The cost of casual work now outweighs the paycheck

Low wage growth has hung over the australian economy for some time. In our series what we earn, we break down the causes of this and why some workers may feel it more than others.


Workers are not compensated as much as they should be for precarious work in casual roles.

One in four australian employees is now a casual worker. For younger workers (15-24 year olds), the numbers are even higher: more than half of them are casual workers.

For these jobs, there are some benefits of permanent employment, such as paid annual leave and sick leave. In exchange for foregoing these entitlements, casual laborers are to receive a higher hourly rate, referred to as an occasional "charge".

However, the costs of casual work now outweigh the wage benefits.

Costs and benefits of casual labor

Casual jobs offer flexibility, but also come with a cost. For workers, there are other tradeoffs besides missing out on paid vacation: less predictable hours and earnings, and the possibility of summary dismissal. Uncertainty about their future employment can hinder casual workers in other ways, e.G. B. Make family arrangements, take out mortgages and match education with work.

Not surprisingly, casual workers have lower expectations of keeping their current jobs. For example, the australian bureau of statistics (ABS) found that 19% will leave their jobs within 12 months, compared to 7% of other workers. Casual workers are also much less likely to receive job-related training, limiting their opportunities to develop skills.

Employers of casual workers also face higher costs. High staff turnover increases hiring costs. But perhaps the main cost is the "load" that casual workers are expected to receive in addition to their normal hourly wage.

Australia's minimum wage premium system imposes an occasional 25% charge. For example, a casual worker paid under a premium should earn 25% more for each hour worked than another worker performing the same work on a permanent basis. In corporate agreements, opportunity cost varies by sector, but ranges from 15% to 25%.

The practice of paying a random charge developed for two reasons. One was to pay compensation for workers laid off on vacation. The other, quite different motivation was to make the opportunity work more expensive and discourage excessive use. However, this restraint has not prevented the casual sector of the workforce from growing significantly.

Casual jobs are not much better paid

One approach to determining whether casual workers are paid more is simply to compare the hourly wages of casual and non-regular workers (permanent and temporary) in the same occupations. This can be done with data from the 2016 ABS survey on employee earnings and hours.

We compared the median hourly wage for adult, non-managerial employees based on their usual earnings and hours worked (i.E., excluding overtime). If the median wage for casual workers is higher than for noncasual workers, a casual wage penalty applies. If the median casual wage is lower, a penalty is imposed.

The following ten occupations accounted for more than half of all adult casual workers in 2016. Most of these occupations have a modest wage premium – in the 4-5% range.

In most cases, the amount of the typical casual wage premium is much lower than the burdens specified in the premiums and contracts. Only one occupation (school teacher) has a premium (22%) that meets expectations.

Three of the top ten casual occupations actually penalize this type of work. And for these 10 occupations, a total forced wage penalty of 5% applies. This method of analysis suggests that few casual workers enjoy substantially higher wages to compensate for paid leave.

A closer look reveals a broader range of distinctions between casual and non-occasional workers controlled for. A major australian study in 2005 compared wages after accounting for many factors other than occupation, including age, education, job location and employer size.

All things equal, it turns out that part-time workers receive an hourly wage premium over full-time workers. The premium averages about 10% for men and between 4 and 7% for women.

These results suggest that most casual workers (who hold part-time positions) can expect to receive higher hourly wages than comparable employees in full-time positions. However, given the larger opportunity loads mentioned in the premiums and contracts, the value of the benefit is again lower than expected.

It appears that while there is a short-term financial benefit to working as a casual employee, that benefit is worth less in practice than on paper.

In a recent study using 14 years of data from the household, income and labor dynamics in australia (HILDA) survey, no evidence of long-term pay for casual workers is found.

The authors of the study estimate that there is an average casual wage penalty of 10% for men. There is also a wage penalty for casual workers, but it is smaller at around 4%.

This study also shows that the size of the negative casual wage effect decreases over time for individual workers, bringing them closer to parity with permanent employees. But very few casual workers earn permanent permanent wages.

Inferior jobs, but fewer alternatives

Evidence of hourly wage disparities suggests that casual workers are not adequately compensated for the lack of paid leave or for other forms of insecurity they face. This makes casual jobs less attractive to workers.

That doesn't mean all casual workers don't like their jobs – many are satisfied. A clear look at what these jobs pay, however, suggests that their advantages over employers are skewed.

Yet for many workers, especially young job seekers, the choice is increasingly between a casual job or no job at all. Half of employees aged 15 to 24 have casual jobs.

In a labor market characterized by high levels of underemployment and increasing competition, young people with little or no work experience are understandably willing to make sacrifices to enter the workforce. The option of "holding out" for permanent employment appears increasingly risky as these opportunities diminish.

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