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Cost Focussed Firms and Internet Usage
by
Joanne Loundes
December 2002
This paper looks at Internet usage by Australian firms that have a cost focussed competitive strategy. The data source for this analysis is the Melbourne Institute Business Survey, conducted by the Melbourne Institute of Applied Economic and Social Research. The survey was conducted in late 2001, and targeted large Australian firms. Instrumental variables estimation found that cost-focussed organizations utilised the Internet more intensively for both internal organizational activities and external market activities than organizations that did not have a high focus on costs. However, this impact appeared greater for internal organizational activities, suggesting that these firms possibly believed that there were greater cost savings and efficiency gains-at least in terms of Internet usage-to be had in using the Internet as part of the internal operations of the organization.
Speedy and efficacious return to work of recovered or recovering workers is a central objective of workers compensation authorities. However, many of the factors that facilitate return to work are not well understood. This paper aims to shed light on these issues by utilizing a sample from the administrative records of workers compensation claimants in Victoria for the financial years 1993/94 to 1997/98. We separately model payments made as pensions (weekly payments) and payments made as lump sums to meet medical purposes (non-weekly claims). Two part model specifications are employed to model both the incidence of a payment and the duration or amount of that payment. The results show that claimant characteristics, characteristics of the accident, industry, employer and insurer characteristics influence the incidence, duration and cost of workers compensation claims.
This paper provides a literature review on economics of the family. In particular, where decisions of families related to marriage, fertility, labour supply and home production are concerned. First an overview of the theory on these issues is given, followed by a selection of empirical studies. Finally, the review highlights some areas of interest for future research in Australia.
Melbourne Institute Working Paper No. 26/2002
The Effect of a Reduced Family Payment Taper Rate: Policy Simulations Using the Melbourne Institute Tax and Transfer Simulator
by
Guyonne Kalb, Hsein Kew and Rosanna Scutella
November 2002
This paper illustrates the use of the Melbourne Institute Tax and Transfer Simulator (a behavioural microsimulation model) in examining the impact of two hypothetical policy changes to Family Payments as they were in the March 1998 tax and transfer system. The effects of the policy changes on the choice of hours worked and the labour force participation rates among couples with dependent children are the focus of the analysis with the overall effect on net Government expenditure examined.
We find that reducing the withdrawal rate on the more-than-minimum rate of Family Payment is quite costly to the Government, with a small positive labour supply response reducing this cost slightly. The second policy change, which replaces the "sudden death" income test for the minimum rate of Family Payment with a gradual taper and increases the threshold level of income above which the minimum rate begins to be withdrawn, results in a smaller increase in government expenditure and has a negligible labour supply response.
This paper presents the results of two policy simulations for couples with and without children. The first policy involves a reduction of the highest withdrawal rate from 70 to 60 per cent. The second policy reduces all withdrawal rates of 70 and 50 per cent to 30 per cent. A comparison is made between the two policies to determine the magnitude of the impact on government expenditure and labour supply responses.
Both policies have the effect of increasing the net income of those who are either partly relying on benefit payments or whose pre-reform income is just above the pre-reform cut-out points. Other people are unaffected, which means that overall government expenditure will increase.
Behavioural simulations show that married men and women seem to be relatively unresponsive to the first policy. This implies that minor changes in the withdrawal rate do not seem to be effective. The second policy induces larger behavioural changes. The transition matrices suggest that married women are more responsive to a reduction in the taper rate than men. Overall, women are working less on average whereas men tend to work more on average. These results are similar to the effects found in the US and UK literature.
This paper estimates discrete choice models of labour supply for couples, single men, single women and sole parents in Australia using the Income and Housing Costs Survey of 1994/1995, 1995/1996, 1996/1997 and 1997/1998. These models are estimated to serve as input in a microsimulation model, where they generate the behavioural responses to policy changes. The results are according to expectations, with preferences for work being higher for people with higher education, who are in their thirties. Furthermore, for women the presence of young children decreases the preference for work. Expected labour supply, predicted by using the estimated models, results in values close to the observed averages.
This paper is an empirical investigation into the impact of public capital on the private sector’s economic activity in Australia. In particular, it is assumed that the contribution of public capital to private factor productivity is subject to congestion. New data sets of capital stocks and private output are constructed for the Australian economy. By estimating flexible functional forms of private sector production functions with congestion in public capital services, the paper shows that public capital is productive in private production but is subject to congestion. A one per cent decrease in the public capital output ratio would result in about 0.5 per cent decrease in private output. Empirical evidence also suggests that the restriction of constant returns to scale over private inputs, labour and private capital, and public inputs is valid.
This paper seeks to develop a literature-based perspective on intellectual property from the standpoint of business strategy and strategic human resource management. Distinctive competitive advantage is increasingly built on a firm's knowledge, one of the principal ingredients of intellectual capital. Competitive capability is strongly influenced by the organisation's ability to develop, differentiate, appropriate and disseminate its knowledge base. Section 2 identifies the principal characteristics of knowledge assets and explores the means of extracting and protecting the value of those assets, e.g., through R&D, patents and trademarks, licensing and human capital investment. Section 3 reviews the significance of knowledge as a strategic asset and reflects on its growing importance vis-a vis physical capital. However, where knowledge is embodied in people as part of their personal intellectual capital, questions of ownership and appropriability arise in ways that are absent with physical capital. This is discussed in Section 4. Section 5 focuses on the human resource management issues arising from the disputability of ownership of knowledge, especially embodied or intrinsic knowledge. Attention is paid to problems of ""stickiness"" of knowledge transfer and diffusion, and employer expropriation of value. Section 6 presents conclusions, including reference to the role of governmental agencies concerned with the public interest in the protection of property rights and the social benefit to be derived from advances in knowledge. An appendix briefly surveys three main approaches to the valuation of intangible capital and observes some of the problems posed in the development of effective measures of intangible assets, particularly where these are embodied in people.
This paper has three main objectives. First, we re-examine some recent findings that suggest a structural decline in the variance of GDP growth in the United States. We estimate a univariate model in which both the mean growth rate of GDP and its variance are influenced by latent state variables that follow independent Markov chain processes. We are particularly interested in evidence of increased stability in the U.S. economy, either because of reduced volatility or a narrower gap between growth rates in expansions and recessions. Second, we investigate whether a similar phenomenon has occured in other countries. Finally, we explore the extent to which this more general model is better able to describe the shape of actual business cycles. We find evidence of a reduction in GDP volatility in U.S. data, beginning in late 1984. However, it is less clear that this change represents a structural break. The recent U.S. recession has reduced the probability of being in the low-variance state. Using data from Australia, Canada, Germany, Japan and the United Kingdom, we find evidence of a similar reduction in volatility of GDP growth. The shift for Japan apparently happened in about 1974, and the past decade's poor economic performance seems to have brought a return to the high-variance state. Apart from Germany, the variance reductions in the other countries all occurred within a ten year period between the early 1980's and the early 1990's. Finally, when we test for non-linear effects using Bayes factors, we find that allowing for a switching variance is much more important than a switching mean. Although the hypothesis of homoscedasticity is overwhelmingly rejected, there is little evidence that this model is better able to capture the shape of actual business cycles.
This paper provides summary statistics of Internet usage by Australian businesses using several data sources. Aggregate statistics are provided from the Australian Bureau of Statistics (ABS) Business Use of Information Technology. More detailed information on firm characteristics and Internet usage are provided from the Melbourne Institute Business Survey, conducted by the Melbourne Institute of Applied Economic and Social Research. Despite being a relatively new phenomenon, the academic research to date has already generated some general observations. The first of these is that Internet use is only beneficial to the organisation if it is incorporated into an overall strategy. Evidence from the Melbourne Institute Business Survey shows organisations that were strong in at least one competitive strategy (that is, operational excellence, customer intimacy or product leadership) were more likely to use particular features of the Internet than the rest of the sample. The academic research also indicates that there are significant differences in Internet adoption depending on the type of industry the organisation operates in. Again, the Melbourne Institute Business Survey shows that Internet usage does indeed vary across industries, with manufacturers more likely to use the Internet for the co-ordination of delivery arrangements, whereas the service industries are more likely to use the Internet for customer self-service and personnel benefits.
This paper investigates the quantitative effects of employee turnover on firms’ productivity. The Australian Business Longitudinal Survey 1995-98, a unique survey providing firm level data on both production and employee turnover, is used as the data source. Theoretical studies have advocated that firm specific human capital and job matching to be the two major, but competing, mechanisms through which turnover affects productivity. Our results indicate that the effect of job matching dominates when turnover is “low,” while the effect of firm specific human capital dominates when turnover is “high.” We identify that the optimal turnover rate - the rate that maximises productivity, controlling for other factors - is about 0.3, well in excess of the sample mean. The finding suggests that further increasing the flexibility of employment arrangement for small and medium Australian enterprises could yield substantial productivity gains.
There appears to be widespread consensus in industry and government that a switch from centralized bargaining to an enterprise based system benefits productivity. However, research suggests that the link between bargaining structures and worker productivity is dubious and that empirical research has been unable to discover a relationship between them. In this paper we use data from Australian companies at the enterprise level and examine the links between performance and a range of human resources, industrial relations and management variables to determine whether bargaining structures do impact on performance. In particular, we investigate whether organisations that have incorporated aspects of the industrial relations reform agenda have outperformed organisations that have not. The results from the application of a treatment effects regression model show evidence that organisations adopting the industrial relations reform agenda report significantly higher levels of self-assessed labour productivity relative to their competitors, even after controlling for a number of different factors.
There have been significant recent advances in the estimation of labour supply models. Here the hours continuum is split into a number of discrete options and the preferred choice obtained as the solution to a constrained utility maximisation problem. However, the underlying probabilities of an individual being in a particular hours state, are assumed to be those given by standard Logit-type ones. As is well known, such a specification embodies the underlying Independence of Irrelevant Alternatives (IIA) property, which is likely to be violated in a model of labour supply choices. Moreover, if such models are used in microsimulation, they implicitly assume that individuals are able to change their observed hours state at the margin following a policy reform. This paper suggests an alternative general (non-IIA) specification for these probabilities, which can additionally incorporate the fact that: individuals may be captive to certain choices (for example, due to institutional reasons). Moreover, this model has the benefit that when used for microsimulation, the reform has to work harder to coax individuals out of the captive hours states. The results suggest that, for sole parents, the Logit model is misspecified and there is a significant amount of captivity, most notably to full-time employment hours. The effect of such captivity on microsimulation is illustrated by considering a range of actual and hypothetical policy reform.
This study examines workers' perceptions of job security in Australia between August 1999 and May 2002. It uses a new quarterly survey that asks probabilistic questions on the likelihood of involuntary job loss, and of finding a similar job if involuntary job loss occurs. Workers' perceptions of job security are shown to display significant variation by gender, age, education, and recent job mobility, to vary pro-cyclically with business cycle conditions, and to have decreased significantly from late 2001 onwards - in the period following September 11 and several major corporate collapses in Australia. A comparison with perceptions of job security in the United States finds that there is a cross-country difference in perceptions about the probability of involuntary job loss that appears correlated with the institutional environment in those countries. Finally, there is some evidence that workers' expectations about the environment for making major household expenditure are related to their perceptions of job security.
This paper analyses the relationship between innovation - proxied by Research and Development (R&D), patent and trade mark activity - and profitability in a panel of Australian firms (1995 to 1998). Special attention is given to assessing the nature of competitive conditions faced by different firms, as the nature of competition is likely to affect the returns to innovation. The hypothesis is that lower levels of competition will imply higher returns to innovation. To allow for a time lag time before any return to innovation, the market value of the firms is used as a proxy for expected future profits. The results give some support for the main hypothesis: the market's valuation of R&D activity is higher in industries where competition is lower. However, the paper highlights the difficulty in assessing competitive conditions and finds a number of results that challenge the simple hypothesis.
The objective of this study is to provide new estimates of the average private rate of return to a university degree in Australia. It considers the case of a hypothetical individual who has completed high school in 2000, and is making a decision on whether to begin a three-year bachelor degree or to enter the workforce in 2001. For the 'base case' scenario of a 'representative' individual making a decision on whether to attend university, the estimate of the average private rate of return to a three-year bachelor degree is 14.5 per cent. Underlying this estimate is a lifetime net monetary gain of $380,958 from undertaking the degree (assuming a zero rate of discount). Estimates of the rate of return to a bachelor degree are fairly robust to alternative scenarios. Rates of return do however show a wide variation across the field of qualification categories. The estimated returns are relatively high for business and administration, and engineering graduates, and relatively low for graduates in the fields of society and culture, and science.
Recent growth in the utilisation of Electronic Gaming Machines (EGMs) has led to community disquiet about attendant problems of alleged loss of community standards, problem gambling and losses by retailers and other local businesses. Recent legislation provides an opportunity for local councils to object to any proposals to increase numbers of EGMs on the grounds of social and economic impact on the local community.
The Pokie Application Research Kit (PARK) is a software tool that aims to help local councils determine the local social and economic impact of the introduction of additional EGMs to venues within their boundaries. PARK evaluates the benefit of additional EGMs by tracing the way in which expenditures on EGMs feed, or do not feed, into the local economy. If expenditures do feed through to further local economic activity there is a benefit for the local economy. If the expenditures accrue to agents who repatriate them outside the local economy there is no benefit for it. In such a circumstance the expenditure is said to be 'leaked'.
The PARK model compares the situation that would arise with additional expenditures on EGMs with the status quo. In operationalising the comparison a number of crucial assumptions are required, the most important concerning 'leaked' expenditures. The analysis finds the results are very sensitive to these assumptions and the current structure of the model predisposes it to show large net losses from the introduction of additional EGMs. Alternative approaches to measuring the local economic impact of increasing the number of EGMs and the role of local economic impacts in the broader public policy debate are discussed in the paper.
This paper provides a comparative glimpse of work/family issues in Australia and the US. It begins with a summary of an emerging vision of ideal policies and practices for work and family. The paper then provides historical background for the recent emergence of a 'care gap' in both countries, focusing on key commonalities and differences. The current status of the gap and the related 'default solution' to the gap are then outlined. Key commonalities here include an increasing diversity of family forms, a rise in delayed and denied childbearing, and substantial gender inequality. Significant current divergence across the societies includes relatively more family-responsive governmental policies in Australia, more attractive part-time opportunities for mothers in Australia, a relatively more equal division of labor in the home in the US, a greater prevalence of corporate-sponsored work/family policies in the US, and greater coverage of Australian employees by work/family policies negotiated through enterprise agreements. A tentative research agenda is provided in conclusion, focusing on part-time employment options, work incentives and child care for single parents, the causes of delayed and denied childbearing, and enterprise bargaining and corporate policies.
This study estimates a cost function for higher education in Australian universities using pooled series of cross-sectional data. The study enabled the quantification of the cost differences between levels of studies and subject areas. The cost function is useful in an number of ways. It can be used by universities to evaluate the effect of changes in course structure and size on university budgets. It may also be used by universities to help develop pricing policy for courses for fee paying courses. In this paper it was used to derive estimates of the overall cost of providing higher education to overseas students.
This paper reviews theoretical and empirical academic economic studies that discuss what is intangible and intellectual capital and why is it important for society. It begins by discussing issues such as the nature of this capital and how has it changed over time. Subsequently it reviews measures of the importance of intangible and intellectual capital, whether optimal levels of investment in intangible and intellectual capital can be said to exist and, accordingly, whether governments should intervene in the market. On balance, theory favours the view that for reasons associated with uncertainty, non-mortgageability and economies of scale, there is an under-investment in these types of investment. However the extent to which this holds will differ according to the prevalence of uncertainty, non-mortgageability and scale economies for each type of capital item. The most common policies to stimulate the production of intangible capital, especially intellectual capital, are government grants, especially for basic research, patents and other forms of intellectual property, subsidies and research consortia. Optimal policies adjust the incentive to produce so that the marginal costs to society are equal to the marginal benefits.
Whilst employment levels in Australia are healthy when compared to those twenty years ago, the available work has become increasingly polarised into either all-work or no-work households. This paper measures the extent of polarisation that has taken place in Australia between 1982 and 1997/98 with a measure of polarisation that accounts for changes in individual based employment. Initially we measure the extent of polarisation against a benchmark of randomly distributed work and then extend this to account for varying employment rates across subgroups of the population. We find that employment growth over the period should have largely offset the effects of shifts in household composition towards more single-adult households. However, polarisation of employment across households means that there are around 3.3 percentage points more households with no earned income. The vast majority of the increase in polarisation is found to be within-household types and does not reflect shifts to household types where employment levels are traditionally low. We also find that couple households with children are the dominant household type to see rising joblessness as a result of this polarisation. Exploration of whether wider shifts in employment away from less-educated men and toward prime-age better educated women lie behind these developments suggest that about 40% of the adverse shift against couples with children and against this benchmark lone parents do much worse. Lone parents have gained employment over this period at a faster rate than the average worker but are failing to keep up with prime age women who contribute to the growing number of couples where both adult work. Households renting privately are also particularly prone to the growing polarisation of work even after conditioning on varying employment prospects. The increase in all-work households is confined to multi-adult households, again focused on families with children. Hence, there is a large shift in patterns of employment in households with children, away from a dominant single male earner model toward more dual-earner and no-earner (couple and single) households with children. This dramatic polarisation of work and incomes for families with children is likely to have consequences for welfare costs and child opportunities in the next generation.
This paper presents results for five separately estimated sets of participation and wage equations. The Australian working-age population is divided into sole parents, single men, single women, married men and married women. The approach in this paper takes the censoring of labour supply observations at 50 hours per week into account. The results for the wage equations are as anticipated with education, work experience and age increasing the expected wage. As expected, allowing for the censoring of labour supply reduces the predicted wage levels, particularly for married men who are most likely to work 50 hours or more.
This paper uses new Australian enterprise level data to investigate factors that are associated with cooperative industrial relations climates within major Australian enterprises. Climate is commonly measured along a uni-dimensional scale ranging from adversarial to cooperative and there is a view in the literature -albeit not a consensus- that more cooperative climates are more productive. Our results find that organisations which have well-developed and bilateral channels of communication between managers and employees and those companies that use systematic and analytical methods for making major decisions tend to have the most cooperative climate of relations between management, employees and unions.
Welfare dependence or reliance is widely regarded to have adverse consequences for both the community and welfare recipients, yet there have been few studies of the extent and nature of welfare reliance. Indeed, the concept of welfare reliance does not seem to be well defined. In this paper, we attempt to clarify the meaning of the concept and derive reliance measures consistent with this concept. These measures are applied to describe the extent and nature of reliance on income support payments in Australia of persons aged 15-64 years, using Australian Bureau of Statistics income survey data and Australian government administrative data for income support payments. Although the reliance measures available are constrained by the data, a number of insights into reliance on income support in Australia can be obtained. Receipt of income support is characterised by a large number of individuals who are reliant for relatively short periods of time, and a significant number of individuals who become reliant on a long-term, perhaps even permanent basis: one sixth of all recipients aged 15-64 years are continuously on income support for in excess of 5˝ years. Over the course of a year, approximately one third of the Australian population aged 15-64 years is at some stage reliant on income support payments, of whom half are in receipt of income support payments for the entire year. Significant growth in the extent of reliance on income support over the last two decades is evident.
This paper attempts to establish the fiscal position of the Commonwealth government with respect to higher education in Australia by comparing the cost and revenue streams associated with university education. Costs primarily comprise the government outlays that are used to finance teaching in universities. Less obviously, revenue primarily derives from the productivity-enhancing effects of higher education, which act to increase earnings and hence increase the taxation revenue obtained from university graduates. The effects of higher education on the government budget are examined adopting two alternative perspectives. The first, which we term the "current net benefit" approach, examines contemporaneous cost and revenue flows by comparing higher education expenditure in each year with the additional tax revenue accruing to the government in that year from all university graduates. The second approach, which we call the "cohort net benefit" approach, involves comparison of the costs of a specific student cohort with the anticipated additional tax receipts from that cohort in the future. Our analysis suggests that, under plausible assumptions, the current net benefit to the government of higher education is in excess of $9 billion per year, while the expected rate of return on the cohort of students entering higher education in 1999 is 10.9% per year.
Previous studies find a positive relationship between juvenile and adult criminal involvement. Using data on males from the Delinquency in a Birth Cohort II study, we investigate whether this correlation is due to unobserved characteristics that increase the probability of both juvenile and adult crime, or whether it is due to true state dependence in crime. Distinguishing between state dependence and heterogeneity is important from a policy perspective. For example, if youthful crime causes adult crime, then policies that reduce a juvenile's criminal behavior will also reduce criminal behavior as an adult. Using a treatment effects model, we find evidence of both state dependence and heterogeneity in the relationship between juvenile and adult crime. The causal influence of delinquency on adult crime is largest for white males and males with fewer years of schooling. The findings suggest that preventive policies that divert juveniles from crime are a viable policy tool for reducing the overall rate of crime.
This paper investigates the interaction of discretionary investments (R&D, capital investment, training and advertising), innovation, productivity and profitability within a dynamic framework of firm performance. A dynamic and closed model of firm performance is set up, and the resulting empirical model is tested as a series of recursive equations, using a four-year balanced panel data set of Australian firms drawn from the Business Longitudinal Survey. The results indicate that current economic profit has an important role to play in enabling firms to invest, and the findings indicate which of these investments are complements and which are substitutes. The paper explores the impact of these discretionary investments on innovation and total factor productivity performance. Finally, the impact of past discretionary investments both directly and indirectly (that is, via innovation and productivity performance) on current profitability is examined. Past values of these investments have a significant influence on current profit, effectively closing the model. The various results enable the paper to draw a number of other policy conclusions, in particular, some concerns about the potentially negative impact of own-market share on dynamic performance.
There appears to be widespread consensus, at least in industry and in government, that enterprise bargaining has been beneficial for productivity. Many academics however, have argued that the link between bargaining structure and workplace productivity is a contentious one, and that research has been unable to establish a relationship. This paper re-examines the existing evidence. The review reinforces the need to exercise caution before asserting that enterprise bargaining is necessarily beneficial for workplace productivity. The main conclusion that emanates from this review, however, is not this absence of a clear-cut finding, but how poorly developed the relevant research literature is.
This paper examines whether there has been a significant trend towards longer working hours in Australia, and whether working arrangements involving long hours are unreasonable. Recent years have seen growing concern with the number of hours many Australians are spending in paid employment. While average hours worked per week have remained relatively stable since the early 1980s, the incidence of both long and short workweeks has increased. Overall, the conclusion is that working long hours is on many criteria, far from unreasonable. It would appear that the majority of long hours workers prefer such arrangements. Attempts to interfere with such preferences through regulation will thus, in most instances, either lead to workers feeling worse off or fail to have any affect on worker behaviour. It is recognised that there are many instances where the hours being worked by individuals are having serious adverse impacts on health and family life and hence may sensibly be judged unreasonable. Nevertheless, it seems that such cases are best dealt with on a case by case basis and not through the imposition of across-the-board limits on hours, which may make far more people worse off than it makes better off.
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