in A$1,500, averaging 70 hours a week. The money per hour can be good, but only when it really picks up. Looking at the current job market, she doesn’t want to do two full-time jobs to make the same amount of money that she used to earn in an office, working half the time.

She feels exhausted. She used to think people in Melbourne were good drivers, but now that she’s been driving all day, she sees a fair amount of aggression. Six weeks ago she was trying to merge into traffic and a man in a ute next to her showed her a crowbar.

Her latest day off she spent sleeping because she was so tired.

Michelle (not her real name) was one of our study participants. We interviewed 60 ridesharing and food delivery workers like her. And the reality of their experiences is far more nuanced than others make out.

Work in the “gig economy” is often depicted as flexible by businesses and those who run the platforms that offer work, or as exploitative by labour activists and commentators.

A key finding is that gig workers arbitrate between the costs and benefits of gig work. Many interviewees preferred their gig work over other forms of low-paid work (most commonly cleaning, hospitality, retail) because of abusive bosses, underpayment, and underemployment. In comparison, gig work is seen by these workers as providing a more appealing work environment.

While some rideshare drivers note they need to work long hours to earn the equivalent of a full-time wage, they also emphasise their enjoyment of their rideshare work. One food delivery worker summed it up:

It is more flexible. You can do whatever you want. You are on the street talking to the people enjoying. You can do exercise as well on the bicycle. And, it is good money.

Despite these workers’ sense that there are opportunities in gig work – their experience was not overwhelmingly positive. There was a group of workers who felt marginalised, had few choices, and the gig work was a last resort.

These workers saw gig work as a stopgap measure while they looked for “real” jobs. In these cases they were doing it because it got them out of the house, to supplement their income or before starting their own business.

Social versus isolating

The workers in the study saw social interactions as part of their gig work as one of the more enjoyable aspects. What varied between rideshare and food delivery workers was how these interactions took place.

Food delivery drivers often end up crossing paths during their shifts and informally waiting together. As one worker summed up:

You end up knowing most of the riders, because you see them pretty often. You kind of speak with each other, and there is a social club.

By contrast rideshare drivers noted that their work could be quite physically isolating. Some drivers engaged in online forums with other drivers but would never meet up with them. Despite limited social interaction with other drivers, rideshare drivers reported that this is where they derived most of their job satisfaction.

Freedom versus control

The drivers we interviewed expressed a sense of freedom and flexibility because they had “no boss, no set hours”. However, the flip side of this was a sense of limited control over work. As one food delivery worker described:

I currently fit my life around their work…obviously I have to work around busy times – lunch and dinnertime.

Both delivery riders and rideshare drivers – found that only particular pockets of time across the day were profitable. This was usually lunch and dinner times, especially weekends for food delivery, and weekends and evenings for rideshare drivers. So while their options to sign on or off the app (the platform that employed them) were flexible, realistically their productive working hours were determined by patterns of consumer demand.

Both the rideshare and food delivery platforms also unilaterally changed the terms and conditions of engagement, which directly affected earning potential. Both groups of workers expressed particular concern about the periodic increases in the commission taken by the platform, reporting cuts to earnings of up to 15%. One driver lamented:

The way they [the platform] manipulate people….is really saddening.

Ridesharing workers were also concerned about being financially over-committed due to the cost associated with purchasing and running a vehicle. This financial burden, coupled with continued changing rules of game, and the capacity for these platforms to arbitrarily “deactivate them” led to anxiety and frustration. One worker described this:

It used to be good before they did all the price cuts and started treating their drivers like trash. We have had 30% cuts since I came on board whilst demand hasn’t matched supply. I make around $10 an hour.

Best of a bad lot

Our emerging findings suggest gig workers often understand the trade-offs between the positive and negative features of their work but see this as a reality of their position within the labour market.

A number of our interviewees felt exploited and/or would prefer better paying “real jobs”, validating the concern on regulation, pay and conditions in this industry. But, gig work allows these workers to meet their immediate needs and gives them a sense of being their own boss.

The gig workers enjoyed the high levels of autonomy in their work, and many of them saw their gigs as the best in a market characterised by low paid jobs.

This article was co-authored by:

 

 

 

 

This article is part of a syndicated news program via the Conversation

The economics of self-service checkouts

The-economics-of-self-service-checkouts Is self service all that economical?

Self-checkouts in supermarkets are increasing as businesses battle to reduce costs and increase service efficiency. But looking at the numbers, it isn’t clear that self-service is an easy win for businesses.

Self-checkouts aren’t necessarily faster than other checkouts, don’t result in lower staff numbers, and there are indirect costs such as theft, reduced customer satisfaction and loyalty.

Worldwide, self-checkout terminals are projected to rise from 191,000 in 2013 to 325,000 by 2019. A survey of multiple countries found 90% of respondents had used self-checkouts, with Australia and Italy leading the way.

Employment in the Australian supermarket and grocery industry went down for the first time in 2015-16 and is projected to remain flat for a few years. But staff numbers are projected to rebound again, in part due to the need to curtail growing theft in self-checkouts.

Social trends pushing self-checkout

There are a couple of intertwining trends that explain the rise of self checkouts.

We now visit our supermarkets more frequently than ever before, two to three times per week in fact. This means our basket contains fewer items and being able to wander up to a self-checkout, with little to no wait time, has been an expedient way to shop. Most shoppers consider self-checkouts both fast and easy to use. Although this varies with age – 90% of shoppers aged 18-39 found self-service checkouts easy to use, only 50% of those over 60 years said the same.

Shoppers also gain value from taking control of the transaction – being able to ring up their own goods and pack them the way they want. This is because a sense of control over their own shopping can lead to greater customer satisfaction and intent to use and reuse self-serve technology.

The numbers behind self-checkouts

Wages represent around 9.5% of supermarket revenue in Australia, and reducing wages is one of the reasons proposed for the uptake of self-checkout.

But from a business perspective, moving from “staffed” checkouts to self-serve machines isn’t cheap. A typical setup costs around US$125,000. On top of that there are the costs of integrating the machines into the technology already in place – the software and other systems used to track inventory and sales, and the ongoing costs – to cover breakdowns and maintenance.

But the biggest direct cost to retailers of adopting self-service checkouts is theft. Retail crime in Australia costs the industry over A$4.5 billion each year.

There is reason to believe that rates of theft are higher on self-service machines than regular checkouts. A study of 1 million transactions in the United Kingdom found losses incurred through self-service technology payment systems totalled 3.97% of stock, compared to just 1.47% otherwise. Research shows that one of the drivers of this discrepancy is that everyday customers – those who would not normally steal by any other means – disproportionately steal at self checkouts.

Studies also show that having a human presence around – in this case employees in the self-checkout area, increases the perceived risk of being caught, which reduces “consumer deviance”. This is why retailers have been adding staff to monitor customers, absorbing the additional losses, or passing them on to customers in an “honesty tax”.

Making self-checkouts work

Graph of the likelihood of stealing money

As you can see in this graph, preliminary work by researchers Kate Letheren and Paula Dootson suggests people are less likely to steal from a human employee than an inanimate object. Not only because they will get caught, but because they feel bad about it.

On the other hand, consumers have plenty of justifications to excuse self-checkout theft, which is leading to its normalisation.

To combat this, researcher Paula Dootson is trying to use design to combat deviance. One of the ways is through extreme-personalisation of service to reduce customer anonymity. Anonymity is an undesirable outcome of removing employees and replacing them with technology.

Other ideas are to include moral reminders prior to the opportunity to lie or steal (such as simply reminding people to be honest), and to humanise the machines by encoding human characteristics to trigger empathy.

While self-service technologies will continue to be adopted by businesses broadly, and particularly within the retail sector, it will be important for retailers to take a holistic approach to implementation and loss prevention.

Self-service technology reduces front line staffing costs and increases efficiency by re-distributing displaced staff into other service dominant areas of the business, but it creates unintended costs. These business costs can be direct, in the form of theft, but also indirect costs, like reduce customer satisfaction and loyalty. Something that some supermarkets are focusing on today.

This article was co-authored by:
Image of Gary MortimerGary Mortimer – [Associate Professor, Queensland University of Technology] and
Image of Paula DootsonPaula Dootson – [Research Fellow; PwC Chair in Digital Economy, Queensland University of Technology]

 

 

 

 

This article is part of a syndicated news program via the Conversation

 

The economics behind Uber’s new pricing model

The-economics-behind-Ubers-new-pricing-model Uber is changing the way 
it calculates fares.

Uber is changing the way it calculates fares, moving to a system that charges what customers are “willing to pay”, based on factors like whether you are travelling to a wealthy suburb. But while this change has been met with mild outrage, it is actually a very common practice called “price discrimination”.

Price discrimination is a firm’s attempt to capture the difference between the value a consumer puts on a product and how much they actually pay. Firms do this by charging different prices to different consumers and exploiting differences in willingness to pay.

While this sounds like it comes at the expense of consumers, economic theory shows that society as a whole can benefit if certain conditions are met. For example, if Uber’s new pricing means it can enter new markets or reduce customer waiting times, price discrimination could increase society’s overall welfare.

Price discrimination takes many forms, such as Coca-Cola’s infamous vending machines that increase soft drink prices as the outside temperature increases, or charging more for pink razors.

Cheap movie tickets on Tuesdays are another example of price discrimination, as are the different priced tickets at the theatre and concerts. Pharmaceutical companies charge different prices in different countries, and car dealers negotiate and give out discounts.

The airline industry is often regarded as the champion of price discrimination. It price discriminates on almost every aspect of a fare – from the time a booking is made to the type of seat booked, and, of course, the actual route flown.

The only surprise is that Uber hasn’t implemented such a system before now. Its success has, in large part, been driven by a business model that so cleverly mimics a free-functioning market, notably with its “surge pricing”.

What is price discrimination?

Price discrimination is the practice of charging different “types” of consumers different prices for the same product or service.

Broadly, “type” might be based on an observable characteristic (age, gender or residency status for example) or some unobservable characteristic that is revealed through the consumer’s actions or preferences (coupon discounts, early bird specials, happy hour deals and so on).

Regardless of the mechanism, the objective is to exploit the different “willingness to pay” (WTP) between consumers and thereby increase profits. WTP describes the maximum amount a consumer would pay for a particular product or service. Given consumers differ in incomes and other circumstances, this presents an opportunity that firms may exploit through price discrimination.

Economists generally refer to three types of price discrimination – first degree, second degree, and third degree.

First degree generates the most profit. It involves each consumer paying the maximum price they are willing to pay and the firm extracting all of their WTP.

With the exception of some internet auctions, pure first degree price discrimination isn’t very common. But we can see versions of it where consumers pay a fixed fee in addition to ongoing fees (such as residential water pricing), and where a single price covers both access and (limited) consumption (such as internet services with data limits). If properly designed, these alternative pricing systems mimic first degree price discrimination by capturing the maximum profit available.

Second degree price discrimination involves providing discounts for bulk purchases. While generally not achieving the same level of profits as first degree, the profits from second degree price discrimination still dominate over simple uniform pricing (where one price is charged to all consumers).

This type of pricing doesn’t require a consumer to necessarily be identified by an observable characteristic, rather they reveal their “type” through their purchases. For example, a consumer who buys a 24-pack of soft drink cans at the supermarket generally receives a discount (per can) over the shopper who buys a single can.

Third degree price discrimination involves selling the same good or service to different segments of a market, based on willingness to pay. This is implemented using some identifiable consumer attribute, such as geography or age. An example would be train operators charging different prices to adults and students.

Price discrimination based on geography

It is this third type of price discrimination that Uber is adopting. Although some customers will object to paying different amounts for the same distance travelled, Uber is certainly not the first company to exploit a geographic dimension when it comes to pricing decisions.

Many other businesses similarly base pricing decisions on location and (implicitly) the WTP of consumers in the markets they serve. For example, cafes, restaurants and bars operating in popular tourist destinations often charge substantially more than similar venues in neighbourhood locations. Although this may, to some extent, reflect higher costs, that typically doesn’t explain the entire difference.

The subtle point is what economists refer to as “net prices”, which occur only when price differences for different versions of the same good are not reflected in different costs.

So is Uber’s plan to charge prices according to the customers’ locations something that should cause users to take to the streets in mass protest, or at the very least raise concerns of regulators? Probably not. After all, it isn’t as if Uber is itself a monopoly. There are always taxis as an alternative. But, of course, the taxi industry has always been partial to a little price discrimination itself. It just isn’t as good at it.

This article was written by:
Image of Jordi McKenzieJordi McKenzie – [Senior Lecturer in the Department of Economics, Macquarie University]

 

 

 

 

This article is part of a syndicated news program via the Conversation

 

Consumers lose out in funeral industry lacking competition and regulation: study

Consumers-lose-out-in-funeral-industry A recent study has highlighted the need 
for tighter regulation within the funeral industry.

Consumers are often unnecessarily upsold on funerals due to a lack of information and real competition, in an industry that is fairly unregulated, new research finds.

We studied data on the size, scope and nature of the funeral industry. We also examined the regulatory environment in which it operates, looking at what factors drive prices in this A$1 billion industry. We conducted a comprehensive review of online funeral businesses and used a telephone survey to collect data.

At some point, everyone will engage with the funeral industry either as a consumer or a beneficiary of its services. The funeral industry has a business model that relies on bundling three aspects of death: ceremony, disposal and memorialisation.

Our research finds, accessing these services is more often than not driven by circumstance than real consumer choice. This is largely because most deaths occur in an institution (hospital, aged care facility, nursing home) and the social stigma surrounding dealing with the dead. This creates an opportunity for funeral directors to add a significant service fee and mark-up on coffins.

Regulation and prices in the funeral industry

Despite several government inquiries into the industry, professional associations, like the The Australian Funeral Directors Association (AFDA), have argued that current self regulatory arrangements are sufficient and intervention will likely only further increase costs to consumers.

But there’s still significant disparity in legislation and regulations surrounding funeral services between states, our study shows.

For example, each state and territory has its own regulations regarding the disposal of dead bodies which are not all uniform and some date back to 1929. But in terms of transporting those bodies, only five of the eight states and territories have regulations. NSW is the most stringent and in WA the regulation only covers transporting when death occurs while on inter-hospital transfer. Because consumers are likely to only be infrequently confronted with these regulations it can cause some confusion.

There’s also variations in tenure for burial plots. Even though perpetual tenure is available, some expensive funeral plots in NSW or Victoria only give consumers the right for 25 years. After that someone will have pay to renew the tenure or the plot might be reused through a method called “lift and deepen”.

In terms of pricing of services, we conducted a survey of more than 150 funeral product providers, both online and via telephone.

In our survey we asked about two standard products. A direct committal whereby the body is taken directly from its location to be cremated in an appropriate receptacle. The other product we asked about was an essential service or “basic” funeral.

The basic funeral is regulated in some states (i.e. in NSW), this means funeral directors have to offer this product and give a breakdown of each item provided in the service. These two products do not generally include extras such as death notices or flowers, often included as hidden charges. These extras drive funeral prices toward the upper end of the reported range of between A$4,000 to A$15,000.

However, the two items that take up the largest proportion of the price of a funeral are the funeral director’s service fee and the coffin or casket. The funeral director’s service fee covers transporting and preparing the body, organising the funeral service and regulatory requirements, which accounts for nearly 40% of the price on average.

Mark-ups on coffins and caskets are commonly between 300% and 500% and have been reported up to 1000%. These prices generally represent approximately 30% of the price of a funeral.

Our study found that a direct committal including cremation would cost between A$1200 and A$6500 with an average of price of A$2755. When it came to the basic or essential services funeral the cost ranged from A$2440 to A$9000 with an average price of A$4902.

Two key factors contributed to differences in prices: whether the funeral was provided by one of the brands owned by the large listed corporation and whether the operator had prices online. If the operator did advertise prices online, consumers were likely to save somewhere between A$1000 and A$1500 for the same product. Most well-known funeral brands in Australia do not provide prices online.

The industry in Australia is dominated by one listed company, InvoCare, which operates under recognisable brand names such as White Lady Funerals and Simplicity Funerals. It enjoys a 40% market share and reportedly up to 80% on Australia’s profitable east coast.

Collecting data was made difficult by the refusal of many operators to discuss prices or return calls without an actual death to provide services to. In many cases we were redirected to the pre-need funeral salesperson.

As part of our study we also reviewed pre-need (pre-paid) funerals and funeral insurance. Pre-need funerals have been on the agenda of several government inquiries and reviews due to complaints of upselling to relatives or contracts no longer being able to cover costs. This has resulted in significantly increased regulation in the form of formal contracts and requirements regarding investment of funds in most jurisdictions.

Funeral insurance also confuses consumers who do not understand it is just low value life insurance, where premiums can easily outstrip funeral costs very quickly. According to a 2010 study by company Rice Warner, your premium over time could amount to more than A$85,000 for only A$6,000 of cover if you took out insurance at age 60 and lived until 90. Approximately 750,000 Australians are covered by a funeral insurance policy.

Our research shows regulation of funeral product providers needs to be improved and made consistent across all areas of Australia. This will improve consumer understanding and choice, ensuring funeral providers offer consumers products that fit their needs.

Product information standards also need to be developed for increased price transparency and disclosure around pre-need funeral contracts and insurance, to safeguard consumers from predatory marketing practices.

This article was co-authored by:
Sandra van der LaanSandra van der Laan – [Professor of Accounting, University of Sydney]
and
Lee MoermanLee Moerman – [Associate Professor, University of Wollongong]

 

 

 

 

This article is part of a syndicated news program via the Conversation

 

Research shows the banks will pass the bank levy on to customers

Banks pass on levy The big four banks will be hit 
with a new bank levy. 

Studies of European countries show that bank taxes similar to the 0.06% bank levy introduced by the government in the 2017 federal budget will be largely borne by customers, not shareholders.

The levy could also make the banking system more, rather than less risky. The fact that a bank is asked to pay the levy is a confirmation that it is “too big to fail”. This could in turn encourage riskier behaviour. The levy might also trigger a higher probability of default by reducing a bank’s after-tax profitability

But it is difficult to say whether banks will pass the levy on to customers by increasing their loan rates, fees or both.

In its response to the levy, NAB confirmed it will not just be borne by shareholders:

The levy is not just on banks, it is a tax on every Australian who benefits from, and is part of, the banking industry. This includes NAB’s 10 million customers, 570,000 direct NAB shareholders, those who own NAB shares through their superannuation, our 1,700 suppliers and NAB’s 34,000 employees. The levy cannot be absorbed; it will be borne by these people.

Aware of this problem, the government has asked the Australian Competition and Consumer Commission (ACCC) to undertake an inquiry into residential mortgage pricing. The ACCC can require banks to explain changes to mortgage pricing and fees.

When banks pass on these taxes

The bank levy is similar to taxes recently introduced by some G20 economies, including the UK. These had the dual purpose of raising revenues and stabilising the balance sheets of large banks in the aftermath of the global financial crisis.

An analysis of bank taxes in the UK and 13 other European Union countries shows that the extent to which taxes are passed on to customers depends on how concentrated the banking industry is.

The more the industry is dominated by a small number of banks, the greater the share of the tax that is passed on to customers and the less that is borne by shareholders. In more concentrated industries customers have relatively fewer alternative options and therefore tend to be less mobile across banks. This in turn gives the large banks greater market power to increase interest rates and fees without losing customers.

Australia’s banking industry is quite concentrated. In fact, we’re around the middle of the pack of OECD countries, much higher than the US, but lower than some European countries. From this we can surmise that at least some of the cost of the bank levy here will be passed on to borrowers through higher loan rates, fees or both.

An IMF study of G20 countries suggests that a levy of 20 basis points (i.e. 0.2%, approximately three times higher than the Australian government’s bank levy), could lead to an increase in loan rates of between 5 and 10 basis points. This means that the monthly repayment on a loan (assuming an initial rate of 5.5%) would increase by approximately A$6 for every A$100,000 borrowed.

The IMF also found that the bank levy doesn’t just hit customers. A 0.2% levy would reduce banks’ asset growth rate by approximately 0.05% and permanently lower real GDP by 0.3%.

The impact on customers

If the banks pass on the levy to customers then it becomes just another indirect tax, similar to the GST. The question then is whether this is regressive – does it have a greater impact on those on lower incomes than higher incomes.

Lower income earners are likely to borrow less than higher income earners. However, lower income earners are also less able to bear an interest rate increase. They are also more likely to be excluded from borrowing when the cost of borrowing increases.

In this sense, then, if the bank levy is passed on to customers it could become a barrier to home ownership for some lower income borrowers.

More generally, if the value of bank transactions is a higher proportion of low incomes than of high incomes, then the bank levy would operate as a regressive tax and contribute to sharpening (rather than smoothing) inequalities.

Both of these would be unintended, but undesirable, consequences of the levy.

This article was co-authored by:
Fabrizio CarmignaniFabrizio Carmignani – [Professor, Griffith Business School, Griffith University]
and
Ross GuestRoss Guest – [Professor of Economics and National Senior Teaching Fellow, Griffith University]

 

 

 

 

This article is part of a syndicated news program via the Conversation

 

Why older Australians don’t downsize and the limits to what the government can do about it

Why older Australian's  Older Australians are not deterred by 
financial barriers as much as emotional ones, when it comes to downsizing. 

Encouraging senior Australians to downsize their homes is one of the more popular ideas to make housing more affordable. The trouble is, incentives for downsizing would hit the budget, but make little difference to housing affordability.

It sounds good: new incentives would encourage seniors to move to housing that better suits their needs, while freeing up equity for their retirement and larger homes for younger families.

But the reality is different. Research shows most seniors are emotionally attached to their home and neighbourhood and don’t want to downsize.

When people do downsize, financial incentives are generally not the big things on their minds. And so most of the budget’s financial incentives will go to those who were going to downsize anyway.

Financial barriers to downsizing

There are three financial hurdles to downsizing. Downsizers risk losing some or all of their Age Pension, because the family home is exempt from the pension assets test, but any home equity unlocked by downsizing is not.

Downsizers also have to stump up the stamp duty on any new home they buy. For a senior purchasing the median-priced home in Sydney that’s now A$32,000. Finally earnings from the cash released are taxed, whereas capital gains on the home are not.

The Turnbull government has flagged the possibility of financial incentives in next week’s federal budget for superannuants and pensioners to downsize their home.

One proposal would exempt downsizers from the A$1.6 million cap on super balances eligible for tax-free earnings in retirement, or from the A$100,000 annual cap on post-tax contributions. But this would benefit only the very wealthiest retirees – just 60,000 retirees have super fund balances exceeding A$1.6 million.

More seniors would benefit from a proposal to exempt them from stamp duty when purchasing a smaller home. And many would benefit from a Property Council proposal to quarantine some portion of the proceeds from the pension assets test for up to a decade.

The trouble with all these proposals is that they would hit the budget – because everyone who downsized would get the benefits – but they would not encourage many more seniors to downsize.

Staying – or downsizing – is seldom about the money

Research shows that for two-thirds of older Australians, the desire to “age in place” is the most important reason for not selling the family home. Often they stay put because they can’t find suitable housing in the same local area.

In established suburbs where many seniors live, there are relatively few smaller dwellings because planning laws restrict subdivision. And even if the new house is next door, there’s an emotional cost to leaving a long-standing home, and to packing and moving.

And so, few older Australians downsize their home. According to the Productivity Commission, about 20% aged 60 or over have sold their home and purchased a less expensive one since turning 50. Another 15% have “strong intentions” to do so in the future.

When older Australians do downsize, their decision is dominated by non-financial considerations, such as a preference for a different style of house and living, a concern that it is getting too hard to maintain the house and garden, or the loss of a partner.

These emotional factors typically dwarf financial considerations. According to surveys, no more than 15% of downsizers are motivated by financial gain. Stamp duty costs were a barrier for only about 5% of those thinking of downsizing. Only 1% of seniors listed the impact on their pension as their main reason for not downsizing.

There are better and cheaper ways to encourage seniors to downsize

If governments do want to use financial incentives to encourage downsizing, budget sticks would be cheaper and fairer than budget carrots. Even if they have little effect on downsizing rates, at least they would contribute to much-needed budget repair and economic growth.

The federal government should include the value of the family home above some threshold – such as A$500,000 – in the Age Pension assets test. This would encourage a few more seniors to downsize. More importantly, it would make pension arrangements fairer, and contribute up to A$7 billion a year to the budget.

Asset-rich, income-poor retirees could continue to receive a full pension by borrowing against the value of the home until the house is sold. The federal government would then recover the cost from the proceeds of the sale. If well designed, this scheme would have almost no effect on retirees – instead it would primarily reduce inheritances.

State governments should abolish stamp duties on property, and replace them with a general property tax, as the ACT Government is doing. This would encourage downsizing, although only at the margins.

But the real policy justification is that it would help working age households to take a better job that’s only accessible by moving house, and so improve economic growth. It’s a big prize: a national shift from stamp duties to broad-based property taxes could add up to A$9 billion a year to the economy.

In short, the downsizing debate is a prime example of how governments prefer politically easy options with cosmetic appeal, but little real effect, on housing affordability. If they’re serious about making it easier for young Australians to buy a home, they will have to make tougher policy choices.

This article was co-written by:
Brendan Coates - [Fellow, Grattan Institute] Brendan Coates – [Fellow, Grattan Institute] and
John Daley - [Chief Executive Officer, Grattan Institute]John Daley – [Chief Executive Officer, Grattan Institute]

 

 

 

This article is part of a syndicated news program via the Conversation
 

 

Age discrimination in the workplace happening to people as young as 45: study

 Survey participants reported discrimination both in job seeking and in employment.

Almost a third of Australians perceived some form of age-related discrimination while employed or looking for work in the last 12 months – starting as early as 45 years of age, our study finds.

We conducted a national survey of 2,100 men and women aged 45 years and over, and 100 telephone interviews. The most common form of perceived discrimination was negative assumptions about older workers’ skills, learning abilities or cognition.

Survey participants also reported limited or no opportunities for promotion or training, working in an organisation that undervalued them and difficulty securing work due to age.

Our findings align with previous research from the Australian Human Rights Commission where 27% of Australians aged 50 years and over had recent experience of age-based discrimination in the workplace. In this survey the most common forms were limited employment, promotion or training opportunities and perceptions that older people have outdated skills or are too slow to learn new things.

Older adults in our study described a subtle pressure from their colleagues and management to stop working in order to “make room for the younger generation”. This was regardless of their experience, enduring capabilities or working preferences.

Workers also faced patronising attitudes, where employers or colleagues assumed they would struggle to pick up new technology or work systems quickly, due to their age. Some survey participants felt they were not afforded the same promotional or training opportunities as their younger colleagues.

Experiences differed for men and women in our survey. Men were more likely to suggest discrimination based on assumptions about their physical abilities or working pace, and women reported the organisation they worked for undervaluing older workers as a group.

To avoid discrimination interviewees reported using strategies such as minimising health conditions, concealing their age or maintaining a “youthful” appearance.

Although there has been some research into industry specific experiences of age discrimination, there are limited comparisons in research of prevalence and type of discrimination between industries.

Our data indicates that age related discrimination traverses all industries in worrying proportions. Industries where age discrimination was particularly common included construction, administrative services, education, manufacturing, essential services, information technology and professional service industries.

Hiring and firing of older workers

Over two thirds of retirees in our study, who had experienced age related discrimination, attributed their retirement to involuntary factors such as “having no choice”, redundancy or dismissal. Negative experiences at work (with a colleague, management or client) or dissatisfaction with organisational changes were often the trigger events for retirement.

Older job seekers reported being candidly or surreptitiously rejected through recruitment processes on the basis of age alone. Education, training and a steady working history were not guaranteed to help study participants in their search for employment.

Some interviewees had found it necessary to accept work for which they felt overqualified. Job seeker services in particular were considered ill-equipped to assist older, highly experienced and often well-educated adults.

These findings are in line with similar research in which study participants interpreted suggestions from potential employees that they were over qualified or experienced for a role, to mean they were “too old”.

Our interviewees believed that younger managers can feel intimidated by older workers. This may be based on concerns regarding an older employee’s ability to take instruction from somebody younger, learn new work methods and technologies or readily adopt change.

Why we should fight age discrimination

Beyond the moral and ethical issues of how older adults are treated, the experiences recorded in our study can have tangible implications for individuals and employers.

The government is trying to reduce dependency on the aged care pension by encouraging workers to stay in the workforce longer and accumulate sufficient superannuation (and other assets). Employment in high quality work can support and protect the health of men and women as they age.

But adults who feel devalued in their workplace, or unable to find suitable employment, are more likely to enter retirement earlier than anticipated and less inclined to re-enter the workforce.

Our survey results also suggest that people experiencing work-related ageism tend to report poorer health, lower household incomes and lower total superannuation fund balances, than those who have not had this experience.

Mature aged workers bring with them a range of favourable characteristics such as stability, reliability, loyalty, experience, wisdom and maturity. One way to tackle work related ageism is to firstly address negative perceptions regarding the competency of older workers.

This may be best addressed by employment services and human resource staff who are often on the front line of helping these workers find suitable employment. These workers can be skilled to respond to the needs of mature age job seekers. The introduction or reinforcement of policies supporting diversity in the workplace is another important step to support older worker participation.

This article was written by:

Justine Irving – [Researcher older workers, retirement and ageism, University of South Australia]

 

 

This article is part of a syndicated news program via the Conversation

 

Who owns the world? Tracing half the corporate giants’ shares to 30 owners

 BlackRock Inc is relatively unknown outside financial circles, but it owns the largest share in the biggest 299 companies in the world

When people say share ownership is highly diversified, they think most large public corporations have lots of shareholders – and often the largest shareholder has less than 15%, sometimes less than 5%, of the total shareholdings.

But looking at it this way obscures the concentration that is taking place. The same organisations – usually finance capital, rarely families or individuals – own these public companies. We (David and Georgina) first researched this in 2009, and we’ve since found that the trend is of increasing concentration in several countries over three decades.

When one organisation alone controls more than 6% of shares in very large global corporations, and 30 control more than half of all shares in these corporations, that signifies very high concentration.

Our 2009 study found that various forms of financial capital controlled the great majority (68.4%) of shares in the world’s very large corporations. Individuals or families held only a minimal proportion (3.3%), and industrial companies held relatively little.

Banks were the most common specific type of individual or organisation that controlled the shareholdings in very large corporations.

Levels of concentration

Our study used a database of shareholdings in the 299 largest publicly-listed global corporations from the Bureau van Dijk global database of corporations, OSIRIS. This database combined information from around 100 sources and covers nearly 63,000 companies worldwide.

In some cases, the true ownership of shares is hidden by the use of “nominee” or “depository” organisations. These vary in significance and legal treatment between jurisdictions.

They include such entities as as Clearstream and Euroclear in Europe, the Depository Trust Corporation in the US, Hong Kong Securities Clearing Company Nominees in Hong Kong (which makes it to our list of the top-30 private shareholders), the Canadian Depository for Securities (which would be the second-largest shareholder in that country), and a variety of bank nominees in Australia – where nominee shareholdings are unusually important, accounting for half of significant Australian shareholdings in 2009-10.

The nominee normally is not exercising its own discretion in investment decisions. Rather, the – often-secret – beneficial owner of the shares exercises decision-making power and control.

This is quite different to the funds managers who dominate in our analysis and who mobilise money owned by other people and make investment decisions on their behalf. Broadly speaking, nominee holdings make little difference to the global picture presented here.

US-based very large corporations accounted for 29% of companies in our database. By region, Europe (mostly the UK, France and Germany) accounted for 37% of companies. This was greater than the share of the Americas (32%) and Asia (including Japan, Korea, China, the Middle East and Australia), at 30%.

The largest 30 shareholders (out of more than 2,100 share controllers) owned or controlled some 51.4% of the assets of the 299 companies. This is a significant concentration of resources and power – 1.5% of shareholders controlling 51% of shares.

These 30 shareholders were made up of 21 private-sector shareholders and nine public-sector (that is, government-owned) shareholders. Nine government agencies between them account for 17% of the assets of the 299 very large corporations.

Importantly, one company that is relatively unknown outside financial circles, BlackRock Inc, held or controlled 6.1% of the assets of the 299 companies (around US$3 trillion) in 2009. It is a US financial company, mostly a “fund manager”, with offices in 30 countries and about 8,400 employees.

BlackRock, as a fund manager, mobilises other people’s money to buy and control shares in the many companies in which it has a stake. So it exercises control of shares principally through the funds it manages rather than through buying shares for itself. More than 85% of its share ownership was via funds it controls.

BlackRock was the largest share controller not only internationally but also among Canadian, German, Italian and American very large corporations.

The next-largest private shareholders were AXA, (3.4%), JP Morgan Chase (3%) and Capital Group (2.5%).

The governments of the UK (4.7% in 2009, having “rescued” ailing banks in the global financial crisis, but now lower) and China (4.5%) were also large share controllers. And through its sovereign wealth fund, the Norwegian government controlled 1.2% of shares in very large corporations.

Six of the top ten private shareholders were based in, or at least originated from, the US, as did ten of the top 21. Three of the top ten were based in France, and one in the UK.

All of the top ten were financial institutions of one type or another: banks, financial companies, insurance companies, or mutual and pension funds or trusts.

The top eight shareholders each held shares in more than half of the top 299 corporations. So, their potential influence was spread across a very wide range of corporations. Eighteen of the top 21 shareholders each held shares in at least 100 very large corporations.

Different patterns of share control

We observed various distinct patterns of share control by looking at three key indicators:

  • the size of a shareholder’s holding in a company, as a proportion of the total value of that company’s shares;
  • the number of companies in which a shareholder had the largest shareholding; and
  • the number of companies in which a shareholder was among the top five shareholders.

We refer to the second and third of these indicators as measures of share controller “precedence”.

BlackRock and Capital Group were notable for having both wide influence (across many companies) and deep influence through high precedence – that is, they were often the top or the second-ranked shareholder. In 55% of its shareholdings, BlackRock was ranked among the top five. This was also the case for 45% of Capital Group’s shareholdings.

Yet in no very large corporation did BlackRock have shareholdings above 15%. Capital Group had such share levels in only one case.

Very few top private-sector share controllers aimed to (or perhaps could) secure shareholdings of 15% or higher. In 56% of very large corporations the top shareholding was less than 15%. In one in ten of these corporations the top-ranked shareholding was 5% or less.

At the other extreme, several companies gave low priority to having precedence, and avoided proportionately large holdings altogether. Some 98-99% of the holdings of several European share controllers (such as BPCE and Societe Generale) were valued below 5% of the relevant very large corporation’s shares. Around 80% or more were valued below 1%.

By implication, the European share controllers were potentially less activist in seeking to develop deep control in shareholdings.

What are the implications?

The global financial crisis displayed the consequences for the real economy of the financialisation of markets through the emergence of credit default swaps, derivatives and collateralised debt obligations.

Less obvious is the financialisation of ownership. Finance capital doesn’t only lend money to corporations to expand. Its impacts on share prices signal the successes or failures of corporate management. Finance capital orders and owns the corporations.

So, the distinction between finance capital and other types of capital (in particular industrial capital), while useful in some respects, is misleading in others. Ultimately, industrial capital is finance capital.

If there was once a time when a few families and individuals owned large public corporations – and their personal values, quirks and preferences shaped the way those corporations behaved and dominated the world – that time has passed. Today the world is dominated by corporations that follow the logic of finance capital – the logic of money.

This article was co-authored by:

George Soros, Hedging and Leverage.

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1992, just a year and a half after Britain joined the European Exchange Rate Mechanism or ERM, the fixed exchange rate posed a serious problem. The ERM was a precursor to the EURO and was created in 1979. Countries weren’t ready to give up their national currencies, but they agreed to fix their exchange rates with each other instead of “floating” their currency and letting capital markets set the rates. The ERM ensured the British government would follow fiscal and monetary policy that would prevent the exchange rate between the Pound or GBP and the strongest currency in Europe the German Deutsche Mark (DEM) from fluctuating by more than 6%. The exchange rate was set at 2.95 DEM to the Pound, therefore if the exchange rate ever neared the bottom of its permitted range DM 2.773, the government would be obliged to intervene. With fixed exchange rates, countries can’t just “set it and forget it.” People trade currency every day, exchanging their currency to buy imports or sell exports, and the market applies pressure based on what it thinks the actual rate should be based on supply and demand for a currency.

Between 1990 and 1992 the ERM had a positive effect on the British economy, inflation decreased, interest rates eased, and unemployment was low by historical standards. In 1992, however, England felt the impact of a massive global recession, and unemployment spiked to 12.7% from just 7.7% two years prior. Britain also had a large current account deficit [the country was importing more than it exported].

Ordinarily, Britain could spur investment and spending by cutting interest rates during an employment crisis. But in this case, doing so would push the pound’s value below the agreed upon amount within ERM. So while the people of Great Britain dealt with a recession, the government’s hands were tied; they’d just have to ride it out.

In the Spring of ’92 George Soros was 62 years old and led the Quantum Fund, a hedge fund he founded in 1970 that bet on macroeconomic trends.

Since August, Soros and his Quantum Fund had been building a $1.5 billion position to bet that the price of Sterling would fall. The British government had full faith that it would not fall as the ERM would serve as an “autopilot” that kept the British monetary policy on proper course. The fundamental problem however was that Britain had joined the ERM at the wrong rate and the sterling was overvalued, meaning that the economy was stuck with a structural current account deficit.

The catalyst came on the 25th of August 1992, German central bank official Reimut Jochimsen, a Bundesbank council member, issued a speech saying that there was potential for realignment within the ERM. Sterling weakened. On September 10, an unnamed Bundesbank official was quoted as saying that a devaluation of sterling was inevitable. The pound fell. September 16th, 1992 President of the German Bundesbank, Helmut Schlesinger gave the interview to the Wall Street Journal saying he “does not rule out the possibility that, even after the realignment and the cut in German interest rates, one or two currencies could come under pressure”. Soros and the entire financial market took this to believe that the pound sterling was one of those currencies that could “come under pressure” and be devalued.

Stanley Druckenmiller a senior member of Soros’ Quantum Fund noted that their $1.5 billion bet against the pound was about to pay off and that they should consider adding to the position Soros agreed with “Go for the jugular” and instead of slowly building up a short position against the sterling, the Quantum Fund would short sell sterling on an unprecedented scale even by today’s standards. Doing so would not only help hasten the tumble of the sterling, but also increase the hedge funds profits. 

What is a hedge fund exactly? A hedge fund invests capital to make profits. They spread risk over a number of assets including shares, property, bonds and currency to name a few. A fund may make around a 20% return on its investments, as not every investment they make is profitable. Hedge funds also use financial instruments to “hedge” against other risks in order to more clearly isolate the trade that they want to make. For those that are new to the market it sometimes occurs that simultaneously opening long and short positions, essentially taking both sides of the trade, closing the loosing side early and letting the winning side run.

Another thing hedge funds do (if they’re pretty sure about their trade) is to borrow funds and put even more money behind the trade. Naturally a hedge fund might make a little bit of money on each side. But if they use mostly borrowed money, they can buy a larger position without fronting much capital. So if you’re really sure a trade is right, you might borrow a lot of money to enhance your payday, this is known as leverage. As Soros once famously said “There is no point in being confident and having a small position.”

When it comes to trading CFD’s online many fall into the ‘hedging’ trap, without really understanding how to apply the method properly.

Let’s look at an example, a trader’s account has $10,000 in equity. $1 million dollar positions are opened long and short on currency X at 1.0000 (using $4000 margin assuming 500:1 leverage). At $100 per point all that is required to wipe out the account entirely is a movement in either direction of 100 points.

This can happen in the blink of an eye and bang the traders account has been ‘blown up’. The point is this: no matter how much equity in your account because leverage is involved face value exposure will always be magnified by a much greater factor (i.e. 500:1). And it must also be mentioned that leverage is a central component to the profitability of CFD trading in the first place.

For this reason most successful traders use some form of strategy with the following components, as did George Soros and the Quantum fund in 1992

1.     Pick a market

2.     Pick a direction

3.     Set a stop loss and a take profit

Now lets look at an example successful way a trader can use hedging to increase or maintain their equity. A trader has 100 shares in company Y on the ASX, the only way our trader makes money is if the market is up and the price of the shares increase.

If the trader was to open a CFD trading account and open sell positions (assuming leverage of shares is 10:1) they would only need to sell 10 units to match the 100 physical shares. Then if the situation arose where the share price fell, the trader has protected his physical shares with the CFD sell position, meaning he will profit on the downturn and make up for the loss in the shares on the ASX.

If you are looking to learn how to use CFD trading to hedge your shares or other financial assets, call myFXplan today on +613 8393 1800 or visit www.myfxplan.com

What roles do Central Banks play in the currency markets?

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What roles do Central Banks play in the currency markets?

 

Miguel Ángel Fernández Ordóñez, Spain’s former central bank chief was charged for enabling the Spanish people to buy shares in a new bank that he knew was guaranteed to fail. After it failed he would exercise his powers in the central bank to bailout the bank making him and the central bank a fortune twice over. Along with 65 other elite bankers who committed a string of financial crimes it is a massive effort by Spain to get rid of corruption within the banking system.

This is somewhat of a world first as Central Banks generally classified as above the law and independent. The independence of the central bank is enshrined in law. This type of independence is limited in a democratic state; in almost all cases the central bank is accountable at some level to government officials, either through a government minister or directly to a legislature. Even defining degrees of legal independence has proven to be a challenge since legislation typically provides only a framework within which the government and the central bank work out their relationship.

 

So what does a central bank do to warrant such power? A central bank, reserve bank, or monetary authority is an institution that manages a state's currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency.

The Reserve bank of Australia (RBA) holds the role of Australia’s central bank and thus it conducts monetary policy, works to maintain a strong financial system and issues the nation's currency. It also manages Australia's gold and foreign exchange reserves. The bank aims to provide stability of the currency of Australia; maintain full employment and ensure the economic prosperity and welfare of the people of Australia.

 

It achieves these through goals through what’s called monetary policy or changing the official interest rates. Interest rates are the rate in which banks charge to borrow money. The theory behind the policy is that if rates are low then more people would borrow as it costs less in interest payments, as a result more people are buying and spending and in turn there is generally more economic activity. A situation when the RBA lowers interest rates, is called lose monetary policy as the ‘purse strings’ have been loosened. On the other hand tightening monetary policy is a situation where the RBA increases interest rates thus its more expensive to borrow money, there is less money in the market and economic activity slows. When the economy is overheating or too inflated the Reserve bank will maintain stability by tightening the strings.

 

There is generally a 9-12 month lag affect from when an interest rate decision is made and the economy starts to change in accordance. However it has an instant affect on a nations currency price. For example if the RBA came out and raised interest rates, the Australian dollar generally increases instantly in price. Similarly if the RBA decreases interest rates then generally the Australian dollar instantly falls. Knowing this gives a trader a distinct advantage in the lead up to an interest rate decision. If it is looking likely that the RBA will change rates then a trader can place a trade and if the direction is correct then the trader will profit. This opportunity comes around every month in Australia on the first Tuesday of the month.

 

The RBA in majorly concerned with three factors when considering an interest rate change Inflation, employment and currency stability. Australia has an inflation target of 2-4% meaning prices of all goods in the Australian economy should rise from 2-4% each year, they believe this encourages spending and investment as people are forced to buy now rather than later. It also discourages savings as money in the bank loses 2-4% of its value every year so people are encouraged to invest the money in order to beat the inflation rate. If Australia’s inflation rate is below 2% then the RBA may raise the interest rate to stimulate the economy and vice versa if the inflation rate is too high it may look to raise rates to dampen demand.

A somewhat controversial goal of the RBA is to achieve full employment. Again if unemployment is too high the RBA will look to lower interest rates to spark investment in employment. This policy has been debated heavily as monetary policy can be seen as an inefficient way of dealing with employment. A nation can be in a situation of stagflation which is when there is high inflation combined with high unemployment, a central bank has its hands tied as lowering the interest rate to spur employment would inevitably further raise inflation at the same time. There for when the Australian Bureau of statistics release the employment numbers or how many jobs have been created in the economy over the last month, the finance world looks on with much interest as this will have a major affect on the following interest rate decision.

On the first Friday of every month the United States release what is called the ‘Non-Farm Payrolls’. Basically every job created in America over the last month, that’s not farm related. This is seen to be the largest trading day of every month as it has a major affect on the US Dollar. If the numbers are good and more jobs have been created than expected then the dollar generally rises as the chances of a future interest rate hike increases.

The third factor is currency stability, we have seen recent examples here in Australia of the RBA seeing the Australian dollar too high and raising rates to bring the dollar back to a level, which suits our economic activity. The Reserve Banks governor Glen Stevens can also achieve this just by talking about the idea of raising interest rates, which is known as ‘jawboning’ the dollar. A high dollar is great for Australian importers but it has a detrimental impact on Australian exporters as people in other countries pay more for Australian goods. On 12 December 1983 the Australian government ‘floated’ the Aussie Dollar meaning through natural supply and demand the dollar generally corrects itself, however the RBA uses these intervention techniques to artificially create a price they think is fit.


There are many factors that drives the Australian dollar up and down and to keep abreast of its movements and how it reacts to certain geopolitical circumstances can be a very exciting. As the dollar moves there are opportunities to make great amounts of money through currency trading. Learning how to read economic news properly can help you achieve success in the money markets.

If you are interested to learn more about this then contact myFXplan today on +613 8393 1800 or visit www.myfxplan.com