insights volume 9 april 2011

insightsMelbourne business

and Economics

volume 9 april 2011

The plundered planetBy Paul Collier

Family economics and the second demographic

By Shelly Lundberg

The economics of gender discrimination

By Deborah A Cobb-Clark

The coming age of continuous assuranceBy Miklos A Vasarhelyi

Work and Indigenous wellbeing: Developing a research agenda

By Kirrily Jordan

Occasional Addresses By Leon L’Huillier

By Craig Drummond

The University of Melbourne’s first female commerce graduate

By Jane J F Hronsky

Insights: Melbourne Economics and CommerceISSN:1834-6154

Editors: Emeritus Professor Joe Isaac, AOand Associate Professor Geoff BurrowsAssociate Editor: Ms Brooke YoungSub-editor: Ms Rebecca Gleeson

Advisory Board: Professor Kevin DavisProfessor Bryan LukasProfessor Ian McDonald

Design: Ms Sophie Campbell Illustration: Elizabeth Barnett

Insights Melbourne Business and Economics 01

insights vol 9

Table of contents

02 Welcome

By Geoff Burrows, Editor

05 The plundered planet

By Paul Collier There are two forms of plunder. One is

where assets, which should belong to the many, are expropriated by the few. The other is where the present generation expropriates what should be benefiting the future.

11 Family economics and the second demographic

By Shelly Lundberg What economic forces have driven the

profound changes in the Western family in the last five decades and what should be the policy responses?

17 The economics of gender discrimination

By Deborah A Cobb-Clark It has been 40 years since Australian

women won the right to equal pay, yet women continue to earn about 87 cents on average for every dollar that men earn. What do we know about gender pay gaps in Australia?

23 The coming age of continuous assurance

By Miklos A Vasarhelyi The emerging field of continuous auditing

attempts to better match internal and external auditing practices to the reality of the modern IT-dominated environment in order to provide stakeholders with more timely and meaningful assurance

31 Work and Indigenous wellbeing: Developing a research agenda

By Kirrily Jordan Differing attitudes to paid work give

rise to much misunderstanding, if not animosity. Activities that Aboriginal people perceive as highly productive – especially skipping work to attend to familial needs – may be perceived by non-Indigenous work managers as simply lazy.

Occasional Addresses

37 Career paths and their driving forces

By Leon L’Huillier In some respects it might be viewed as

unusual and risky to build several careers in vastly different institutions and sectors of the economy

40 Work-life balance

By Craig Drummond You really work to live rather than live

to work

42 The University of Melbourne’s first female commerce graduate

By Jane J F Hronsky Harriet Amies, BCom (1907-2006)

02 Welcome

In the first article based on the Faculty’s public lectures, Paul Collier draws on ideas from his recently published Plundered Planet to examine how two forms of plundering natural assets – intra- and inter-generational – can be controlled by appropriate governance systems. Intra-generational plunder occurs when assets which should belong to the many are expropriated by the few. Inter-generational plunder involves the present generation expropriating assets which should benefit future generations. Controlling these problems requires a critical mass of informed citizens who can influence all stages of the long decision chains involved in the exploitation of natural resources.

Different aspects of the relationship between gender and economics are examined in separate contributions by Shelly Lundberg and Deborah Cobb-Clark. Lundberg outlines the economic factors, notably changes in production technologies and the structure of demand, which have created a new set of incentives which have profoundly affected household formation, marriage duration, family size, and gender roles in Western families in the last five decades. However, as she observes, the perpetuation of traditional gender roles in countries such as Italy and Japan has caused much lower birth rates than in the more adaptable and

Insights publishes condensed and edited versions of important public lectures connected with the Faculty of Business and Economics. Its object is to share these lectures with the wider public, especially Alumni. The issues presented and developed generally relate to research findings on public economic and social policy. Insights also constitutes an archival source of an important part of Faculty life. Suggestions and comments from readers on any feature of the journal are welcome.

Welcome

egalitarian Scandinavian nations. Cobb-Clark’s analysis focuses on the possible causes of the gender pay gap in Australia which sees women, across the labour market as a whole, earning 87 cents for every dollar that men earn. Decomposing this gap between private and public sectors and between high- and low-paid workers, it appears that there is little discrepancy at lower levels once employee characteristics such as qualifications, skills and experience are considered. However, the discrepancy widens as employees ascend the remuneration ladder. In Australia the issue is ‘not sticky floors but, rather, glass ceilings’.

Miklos Vasarhelyi examines the concept of continuous auditing which has emerged in response to developments in information technology such as the use of sensing devices to record transactions, the integration of business processes and the advent of specialised business-reporting languages. Currently it appears that the assurance (audit) function is struggling to keep up with these developments.

The concept of ‘productive work’ is examined from a cultural standpoint by Kirrily Jordan. While paid work is generally considered central to individual and community wellbeing in Western societies, for Aboriginal Australians cultural factors,


particularly social conditioning and kinship, create values and priorities that clash with the primacy accorded paid work and education by the non-Indigenous majority. One important policy implication is that ‘work’ as it relates to Indigenous communities may need to be redefined to recognise cultural factors and attitudes.

In Occasional Addresses to graduands made in December 2010, distinguished alumni Leon L’Hullier and Craig Drummond present two complementary perspectives on careers and career paths. L’Huillier refers to the enriching but superficially risky strategy of moving between institutions and sectors, particularly between business and government. Drummond’s focus is on the importance of the work-life balance irrespective of the nature of the employment. A common theme in both is the importance of seeking appropriate mentoring and advice early in one’s career.

In recognition both of the centenary of International Women’s Day on 8 March 2011 and the substantial ‘gender’ content of the current volume, we conclude with a brief account of the life of the Faculty’s first female BCom graduate, Harriet Amies. Based on a longer biographical article by Jane Hronsky, this summary also flags an addition to the Faculty’s public programs. Accounting body CPA Australia has agreed in principle to fund an annual lecture series in Harriet Amies’ honour to be delivered by prominent female accountants and business women, with the inaugural lecture scheduled for March 2012. It is expected that these lectures will be published in future editions of Insights.

November 2010 saw the retirement of inaugural members of the Insights Advisory Board, professors Bruce Grundy and Robert Dixon. As well as contributing summaries of their own public lectures to Insights, Grundy and Dixon provided valuable strategic and editorial advice which has enhanced the role and quality of the publication. The current Advisory Board thanks them for their work. Insights also welcomes their replacements on the Board, professors Kevin Davis and Ian McDonald.

This edition also sees Associate-Professor Geoff Burrows as co-editor. A full-time member of staff during 1971–2001, Geoff headed the Faculty’s then Department of Accounting and Business Law in 1987–90. His publications include two histories with particular Faculty connections: Promise Fulfilled, a history of the University’s accounting discipline and Wisdom from the Podium, a history of the CPA Australia – University of Melbourne Annual Research Lecture, the University’s longest-running annual lecture series. As ongoing editor, Geoff will continue to receive valuable support from the technical team of Rebecca Gleeson, sub-editor, and Sophie Campbell, designer, whose professionalism has done much to enhance the readability and appearance of Insights dating back to the first edition in April 2007.

Article heading here4


My address is about these two holes in governance. I will deal mainly with the first – the misgovernance of natural assets in the poorest countries, then address a few remarks on the second hole, and finally consider what could be done about them.

The first hole: misgovernance of natural assets

It is estimated that the value of the ‘known’ sub-soil natural assets in the African countries is only about one-fifth of that of the OECD countries. However, whereas rich countries have been digging up their resources for 200 years, there is much unexplored wealth in the African countries. Current high commodity prices provide the incentive for further exploration in these countries – the last frontier – which is expected to add well above current estimates to the potential wealth of these countries.

The history of resource extraction in these poor countries has not been kind, and the challenge is to try to avoid history repeating itself. To understand why things usually go wrong in harnessing natural assets for prosperity, it is necessary to look at the long and complex chain of decisions involved in this process. If any link in that chain breaks, plundering in one form or another occurs. It is a ‘weakest link’ problem.

The links in the chain of decisions

The first link in that chain is the discovery of the natural asset. By hook or crook – probably by

The subject of my latest book, The Plundered Planet, is the management and mismanagement of natural assets. The broad argument is that natural assets do not have any natural owners – they are just ‘there’. And that makes them vulnerable to ‘plunder’ in one form or another. One form of plunder is where assets which should belong to the many are expropriated by the few. This form has been very common in Africa. The other form – very much the concern of environmentalists – is where the present generation expropriates what should be benefiting the future.

The holes in the governance of natural assets

Governance of natural assets is central to avoiding both forms of plunder. The biggest problems of the mismanagement of nature will occur where governance is weak. The two great holes where mismanagement of natural assets is greatest are in countries that are very weakly governed – fragile or failed states. One applies to quite a few African countries where weak governance cannot cope with the mismanagement of very valuable natural assets. The other is where natural assets do not have the good sense to stay within their national boundary – transnational natural assets – for example, the carbon of the skies and the fish of the oceans. There is no effective governance of the oceans. So, just as there is plunder of natural assets in the failed states, there is plundering of transnational assets where no effective regulation leads to the depletion of these assets.

the plundered planet

There are two forms of plunder. One is where assets, which should belong to the many, are expropriated by the few. The other is where the present

generation expropriates what should be benefiting the future.

A lecture delivered at the University of Melbourne on 26 November 2010.

by paul collier


assets, there is no offsetting accumulation of other assets. It does not have to be dollar for dollar. If 50 cents of one dollar in revenue is consumed and the rest is saved and invested efficiently and productively, that investment will gradually pay for the consumption.

The saving decision related to unsustainable revenues needs to be different to that for sustainable revenues. At present, most governments do not even know what their saving rate is out of their unsustainable revenues because their budget data do not distinguish these different sources of revenue clearly to enable an appropriate saving policy decision to be made between them.

What form should the savings of unsustainable revenues take?

The standard answer to this question is to copy the model of Norway: unsustainable revenues are invested in foreign financial assets. This makes a lot of sense for Norway because it has already more invested capital per member of the labour force within Norway than any other society in the world. Moreover, if it adds to its capital stock within Norway, the returns on that extra capital will be lower than if it invests anywhere else in the world.

Fifty developing countries have asked the Norwegian government for advice on how to invest its revenue. Take countries like Sierra Leone, one of the poorest countries in the world, which has just discovered iron ore and other resources. There has been practically no investment in Sierra Leone for the last 40 years. There is an acute shortage of all forms of investment and it is obscene for such countries to be acquiring capital in Brazil or Australia, when they should be applying capital within their own societies. The Australian Treasury has advised Papua New Guinea ‘to do a Norway’ rather than invest in its own society. However, here is the rub! There is a good reason why countries like PNG and Sierra Leone are short of internal capital investment: they have not acquired the capacity to invest productively. Therefore, the key step in the whole decision chain is using resources to build the capacity to invest productively – ‘investing in investing’.

There are three components to ‘investing in investing’. Savings is a macroeconomic phenomenon

crook – new resources will be discovered in the poorest countries over the next decade. A good way of trying to improve the terms that developing countries obtain for these discoveries is first to get public geological information – something that governments in these poor countries have not done.

The second link in the chain is capturing value for society. Natural resources have rents, and those rents should accrue to the society concerned. The device by which they accrue to society is through the tax system. In many of the low-income resource countries, the tax system is just woefully inadequate. A spectacular example is the Democratic Republic of the Congo (DRC). According to Financial Times figures, exports of gold from the Eastern DRC amount to a billion dollars. But the revenue accruing to the treasury from that export is only $37,000. In addition, the DRC has signed a deal with China giving it a 25-year tax-holiday on resource extraction. However, the problem is not just the tax system. The DRC does not even control its territory. In Zambia, on the other hand, while the government does fully control the territory, it has failed to design a sensible tax system. The mining companies concerned – Indian and Chinese – have a very powerful lobby and have got away lightly with tax – $30m a year instead of $800m if Zambia had the tax regime of Chile.

We move to the third link – tax has been collected, what do we do with the money? The key decision here is between consumption and savings. Here there are two opposite practices, neither of which makes good sense. The IMF position until recently was that all revenues should be saved. This does not make sense in a low-income country. While its people will be better off in the future, it has acute poverty now. Therefore, it is sensible to use some of the revenue to raise current consumption levels. Moreover, the IMF’s strategy was not sustainable politically. The political pressure was to spend all revenues on consumption. In Nigeria, for example, all the oil revenue is spent on recurrent public expenditure – a case of high oil prices, depleting oil reserves and zero savings.

Why should countries save? The simplest way of understanding it is sustainability. Consumption is not sustainable if, with the depletion of natural


There is a corresponding agenda in the private sector – the second leg of the tripod – because the returns on public investment depend on inducing complementary private investment – the government builds the road, but the return on roads is very low unless the private sector invests in trucks. While the government does not control private investment, it can create a climate that is more or less conducive to private investment. The World Bank has constructed a useful index called the Doing Business index1. It features the private investment climate as a benchmark index that can create quite a strong pressure to improve the investment climate of a country. For example, Rwanda has moved up in that index and has overtaken several European countries.

The third leg of the tripod is what is common to both public and private investment. Both are buying capital goods. Capital goods come in two forms: equipment and structures. Poor countries can buy equipment in the world market. But structures are not internationally tradable. They have to be built within the country by the construction sector. This is a strategic part of the economy in these countries. It is potentially a bottleneck sector supplying the non-tradable capital goods that are complementary to equipment. If the costs of structures are very high, that is a disincentive to invest in equipment.

The construction sector in poor countries is massively inefficient and costs are typically very high. One reason is that during a long period of stagnation, the construction sector withers away and its skills are lost to the other sectors

– you just save a certain proportion of revenues. Investment is a microeconomic phenomenon – you have to invest in something specific, and it is either a good investment or a bad investment. Consider the matter as a tripod – what happens in the public sector; what happens in the private sector; and what happens across the two.

In the public sector, the ‘investing in investing’ agenda is about the selection and implementation of projects. Economists know that this should be done through cost-benefit analysis, but often the best is the enemy of the good. The problem is that in societies like Sierra Leone, there are no economists within the public sector able to do such analysis. There is a skill constraint. But even if some young Sierra Leoneans are trained in such techniques, there is the much bigger political problem to contend with: how to dissuade by cost-benefit analysis a minister’s pet project to build an unwarranted highway to his village.

Thus, cost-benefit analysis is often not a realistic option. A more politically realistic approach is for politicians in less-developed countries seeking models of productive public investment, to visit countries that have made a transition from poverty to middle income and to examine both successful and failed public investments and the lessons to be learnt from these examples. Such an approach provides a better vision of how their countries could look in 30 years time through good project selection and implementation. My experience is that concretising the possibilities of transformation is quite a good way of pulling the politicians in.


The second hole: transnational assets

The familiar example is the carbon of the skies. Less talked about is the story of fish which I will discuss. Until recently, the technology for catching fish was relatively primitive and fish were plentiful. It is good that efficiency – through new technology – improved enormously. However, it is obvious that as the property-rights of fish are ill-defined, if catching fish is unregulated, fish will be plundered to extinction. Once regulations are imposed limiting the fish catch, the value of fish caught will be greater than the cost of catching fish, and rents are created on fish. This is analogous to the rents on oil – a barrel of oil sells for $85, costs on average $7 to get it out of the ground, and the rest is rents.

So, to whom should the rents on fish accrue? The fishermen would say ‘It’s ours’ and justify it by saying ‘We’ve always caught fish, we’ve got the rights to catch fish’. That is a fundamental misunderstanding of the ethics of rents. Rents do not belong to the fishermen. The rents on oil do not belong to the oil companies; they belong to the societies in which the oil is located. The return that the oil companies and the fishermen have a right to is the return on their capital, their labour, their risk, but not the rents. They should be paying society for the rights to get the fish out of the sea.

New Zealand does that. However, the more common system is that the fishermen not only get the quotas free, they are subsidised. The value

of the economy. Moreover, being effectively a cartel, the construction sector tends to build structures at a high cost for a public sector that is insensitive to cost. In Mozambique, for example, the construction sector imports very heavy and low value breezeblocks and even sand, despite the 300 kilometres of Mozambique coastline. Trying to build low-cost housing in these circumstances results in high-cost housing thus pricing it out of the affordable range for low-income groups. As these same construction companies operate in Dubai, they set the benchmark for construction costs in that country. The richest man in Nigeria made his money not from oil but from cement. Why is he worth $10 billion? Because the local price of cement in Nigeria is three times the world price.

Furthermore, there is the question of access to land, another bottleneck. The land rights in Mozambique, for example, are adjudicated through a court system that has a backlog of cases, which, at present clearing rate, will take 500 years to clear.

These then, are elements in the construction sector that need to be fixed in order to lower the unit cost of capital goods.

I have set out the tripod of ‘investing in investing’, the three links in the decision-chain. The decisions in this chain have not only to be right all the way, but they have to be right time and again. The passage from poverty to prosperity takes at least a generation. There are no quick fixes in this economic problem.


the high-income societies that are emitting the carbon and are eating the fish, will have to deal with problems. The good news is that for the first time we have the technology that makes it possible to build that critical mass of informed opinion.

Let me close with the story of China. Following the earthquakes in China a few years ago, schools collapsed because they were jerry-built, and children were killed. Within 48 hours of that happening, ordinary Chinese citizens managed to do three things. One, they used the internet to find out why the schools were collapsing. Two, they discovered who – including government officials who took bribes – were responsible for sub-standard building. Three, they organised street protests against those officials. If that was possible two years ago in one of the most repressive societies, it is possible elsewhere to build that critical mass of informed opinion.

In the resource-rich societies, as a private citizen, I did my bit by proposing in The Bottom Billion the idea that the world needed an international natural-resource charter with the decision-chain as its basis. Enough people read The Bottom Billion and a group of people came together and said, ‘That’s do-able, let’s do it’. So now there is a Natural Resource Charter which all can see on the website – naturalresourcecharter.org. It is headed by Ernesto Zedillo, a great economist and former president of Mexico, who said, ‘I saw oil ruin Mexico, I don’t want it to ruin other countries’. There is a board with two Africans, a Chinese and an Egyptian managing this resource charter, with the aim of lowering the cost of information and building a more informed society. There is a film crew of young people making films for YouTube about the Natural Resource Charter. So, to the younger people in this audience, who know about this technology, please use it and help spread this information.

Professor Paul Collier is Professor of Economics at Oxford University and Director of the Centre for the Study of African Economies. His new book The Plundered Planet published by Oxford University Press forms the basis of this lecture.

of rents on fish is approximately $20 billion a year and therefore the fishermen should pay the global society that amount. Instead, they receive about $30 billion a year in fishing subsidies. So global society pays $50 billion dollars a year out of pocket; and by providing the subsidy on catching fish, they accentuate the problem of plunder. Our grandchildren will have no fish because we are actually providing an incentive for fishing instead of restricting it. The final irony is that the $30 billion of subsidies is not even producing billionaire fishermen. They over-invest in fishing fleets.

The most grotesque example of this is fishing regulations within territorial waters in America, which takes the ludicrous form of restricting the number of days in which fishermen can fish. This is down to only two days a year. So we have a fishing fleet which is idle for all but two days a year, during which time they catch as many fish as possible. including the ‘by-catch’ – all the little fish which should be left in the ocean to become bigger fish next year. It is an astounding story of incompetence. If we cannot deal with the plunder of fish, what hope have we got in getting carbon right?

Closing remarks

We have two problems, with the same answer. One is how does a poor country like Sierra Leone or PNG get the whole decision chain right to harness its natural assets instead of being plundered. The other is how can transnational assets such as fish be regulated so to avoid plunder.

The answer is common to both cases: there is no substitute for building a critical mass of informed citizens. Yet, the key group of informed citizens and what they have to be informed about differ between the two problems. For the resource-rich societies like PNG, something between 1,000 to 10,000 people are needed who actually understand that full decision chain and what is at stake. It cannot be done by three smart people in the ministry of finance. It is a long chain of decisions, which no single person can be expected to operate for an entire generation.

Problems such as over-fishing do not depend on the fishing countries. They depend on us because we are eating most of the fish. A critical mass of informed citizens within our own societies, within

1 See Doing Business Report, at the following address: http://www.doingbusiness.org/reports


in the early years of life, though the fundamental causes of the subsequent decrease in fertility are still the subject of controversy.1 Some part of the fall in fertility was doubtless a response to the decline in infant and child mortality but, since the number of surviving children per family also fell dramatically, this cannot explain most of the change. Others have pointed to the decreasing economic value of children as the need for their labour in agriculture decreased and as state social insurance systems began to replace an absolute reliance on children as a source of old age support.

Another explanation for declining fertility can be based on the increased demand for human capital that resulted from new technology introduced in the second stage of the Industrial Revolution. The expansion of railways, electrical power, and the use of the internal combustion engine led to a dramatic increase in investment in plant and machinery. New technology and the accumulation of capital increased the value of labour skills relative to muscle power, and this increase in the demand for labour skills reduced fertility in two ways.2 First, there is a shift in parental incentives towards having fewer children, but investing more in the capabilities of each. Rising levels of education attest to this shift in the quality/quantity trade-off facing parents. Second, the Industrial Revolution increased women’s employment opportunities, and the resulting growth in the value of women’s time increased the cost of raising children. The

‘The family in the Western world has been radically altered – some claim almost destroyed – by the events of the last three decades.’ Gary Becker, Nobel Laureate, Economics (1981)

For the three decades after Becker’s comment on the transformation of the Western family at the beginning of his revised Treatise on the Family, we have continued to experience profound changes in family organisation and dynamics. These changes – delayed marriage and childbearing, increased cohabitation and nonmarital childbearing, higher rates of divorce and remarriage resulting in complex blended families – have been labelled by demographers the Second Demographic Transition. Despite the benefits of increased personal freedom to choose our preferred family arrangements, these trends have sparked anxiety that we may be witnessing the demise of traditional marriage, and concern for the wellbeing of children in increasingly unstable families. What are the economic forces that have driven these demographic revolutions, and how should we think about policy responses?

The (First) Demographic Transition

The term ‘Demographic Transition’ (or the First Demographic Transition) refers to the dramatic decline in both fertility and mortality rates experienced by industrialising European countries in the nineteenth century. Improvements in sanitation and a more abundant and reliable food supply contributed to falling death rates, especially

family economics and the second demographic transition

What economic forces have driven the profound changes in the Western family in the last five decades and

what should be the policy responses?

An edited version of the 2010 Downing Lecture presented at the University of Melbourne on 10 November 2010.

by shelly lundberg

12

Some part of this increase was due to a reduction in the costs of divorce, as many states abandoned fault-based divorce laws to permit unilateral divorce; but divorce rates have increased in recent decades in almost all OECD countries. Separation and re-partnering produces complex families and diverse patterns of parental obligation, and may weaken children’s perceived responsibility for care of their elderly parents in the future. A rise in extramarital births as a proportion of all births has also been a widespread feature of the SDT – about 40 per cent of US births now take place outside legal marriage, and about half of these are to lone parents rather than cohabiting couples.

The changes of the SDT have led, in the affected countries, to both social anxiety about the future of the family and policy debates about appropriate responses. There are two principal sources of concern. First, below-replacement fertility, increased life expectancy, and the resultant ageing population create long-term problems for government financing of pensions and the support of the elderly. Second, high levels of family instability are believed to have adverse impacts on the wellbeing of children and the elderly.

Drivers of the Second Demographic Transition

Demographers have emphasised the ideational change that accompanies increased affluence as the principal cause of the retreat from marriage and declining fertility of recent decades. With rising incomes, they argue, comes a focus on ‘higher order needs‘ such as individual autonomy and self-actualisation. A focus on the individual also increases norms of gender equality and decreases the authority of the church and the state over decisions regarding marriage and childbearing. In contrast, an economic approach to the SDT analyses the demographic choices made by individuals who face constraints on their time and material resources. Changes in norms, attitudes and values may reinforce behavioural trends initiated by economic forces, but they are by and large along for the ride. From an economic perspective, the basic causes of the SDT are rooted in technological advances and market developments that have changed the costs of and rewards to childbearing and traditional marriage.

demographic transition contributed to economic growth by facilitating investment in human capital, and was a key feature of the transition to a modern economy.

The Second Demographic Transition and its discontents

The years immediately following World War II were characterised by early marriage and large families in the US and throughout much of the developed world. The first signs of a new regime in patterns of partnership and parenthood began as early as the 1950s and 1960s in Scandinavia and the US – increasing divorce rates followed by falling fertility and an increasing age at first marriage. The concept of the Second Demographic Transition (SDT) was developed by demographers Lesthaege, van de Kaa and collaborators in the mid-1980s to explain cross-national trends towards postponed and less stable marriage and low fertility.3 The SDT is now well-established in North America, Europe and Australia, and is clearly beginning in industrialised Asia.

The common features of the SDT include fertility rates that fall near or below replacement levels, postponed childbearing and increased childlessness, and an increase in extramarital childbearing. Replacement-level fertility is an important threshold, but some countries, including Japan, Korea, Germany, and much of South and East Europe, now have fertility rates below 1.3 children per woman. This level has been labelled lowest-low fertility, and leads, without substantial immigration, to rapid ageing and population decline. Increased cohabitation rather than legal marriage, and a high level of divorce has meant that the partnership context in which childbearing takes place is more heterogeneous and less stable than during the post-war baby boom. Despite widespread trends in these family conditions, there is considerable variation across countries: in Italy and Japan marriage and fertility rates are very low, but there is little cohabitation or childbearing outside legal marriage, while in the Nordic countries cohabitation is common and fertility rates are higher.

The so-called divorce revolution in the US led to a doubling of the divorce rate during the 1970s.

Family economics and the Second Demographic Transition


in the wage structure have benefited female workers more than male workers, and helped to pull women into the labour force.4

In an economic model of the decision to marry, individuals compare the expected benefits of marriage relative to those of single life, where the advantages of establishing a joint household (or ‘marital surplus’) depend on potential gains in two spheres: production and consumption. The production benefits to marriage come from economies of scale in providing for multi-person households, and from the returns to specialisation and exchange within the household. When one spouse specialises in market work and the other in home work, each becomes more productive in his or her separate sphere, and gains from trade analogous to those from trade between nations ensue. Consumption gains from marriage, on the other hand, come from the joint enjoyment of household public goods such as housing, the value of shared leisure time, and the rewards of raising children together. As dual-career families become the standard, and more household

One important driver of the SDT has been the converging economic lives of men and women in most Western countries, which has both reduced the gains from marriage and increased the cost of children. The educational attainment of young women has been rising, and in all OECD countries except Turkey now exceeds that of men. Gender gaps in labour force participation rates, hours worked in the market, and annual earnings have narrowed substantially in most developed countries. Contributing to this convergence have been factors that increase female rates of pay and reduce the barriers to women leaving the home – the development of and increased access to reliable contraception; the falling prices of labour-saving household appliances; the development of markets for home-produced goods and services such as cooking, cleaning and child-care; and the increasing relative wages of women. Changes in production technology and structure of demand have increased the relative returns to cognitive and people skills in the labour market relative to motor skills or physical strength. These alterations

14

The Second Demographic Transition and inequality

The pronounced changes in partnership and fertility patterns that characterise the SDT have progressed very differently across socio-economic groups: marriage rates have declined more rapidly and extramarital fertility is much higher among women with lower education levels in the US. Nonmarital childbearing (to both lone and cohabiting parents) also has a distinct education gradient across Europe. This implies that children of less-educated mothers are more likely to experience family disruption and are less likely to have a father present than children of more-educated mothers.8 The diverging family lives of those at the top and the bottom of the income scale have implications for investments in the next generation and for increasing levels of inequality.

The Fragile Families and Child Wellbeing Study, a survey of 5,000 newborns and their parents in US cities in 1999, found that unmarried parents were very likely, at the time of the birth, to be either cohabiting or in a romantic relationship. Five years later, however, only 35 per cent of these parents were still together, and the children had experienced many relationship transitions among their parents, and very unstable living arrangements. Why are marriages so rare and relationships so unstable, particularly among poor parents in the US? Possible explanations include limited gains from legal marriage, which are higher when there is property to protect or when higher incomes increase the returns to joint consumption. An alternative theory emphasises the economic woes of men in low-income communities. Real wages and employment levels have fallen among men with a high school diploma or less in the US since 1980. Considerable empirical evidence supports the dependence of stable relationships on male income contributions, despite the increasing earnings power of women. This implies that men with poor employment prospects and low wages have little to offer a potential marital partner. In low-income communities, particularly those affected by the high incarceration rate of minority men, men with higher earnings and more-stable employment will be sufficiently scarce that they will have little incentive to commit to a long-term relationship.

production is outsourced to the market, marriage (and cohabitation) becomes increasingly based on consumption rather than on gender-specialised production, and the overall benefits to marriage are likely to be smaller.5 One of the key implications of the economic approach to the SDT is that the retreat from marriage is unlikely to reverse. Gender equality in the market, which reduces the returns to establishing joint households, is being advanced by fundamental economic forces.

As an ancillary force, the falling costs of exiting marriage seem to have generated contracting problems within the family. It has become increasingly difficult for men and women to forge long-term, enforceable agreements about family life, and this reinforces the secular decline in marital surplus and in marriage. Many factors have reduced the costs of ending a union – the replacement of legal marriage by cohabitation, the liberalisation of divorce laws, and the less-stringent social prohibitions to single parenthood and to divorce. If couples are unable to make binding agreements about their future – basically, I can’t credibly promise not to leave you – then investments in joint ventures, such as children, may be inefficiently low. Investments that are ‘portable’, such as education and career experience, conversely, will be more attractive. If a couple also has a limited ability to make legally-binding agreements about custody or post-separation financial arrangements, the problem is exacerbated.6 Clarity and predictability in post-divorce support and custody arrangements, at the very least, can help to mitigate the consequences of limited commitment.

Persistent social norms can exacerbate these contracting problems by hampering domestic adjustment to a more gender-neutral labour market. As women’s relative education levels have increased, a more egalitarian division of household labour would be efficient, but it can be difficult for young men and women to make a credible contract to share household work in the face of peer pressures that support more traditional gender roles.7 This may explain why fertility has remained higher in countries with more egalitarian norms, such as Norway and Sweden, while marriage and fertility rates have plummeted in more traditional Southern Europe and Japan.

Family economics and the Second Demographic Transition14


References

Galor, O and Weil, D, 1996, ‘The gender gap, fertility, and growth,’ American Economic Review, vol. 86, no. 3, pp. 374-387.

Guinnane, T, 2010, ‘The historical fertility transition: a guide for economists,’ forthcoming in Journal of Economic Literature.

Lesthaeghe, R, 2010, ‘The unfolding story of the Second Demographic Transition’, Population and Development Review, vol. 36, no. 2, pp. 211-251.

Lundberg, S, 2010, ‘The changing sexual division of labour’, in Solow, R and Touffut J-P (eds), The Shape of the Division of Labour: Nations, Industries and Households, Edward Elgar, Cheltenham, UK.

Lundberg, S and Pollak, R, 2007, ‘The American family and family economics’, Journal of Economic Perspectives, vol. 21, no. 2, pp. 3-26.

McLanahan, S, 2004, ‘Diverging destinies: how children fare under the Second Demographic Transition’, Demography, vol. 41, no. 4, pp. 607-627.

McLanahan, S and Beck, A, 2010, ‘Parental relationships in fragile families’, The Future of Children, vol. 20, no. 2, pp. 17-37.

Sevilla-Sanz, A, 2005, ‘Social effects, household time allocation, and the decline in union formation’, Congressional Budget Office, Washington, D.C.

Stevenson, B and Wolfers, J, 2007, ‘Marriage and divorce: changes and their driving forces’, Journal of Economic Perspectives, vol. 21, no. 2, pp. 27-52.

1. An excellent recent review is provided by Guinnane (forthcoming).

2. These arguments are developed formally in Galor and Weil (1999) and Galor and Moav (2002).

3. For a review, see Lesthaege (2010).

4. Lundberg (2010).

5. Stevenson and Wolfers (2007).

6. The problem is more acute in specialised marriages. Since specialists in home production invest little in market skills, these arrangements rely on a permanent, or at least long-term, commitment between husbands and wives to protect the home-based partner from future poverty.

7. Sevilla-Sanz (2005).

8. McLanahan (2004).

Conclusions

The SDT has altered the structure and dynamics of families in industrialised countries over the past five decades – making families smaller, less stable, and more heterogeneous. It has been driven by changes in technology and the labour market that have reduced household gender specialisation and the gains from marriage, and increased the costs of children. In some countries, collisions between these economic forces and traditional social norms have driven fertility rates to very low levels and hastened the ageing of the population. Among the poor in America and elsewhere, the economic prospects of men are hindering the formation of stable families and adequate investments in children.

In designing policies to promote higher fertility and greater family stability, it is important to realise that both men and women must expect to reap gains from forming and maintaining joint households and bearing children. When women who are experiencing improved labour market opportunities realistically expect to bear a double burden of work and domestic responsibilities if they marry and have children, then they will have little incentive to follow a traditional family path. Policies that make it easier for women to raise children effectively on their own, though they work against the mutual dependence of the traditional family, do support investment in children, and are probably not measures that we want to roll back in order to promote marriage. Finally, when there are severe barriers to economic contributions to households by men in low-income communities, stable marriages and marital childbearing will be discouraged.

Professor Shelly Lundberg is the Leonard Broom Professor of Demography at the University of California, Santa Barbara. She is also a Research Fellow at IZA, Bonn, Germany, and Adjunct Professor of Economics at the University of Bergen, Norway. She is a Fellow of the Society of Labor Economists and currently serves as First Vice-President of SOLE and on the Board of Directors of the Population Association of America.

Article heading here


of equally productive groups. Specifically, discrimination exists when two equally qualified individuals are treated differently based solely on non-productive characteristics such as gender, religion, ethnicity, race, sexual orientation, and so on (see Blau et al, 2010). Discrimination can occur when (i) employers simply prefer to hire one group of workers to other groups, (ii) employees prefer that their co-workers have certain characteristics, or (iii) customers prefer to deal with specific types of workers. These so-called ‘taste for discrimination’ models, according to Becker, imply that preferred workers will be paid more – or be hired more frequently – because they are more valuable in some sense despite not being more productive. Statistical discrimination occurs, on the other hand, when employers deal with a lack of information about a particular worker’s productivity by applying stereotypes, prejudices or rules of thumb pertaining to the group to which a worker belongs.

Much of the empirical economics research has focused on measuring gender discrimination, though researchers have also studied discrimination that occurs because of workers’ race, ethnicity, religion or sexual orientation. Determining whether discrimination has occurred and measuring the extent of it can be extremely difficult. A myriad of econometric issues including feedback effects, omitted variables, sample selection and more all imply that our statistical measures of discrimination may be biased. In

Introduction

Forty years after the 1969 Equal Pay Case there continues to be a substantial gap in the wages of Australian men and women. Women’s relative wages are lower amongst the self-employed (Eastough and Miller, 2004), at the top of the wage distribution (Miller, 2005; Kee, 2006) and in the private sector (Barón and Cobb-Clark, 2010). Across the labour market as a whole, women earn approximately 87 cents for every dollar that men earn. This gap in men’s and women’s pay stems largely from the fact that men and women earn a different return on their qualifications, experience and expertise – not because they have different skill endowments. It raises questions about what produces this gender pay gap and whether discrimination within the Australian labour market is at least partially to blame.

I will begin by outlining the way that economists typically think about labour market discrimination and then reviewing the empirical evidence on the source of the gender pay gap. I will also discuss some of the issues that we still do not understand well and will conclude by highlighting some of the challenges that I see facing us in achieving gender equity in the Australian labour market.

How do economists think about discrimination?

Economists generally define labour market discrimination to be the unequal treatment

the economics of gender discrimination

It has been 40 years since Australian women won the right to equal pay, yet women continue to earn about 87 cents on average for every dollar that

men earn. What do we know about gender pay gaps in Australia?

A condensed version of an Alumni Refresher Lecture delivered at the University of Melbourne on 21 September 2010.

by deborah a cobb-clark


is relatively constant. On average, women earn approximately 88 per cent of what men earn irrespective of whether they are in the bottom or the top quintile of the wage distribution. In contrast, the median gender wage gap in private sector employment is slightly larger and there is a sharp increase in the size of the gap as wages increase. Women in the bottom quintile of the wage distribution earn approximately 92 per cent of what low-paid men earn. Highly-paid women, on the other hand, earn closer to 72 per cent of what similarly paid men earn. In the top half of the wage distribution (above the median), the gender pay gap is significantly higher in private- than in public-sector employment.

These differences imply that economic models of discrimination – and the public policies that are used to deal with it – need to be flexible enough to take into account the full range of men’s and women’s labour market experiences both at the top and the bottom of the wage distribution. Economists typically use the term ‘sticky floors’ to describe a situation in which women are disproportionately left behind in low-paid jobs, and ‘glass ceilings’ to describe situations in which women are unable to access highly-paid jobs.

Is the gender pay gap related to the type of work men and women do?

One of the most persistent and defining features of labour markets around the world is that men and women do very different kinds of work. This raises the obvious question: is the gender pay gap related to the type of work men and women do? Although much of the international literature finds that labour market segregation does contribute to the gender wage gap in many countries (see for example Blau and Kahn, 2000), it is less obvious that segregation can account for the gender wage gap in Australia. Historically, many authors have concluded that Australian women’s relative pay would decrease – not increase – if they were employed in occupations in the same proportions as men (Rimmer, 1991; Lee and Miller, 2004).

Figure 2 shows how the segregation in men’s and women’s occupations differs in public and private sector employment in Australia. Specifically, we calculate a standard index of dissimilarity to

short, measuring discrimination is very hard because we very seldom know everything about workers’ productivity. We may think that we are comparing equally productive workers when that is not the case.

How does the gender pay gap differ for high- and low-pay workers?

Figure 1 shows how the ratio of Australian men’s to women’s wages varies across the wage distribution in the public and private sector. In public-sector employment, the gap in men’s and women’s pay

Figure 1: Natural Logarithm of the Gender Wage Ratio by Sector (the shaded areas show 5 per cent confidence intervals)

Notes: The sample includes employees aged 22 to 60 receiving wages in each wave. We use data from HILDA waves 1 to 6. We use the Consumer Price Index (CPI) to transform wages to 2001 dollars. Wages per hour are calculated as the ratio between current weekly gross wage and salary to hours per week usually worked both in the main job. The bands represent bootstrapped-normal confidence intervals at the 95 per cent level with 5,000 replications and clustered at the individual level. The graph excludes the top and bottom 5 percentiles. The dashed and solid lines represent the coefficient on a gender dummy (1 for male, 0 for female) from quantile regressions, at each percentile, of the logarithm of the wage per hour (in 2001 dollars) on the gender dummy. There are 4,132 women and 4,181 men in the sample, with 25,982 person-year observations.

Ln (m

ale

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e/fe

mal

e w

age)

Percentile

Source: Barón, J and Cobb-Clark, D, 2010 ‘Occupational segregation and the gender wage gap in private- and public-sector employment: distributional analysis’, Economic Record, Vol. 86 (273), June, pp. 227-246.

4

3

2

1

0

Private Sector

Public Sector

0 20 40 60 80 100


distributions of the highest paid men and women could be equalised with only 40 per cent of workers changing occupations. These large changes in occupational segregation occur despite the gender wage gap remaining relatively constant.

In contrast, occupational segregation in private sector employment increases gradually as workers become more highly paid. At the bottom of the wage distribution, 42 per cent of workers would need to change occupations in order to remove gender segregation. At the top of the distribution, this increases slightly to 47 per cent. This gradual increase in occupational segregation is not immediately consistent with the much sharper increase in gender pay disparities for highly-paid, private sector workers. Thus, Figures 1 and 2 provide little evidence that occupational segregation in the Australian labour market is the source of the gender pay gap.

Cobb-Clark and Tan (2011) investigate the role of occupational segregation in gender pay imbalances in more depth. In particular, they explicitly consider whether any differences in men’s and women’s psychosocial traits – specifically personalities and sense of control over their lives – influence the occupations in which they are employed and, if so, whether this contributes to the disparity in men’s and women’s wages. They use data from the Housing, Income and Labour Dynamics in Australia (HILDA) Survey, which provides detailed information over a number of years for a large, nationally-representative sample of Australian workers.

The authors find that psychosocial skills have a substantial effect on entering many, though not all, occupations in ways that differ for men and women. Consequently, Australian men and women with the same psychosocial traits enter occupations at very different rates, which contributes to occupational segregation. Australian women, however, have lower wages on average not because they work in different occupations to Australian men, but because they are paid less when working in the same occupation. If anything, women’s psychosocial traits give them a slight pay advantage in the Australian labour market.

determine the proportion of women who would have to change occupations in order to have women represented in each occupation in the same proportion as men (see Barón and Cobb-Clark, 2010). In the public sector, 55 per cent of low-paid women (or men) would have to change occupations in order to equalise the distribution of occupations across gender. This degree of occupational segregation falls steadily as public sector workers become more highly paid. The occupational

Figure 2: Occupational Segregation across the Distribution of Wages, by Sector

Notes: The figures represented in this graph are calculated as follows: we calculate the proportion of total women and total men working in each occupation for individuals at different points of the wage distribution (e.g. in the bottom 10 per cent of their corresponding gender wage distribution). At each of these points of the distribution, and for each sector, we calculate an index of occupational segregation as ID = 0:5£ P i jMi¡Fij where i indexes occupations, and Mi and Fi are the proportions of total men and total women in occupation i. The resulting statistic tells us the proportion of women or men workers who would have to change jobs to make the distribution of occupations for each gender identical. The occupations used are based on the Australian Standard Classification of Occupations (ASCO) Sub-Major Groups and the ANU4 (40 categories in the public sector and 64 in the private sector). There are 4,132 women and 4,181 men in the sample, with 25,982 person-year observations.

Inde

x of

occ

upat

iona

l seg

rega

tion Private Sector

Public Sector

Part of distribution

Source: Barón, J and Cobb-Clark, D, 2010 ‘Occupational segregation and the gender wage gap in private- and public-sector employment: a distributional analysis’, Economic Record, Vol. 86 (273), June, pp. 227-246.

0.60

0.55

0.50

0.45

0.40

0.57

0.52

0.46

0.440.43

0.500.540.54

0.52

0.490.49

0.43

Bottom 10% 10th-25th 25th-40th 50th-60th 75th-90th Top 10%


experience, job characteristics, and so on. This allows us to draw indirect inferences about how discrimination might have changed over time and how it might vary across groups.

Barón and Cobb-Clark (2010), for example, conduct an analysis of the gender pay gap in both public and private sector employment in Australia using data from the HILDA survey. They find that in private sector employment, approximately two thirds of the median gender pay gap can be attributed to the differences in men’s and women’s characteristics. Only one third of the median gap is the result of differences in the return to those characteristics. At the same time, the gender pay gap for low-paid workers – those at the 10th percentile – is completely explained by gender differences in characteristics, while at the top of the pay distribution – the 90th percentile – less than 60 per cent is explained.

In public-sector employment nearly all – 98 per cent – of the median gender pay gap is unexplained once we account for the differences in men’s and women’s occupations. This unexplained component falls slightly at the bottom and the top of the pay distribution, but remains sizeable.

Is the gender pay gap due to discrimination?

Economists often use decomposition analysis to factor the gender pay gap into two components: one because men and women have different qualifications, skills, experience, etc.; and the other because men and women earn different wage returns for those qualifications, skills, and experience. The former is typically referred to as the ‘explained’ gap because it can be explained by differences in men’s and women’s characteristics. The latter is typically referred to as the ‘unexplained’ gap and is often what people have in mind when they think of labour market discrimination.

Unfortunately, a variety of econometric challenges imply that it is exceedingly difficult to make comparisons between workers who are equally qualified. As a result, statistical estimates of discrimination can be often quite biased. This has lead most economists to use decomposition analysis – not to measure discrimination per se – but to highlight the extent to which gender pay gaps stem from the observable characteristics of workers, for example educational qualifications,


Professor Cobb-Clark is Director of the Melbourne Institute of Applied Economic and Social Research, University of Melbourne and a Research Fellow of Institute for the Study of Labor (IZA), Bonn.

References

Barón, J and Cobb-Clark, D, 2010, ‘Occupational segregation and the gender wage gap in private- and public-sector employment: a distributional analysis’, Economic Record, vol. 86 (273), June, pp. 227-246.

Blau, F.D, Ferber M.A, Winkler A.E, 2010, The Economics of Women, Men, and Work, 6th Edition, Upper Saddle River, NJ: Prentice Hall.

Blau, F.D and Kahn, L.M, 2006, ‘Wage structure and gender earnings differentials: an international comparison’, Economica, pp. S29-S62.

Cobb-Clark, D.A and Tan, M, 2011, ‘Noncognitive skills, occupational attainment, and relative wages’, Labour Economics, vol. 18(1), pp. 1-13.

Eastough, K and Miller, P, 2004, ‘The gender wage gap in paid- and self-employment in Australia’, Australian Economic Papers, vol. 43, pp. 257-276.

Gregory, R.G and Borland, J, 1999, ‘Recent developments in public sector labor markets’, Handbook of Labor Economics, volume 3C, Chapter 35, North-Holland, New York, USA, pp. 3573-3630.

Kee, H.J, 2006, ‘Glass ceiling or sticky floor? Exploring the Australian gender pay gap’, Economic Record, vol. 82(259), pp. 408-427.

Lee, Y and Miller, P, 2004, ‘Occupational segregation on the basis of gender: the role of entry-level jobs’, Australian Journal of Labour Economics, vol. 7 (3), pp. 355-374.

Miller, P.W, 2005, ‘The role of gender among low-paid and high-paid workers’, The Australian Economic Review, vol. 38, pp. 405-417.

The differences in the size of the gender pay gap in public versus private sector employment are generally consistent with differences in the wage-setting mechanisms in the two sectors. In particular, the smaller pay gap in the public sector is consistent with more intensive antidiscrimination enforcement and faster occupational integration in public sector employment (see Gregory and Borland, 1999). However, it is surprising that almost none of the gap in the relative wages of highly-paid, public sector employees can be attributed to differences in their qualifications, experience, skills, etc. Finally, irrespective of sector, the gender pay gap among low-paid workers is almost entirely explained by their characteristics, while the gap among highly-paid workers is largely unexplained. This suggests that the issue in Australia is not sticky floors, but rather glass ceilings.

What are the challenges and where do we go from here?

These results advance our understanding of the gender pay gap in Australia. At the same time, they leave open a number of important puzzles yet to be resolved. Why do highly-paid women employed in the Australian public sector continue to fall behind their male colleagues? To what extent is this evidence of discrimination? Given the degree of segregation in men’s and women’s work, why do wage differences across occupations play so little role in explaining the persistent wage penalty faced by Australian women? More specifically, why does occupational segregation seem to improve rather than undermine the relative wages of women in Australia, when the opposite appears to be the case in other countries (see Blau et al, 2010).

These are important questions that must be addressed if we are to fully understand – and rectify – gender pay imbalances in the Australian labour market. Perhaps the biggest challenge of all is to understand why the gender pay gap is so persistent. Does it result from the hiring, promotion or pay decisions of employers or rather from disparity in men’s and women’s skills or preferences that we have failed to measure?


Incorporating computers into business processes reduces manual processing and the costs of the associated human errors. Importantly, computerisation changes the intrinsic nature of these processes, requiring adjustments to the socio-technical structures of organisations.

The development of mainframes, microcomputers and, most recently, internetworking – using the internet for a wide range of business transactions – have provided the major drivers of business electronisation. However, the real-time economy has mainly depended on the evolution of (i) sensing devices that automatically record economic events, (ii) enterprise resource planning (ERP) packages that integrate automated business processes, (iii) specialised business-reporting languages, and (iv) methods of integrating automated- and human-decision processes. Despite these developments, business processes must continue to evolve in order to leverage technology more effectively. These changes include business-process re-engineering and process reorganisation.

The continuous-audit paradigm represents a shift in practice toward a degree of automation better suited to the technologically sophisticated, cost-efficient modern entity. The development of continuous auditing requires a fundamental

Introduction

In recent decades, businesses worldwide have been transformed by powerful information technologies to operate in what has been labelled the ‘now economy’, characterised by 24-hour globalised operations, customer interactions and management decisions. These electronic transformations have affected the entire business cycle by incorporating a multiplicity of technologies into organisational processes. Financial processes have also been transformed, supported by the evolution of information technology (IT). Typically IT and financial processes have progressed more quickly than the assurance (audit) process. Assurance has lagged, stifled by the conservatism of its practitioners, obsolete regulations, and the absence of social or economic catalysts. The emerging field of continuous auditing attempts to better match internal and external auditing practices to the reality of the modern IT-dominated environment in order to provide stakeholders with more timely and meaningful assurance.

The real-time economy

Businesses have accelerated activities in every possible domain in order to achieve two interlinked objectives:

– Decreasing process costs through automation; and

– Increasing process accuracy.

the coming age of continuous assurance

The emerging field of continuous auditing attempts to better match internal and external auditing practices to the reality of the modern IT-dominated environment in order to provide

stakeholders with more timely and meaningful assurance

A condensed version of the 71st CPA Australia/University of Melbourne Annual Research Lecture presented on 11 October 2010. A recorded version of the lecture can be found at: http://live.unimelb.edu.au/episode/71st-cpa-australia-university-melbourne-annual-research-lecture

by miklos a vasarhelyi1

24

on the nature of processes and the types of connections between processes. Once a sample is deemed to require more intensive examination, original documents must be retrieved for scrutiny and analysis. Automation can reduce this latency by automatically subjecting sub-samples to increased filtering and analysis.

Elements of progressive automation

Starting 25 years ago with US telecommunications giant American Telephone & Telegraph Company (AT&T), I have worked with many colleagues on a plethora of projects aimed at increasing the timeliness of auditing and improving the quality of organisational data. This work has been undertaken primarily in conjunction with firms’ internal auditors, but also occasionally with their external counterparts or process managers. These projects have generated a series of tentative conclusions about where we stand today, namely:

– Auditing must evolve toward a radically different methodology to satisfy the general objectives of assurance and data integrity.

– Regulations governing the scope of audits are too narrow. The domain needs to expand, involving a reconsideration of the objectives of audits.

– The automation of audit processes is just one part of a wider set of economic, technological and process innovations.

– A new framework of assurance is evolving to incorporate more advanced analytics, attempting to leapfrog the delay of assurance technology in relation to business.

– After scope and analytics, the two major changes awaiting the audit process are the timing and location of assurance work.

Electronic measurement and reporting (XBRL)

XBRL, in both its external financial reporting (FR) and general ledger (GL) versions, represents a very positive step towards automation, but it still perpetuates some of the limitations of the ‘paper-oriented’ reporting model. To improve their social-agency function, audits should encompass corporate measurements and databases, not just

reconsideration of all aspects of auditing, particularly:

– How data is made available to auditors;

– What tests auditors conduct;

– How alarms triggered by audits are dealt with; and

– The nature, frequency and direction of assurance reports.

The importance of some of these issues will only become apparent as continuous auditing is implemented. However, the auditing profession and other stakeholders must start thinking now about the impact of continuous auditing when it is easier to guide this change, rather than after systems have become established.

Latencies

Four major types of latency (delay) can be reduced through the adoption of new technologies:

1. Intra-process latency: The time taken for a process (e.g. updating accounts payable) to be performed. These latencies are affected by the degree of automation of process steps.

2. Inter-process latency: The time taken for data to pass between processes. These latencies are influenced by the adoption of interoperability standards such as XML (eXtensible Markup Language), a set of rules for encoding information into machine-readable form. The financial value-chain will be substantially enriched when XML-coded transactions interact with XBRL (eXtensible Business Reporting Language) for general-ledger postings and, ultimately, the preparation of financial statements.

3. Decision latency: The time taken for a decision to be made, reduced to nanoseconds if decisions are made electronically. Auditors typically make a series of decisions based on errors detected in samples of populations. These human interventions take time. Rules can be developed to automatically highlight items for further examination or to accept samples as representative of populations.

4. Decision-implementation latency: The time taken for the implementation of decisions, contingent

The coming age of continuous assurance


a standardised amount, an alarm or alert occurs. Although extensive effort has gone into improving the measurement of actual values through the use of IT, there has been limited work into defining the models or standards that should be used under different circumstances, particularly when seasonality, growth rates, business cycles and extraordinary events all influence actual measures.

The proliferation of business processes and the ubiquity of technology and automation will not only change the minimum level of control from accounts (embodying multiple transactions) to individual transactions but will also require a different set of meta-controls to be enacted. These are part of the natural changes in business processes discussed earlier.

Two key considerations have been embedded in assurance regulations and procedures. First is the trade-off between the cost and benefits of audits, leading to high-materiality thresholds considering today’s technology. Second is the atomicity of

financial statements. XBRL is an imperfect, rigid model for representing the interlinked fuzzy-boundary business organisations of today. However, electronic assurance functions will be influenced by, and will influence the evolution of, XBRL.

Like most substantive regulatory-based changes, the evolution of XBRL is generating a series of unintended (positive and negative) consequences including (i) pressure towards standardisation of reporting, (ii) facilitation of more-frequent reporting, and (iii) standardisation of the semantics of accounting reporting.

Monitoring and control

Conceptually, the processes of measurement, monitoring, control and assurance are tightly interlinked. Control typically focuses on the comparison of actual values with predetermined benchmarks to produce variances or discrepancies. When the absolute value of a discrepancy exceeds

26

automated data acquisition and analysis, and the electronic communication of alarms for a customer base of over 50 million households.

This system was designed to monitor and audit the billing system of AT&T in the context of the corporation’s ‘take back’ strategy, which involved billing clients directly rather than through operating companies. As the system – labelled Continuous Process Audit System (CPAS) – was enormous and highly sensitive, data was extracted through a semantic process in which electronic versions of reports were captured via a remote job-entry system and their content pattern-scanned for specific content. Figure 1 symbolically demonstrates the system’s electronic remote job-entry reports being filtered through semantic extraction procedures and placed in a relational database. This database was queried by screen-based reports that visually described the system in a flow chart-like presentation comfortable to auditors.

controls and their observability, leading to most audit research being focused on data auditing and not the structure of and compliance of controls.

The advent of the Sarbanes-Oxley Act in the US in 2002 – which tightened financial reporting and audit requirements – propitiated a reconsideration of the latter which further emphasised manage-ment’s accountability for control and accounting with assurers being clearly delegated to non-operational review roles.

Continuous assurance

The first recognisable example of what would today be termed continuous auditing was our large-scale auditing system developed in the late 1980s at Bell Laboratories, the research arm of AT&T. That project relied on the pre-internet advanced information technologies of the day (PCs, databases, corporate networks) to assure the reliability of the entity’s billing systems through

The coming age of continuous assurance

Figure 1. CPAS ArchitectureSystem

Operational Report

Filter

Database

MetricsAnalyticsReports

AlarmDF – level 0

System Operational Reports

DF – level 1 DF – level 1 DF – level 1

DF – level 2

Data flow diagrams

Workstation

Operational Report

Operational Report


to a firm’s data warehouse, potential errors that may be introduced to the data set have to be identified and removed before the data is suitable for automated testing. This step is undertaken by the transaction-verification component of a CDA system. In a tightly integrated enterprise environment with automated business-process controls, such data errors may be prevented by the client’s ERP system.

Transaction verification is implemented by specifying data validity, consistency and referential integrity rules, which are then used to filter the population of data. These rules are designed to detect and remove two types of data errors:

1. Data-integrity violations, including invalid purchase quantities, receiving quantities, and cheque numbers.

2. Referential-integrity violations, largely caused by unmatched records among different business processes. For example, if a receiving transaction cannot be matched with any related ordering transaction, the indication is that a payment is being requested for a non-existent purchase order.

CDA can be used for verifying master data, transactions and key process metrics using analytics (including continuity equations).

For Itau-Unibanco (Brazil’s largest private financial institution and the twelfth largest bank in the world) we have been developing a set of CDA applications that include (i) auditor branch monitoring, (ii) transitory account monitoring, and (iii) branch sales analysis and monitoring. These endeavours are focused on detecting errors, deterring inappropriate events and behaviours, reducing or avoiding financial losses, and helping assure compliance with existing laws, policies, norms and procedures.

We have also worked with the audit-innovation team of consumer products multinational Procter & Gamble in three projects, involving (i) identifying inventory problems at over 160 locations using key performance indicators, (ii) examining worldwide vendor files and understanding vendor structures, duplicate payments and other issues, and (iii) automating the order-to-cash audit process on a stepwise basis.

Internal auditors, who intensively participated in the effort, were ‘knowledge engineered’ to acquaint them with the system and its audit rules. Past audit reports were also used to identify sources of data (metrics), types of analysis performed (analytics), comparative models (standards) and to determine when alarms should be issued.

This effort in actual data monitoring – to identify process flaws or data exceptions – was originally termed ‘continuous audit’ but today would be labelled ‘continuous data audit’. It demonstrated that the ultimate aim of continuous auditing is to bring auditing closer to operational processes, and away from the traditional backward-looking annual examination of financial statements. The CPAS project was eventually paralleled by the ‘Prometheus’ project that delivered information to billing managers in a manner analogous (but not identical) to the process-monitoring features of CPAS.

We progressively re-conceptualised continuous auditing with three main components: (i) continuous data audit, (ii) continuous control monitoring and (iii) continuous risk measurement and assessment.

Continuous data assurance (CDA)

Continuous data assurance (CDA) uses software to extract data from IT systems for analysis at the transactional level to provide more detailed assurance. CDA systems provide the ability to design expectation models for analytical procedures at the business-process level, as opposed to the current practice of relying on ratio or trend analysis at higher levels of data aggregation. Testing the content of an entity’s data flow against such process-level benchmarks focuses on examining both exceptional transactions and exceptional outcomes of expected transactions. CDA software can continuously and automatically monitor transactions, comparing their generic characteristics with these predetermined benchmarks, thereby identifying anomalous situations. When significant discrepancies occur, alarms are triggered and routed to appropriate stakeholders.

Transaction verification is essential in most CDA implementations, especially in entities with disparate legacy IT systems rather than a single, integrated, ERP system. When data is uploaded

28 The coming age of continuous assurance

Continuous controls monitoring (CCM)

The advent of the Sarbanes-Oxley Act and its assurance provisions on controls brought increased attention to the configurable nature of ERP controls. Continuous monitoring of business-process controls relies on automatic procedures, presuming that both the controls themselves and the monitoring procedures are formal or able to be formalised.

Working with German manufacturing conglomerate Siemens AG, we made our first attempt to prototype control-monitoring, which was followed by a more complete audit-automation study. We are currently working on the formalisation of functions and their consequences upon separation of duties. This work has taught us about Siemens’ audit action sheets (AASs), which provide a step-by-step review of their internal systems. In the Procter & Gamble audit-automation project, we first created AASs when deciding which steps of the order-to-cash process to automate.

Among the lessons from the Siemens projects are (i) ERP systems are very opaque, (ii) process- and control-rating schema are desirable, (iii) 20-40 per cent of controls may be deterministically monitored, (iv) perhaps another 20-40 per cent are potentially monitorable, (v) this CCM is a new form of alarm evidence that we do yet not know how to deal with, and (vi) continuous risk-management and assessment is needed for weighing evidence and choice of procedures.

CCM can be used for monitoring access control and authorisations, system configurations, and business process settings.

CDA and CCM are complementary processes. Neither process is self-sufficient or comprehensive. Even if no data faults are found it cannot be concluded that controls are fail-safe. Further, even if controls are being implemented, data integrity cannot be assumed. When combined, however, these monitoring approaches present a more complete reliance picture. Yet we were encouraged to take it further, particularly following the financial crisis of 2007-08 and the pressure of the Public Company Accounting Oversight Board (established in the US under the Sarbanes-Oxley Act) for ‘risk-based audits’. We hence

conceptualised the Continuous Risk Monitoring and Assessment (CRMA) approach.

Continuous risk management and assessment (CRMA)

In compliance with the Sarbanes-Oxley Act, management must monitor internal controls to ensure that risks are being adequately assessed and managed. Enterprise risk management systems help companies identify and manage corporate risks. In compliance with Basel protocols, banks are required to assess their overall capital adequacies in relation to their risk profiles. Regulators have encouraged financial institutions to validate their risk models to increase the reliability of risk assessments. The Accounting Oversight Board has exerted substantial pressure on audit firms to reduce audit costs through smarter use of audit procedures.

CRMA is a real-time integrated risk assessment approach, aggregating data across different functional tasks in organisations to assess risk exposures and provide reasonable assurance on firms’ risk assessments. It includes processes that:

– Measure risk factors on a continuing basis;

– Integrate different risk scenarios into quantitative frameworks; and

– Provide inputs for audit planning.

For the Itau Unibanco project, we have been developing a set of risk indicators for the product-to-sales cycle, including four different banking products as well as a set of macro risk indicators, all of which will be added to a normative risk dashboard (a display of system measures and alerts), to be included as audit evidence to decide on the extent and scope of audit procedures. The CRMA area is still incipient and requires extensive thought, experimentation and prototyping, but we feel that this will be a very important and valuable area of research.

Future developments and constraints

Our experiences – gained from working on over 10 corporate partnership projects – have led us to believe that substantive changes to both measurement and assurance models are necessary. The same rules that helped to formalise and evolve


the role of auditing in modern life now inhibit the evolution of many business measurement processes, including assurance. These changes, forced by the progressive advent of the real-time economy, must be research-based, tested in practice, and then promoted and incorporated by standard setters.

The top priorities in assurance research should encompass creating:

– Control-system measurement and monitoring schemata, including attempts at formalisation and structuring. This should include some form of control representation and taxonomy, methods of quantification of control combinations, and methods of incorporating the results of control-monitoring into quantitative assessment of control design and effectiveness;

– Standards for business process monitoring and alarming;

– Automatic confirmation tools;

– A variety of modular audit bots (agents) to be incorporated into programs of audit automation; and

– Alternative real-time audit reports for different compliance masters.

At the same time, complementary research should focus on extending assurance to non-financial processes through continuity equations, developing standards for continuous auditing, and developing complementary assurance products.

We must also reconsider concepts and standards, particularly:

– Independence (which needs to be redefined);

– The external audit billing model, which should be restructured to bill on function, not hours;

– Audit firms improving their knowledge collection and management processes to feed their analytical toolkits;

– Audit firms engaging in audit automation and proactively promoting corporate data collection during the automation process;

– Value-adding, which must be justified in terms of data quality; and

– Redefining the concept of materiality.

This lecture examined the changes occurring in the real-time economy and how they necessitate something close to real-time assurance. It then discussed the evolution of continuous assurance and its current conceptualisation, and finished by listing a series of priorities for research in the area.

Miklos A. Vasarhelyi is KPMG Professor of AIS, Rutgers Business School; Technology Consultant, AT&T Labs; and editor of the Artificial Intelligence in Accounting and Auditing series and AAA’s Journal of Information Systems.

References

Alles, MA, Brennan, G, Kogan, A, and Vasarhelyi, M.A, 2006, ‘Continuous monitoring of business process controls: A pilot implementation of a continuous auditing system at Siemens’, International Journal of Accounting Information Systems, June, pp. 137-161.

The Institute of Internal Auditors, Continuous Auditing: Implications for Assurance, Monitoring, and Risk Assessment, GTAG # 3, Altamonte Springs, Florida, 2005.

Vasarhelyi, M.A and Greenstein, M.L, 2003, ‘Underlying principles of the electronization of business: A research agenda’, International Journal of Accounting Information Systems, March, pp. 1-25.

Vasarhelyi, M.A and Halper, F, 1991, ‘The continuous audit of online systems’, Auditing: A Journal of Practice and Theory, vol.10 (1), pp. 110-125.

1 The author thanks Qi Liu and J.P Krahel for their advice on this paper.

30 An efficient and fair industrial relations system


Indigenous quality of life. While the implications of these arguments are strongly debated, there is a clear need to better understand Indigenous attitudes to and aspirations for paid work, and to think more creatively about the appropriate policy response.

Work and wellbeing: What does the literature tell us?

The benefits of paid work

There is a long history of researching the relationship between work and wellbeing, especially among psychologists, sociologists and economists. Many studies have focussed on the ill-effects of unemployment, showing that being out of paid work (especially for long periods) can be associated with reduced health, increased financial stress and greater social isolation. As a corollary, other studies point to the potential benefits of paid employment, including economic independence and non-pecuniary outcomes like improved self-esteem, skill development and expanded social networks.

While this literature has often focussed on Western populations, similar arguments have been made in relation to Indigenous Australians. Numerous reviews of Indigenous disadvantage have implicated unemployment as contributing to a range of ills – from depression and low self-esteem to social problems like alcohol abuse, social unrest and family violence.

In the lead up to the federal election in August 2010, both major political parties emphasised the importance of paid work. In its campaign materials, the Australian Labor Party (ALP) stated that ‘there is nothing more important in managing the Australian economy than to ensure that every Australian has the opportunity to work’. Similarly, the Liberal Party of Australia highlighted that it was ‘determined to take real action’ on employment participation, ensuring that ‘all Australians who want work can find work’.

Such an emphasis on employment is not new. It is in keeping with well-practised arguments that paid work is central to individual and community wellbeing, generating not only income and financial independence but also self-esteem and social cohesion. As the ALP asserted in its election campaign, ‘a job provides more than just a pay packet – it gives dignity and purpose, provides security for the future and connects people to their community.’

This article briefly examines the evidence behind these claims. It argues that the reality is more complex than campaign slogans would have us believe, with the benefits and costs of paid employment varying according to individual attitudes and circumstances. In particular, it draws on emerging literature to highlight possible tensions between some kinds of paid work and

work and indigenous wellbeing: developing a research agenda

Differing attitudes to paid work give rise to much misunderstanding, if not animosity. Activities that Aboriginal people perceive as highly productive – especially skipping work to attend to familial needs – may be perceived by non-Indigenous work managers as simply lazy.

A condensed version of a lecture delivered to the Social Justice Initiative Seminar at the University of Melbourne on 7 September 2010.

by kirrily jordan


or long working weeks are not inevitable, some studies suggest that an important variable is the mismatch between actual and preferred working hours (Wooden, Warren & Drago 2009).

Of course, time pressure is not the only way in which paid work can undermine wellbeing. There is a substantial literature on ‘work-family conflict’, which refers to the many ways in which performance in either a work or family role can inhibit performance in the other (see Greenhaus, Allen & Spector 2006). This may be due not only to competing claims on a person’s time but also to the transference of stress between roles or the inappropriate application of a behaviour useful in one role to the other where it is counterproductive. A growing body of work points to the potential for negative impacts of work-family conflict on an individual’s health, with some studies also pointing to ‘crossover’ effects on the health of others within the home.

The notion of work-family conflict is most often invoked in relation to the pressures of juggling paid work with domestic commitments. In this context, particular strains on women are sometimes identified. However, there are a number of reasons why many Indigenous people might also experience heightened tensions between paid work and other roles.

Indigenous wellbeing and work

It is particularly useful here to turn to the work of anthropologists. One concern is that much of the literature on work-family conflict focuses on nuclear families. Anthropologists have argued this construct may have limited relevance to many Indigenous Australians, who often operate in large and complex kinship networks rather than relatively contained nuclear households. Responsibilities to large kinship networks may not only be more extensive than those experienced by non-Indigenous Australians, but they may also take on a qualitatively different character. In particular, there may be distinct tensions between the demands of paid work and Indigenous patterns of relatedness and social obligation, with the ongoing negotiation of complex relationships often seen as the real ‘work’ of day-to-day life.

It is partly for these reasons that Noel Pearson and the Cape York Institute (CYI) have been such prominent advocates for Indigenous engagement with what they call the ‘real economy’ – effectively defined as the market economy, with a particular emphasis on participation in ‘real’ jobs in the mainstream labour market. Drawing on the work of Amartya Sen, researchers at the CYI identify this as a basic capability, without which people’s ability to ‘lead lives of their choosing’ is constrained (CYI 2005: 5).

Sitting comfortably with this focus on paid work, Pearson (2000) identifies welfare dependency as the primary obstacle to overcoming disadvantage among Aboriginal people in Cape York. This argument maintains that where income support has been paid without the requirement that able-bodied recipients undertake productive activity (like education or paid work), it has undermined people’s sense of personal responsibility and induced passivity. According to the CYI (2005: 6), while income support can help to ease the financial strain of unemployment, it will tend to exacerbate its more intrinsic effects on self-esteem by sending recipients the message that ‘there’s something about you that means you have to have extra assistance’. Moreover, a lack of participation in paid work will also have profound intergenerational effects because ‘it is chiefly by working that parents convey the message to their children that opportunity exists for the taking, ensuring that attitudes of defeat are not transmitted across generations’ (CYI 2005: 10).

The costs of paid work

In recent decades, however, a growing body of literature has questioned whether all kinds of work have positive effects. Several studies suggest that ‘inadequate’ work – whether it is intermittent, poorly paid or insecure – as well as excessive or unsatisfying work can be damaging for mental and physical health. Those in casual jobs may face particular stressors including job insecurity, absence of entitlements to paid leave and a lack of control over their working hours. Those working excessive hours may face other problems like inadequate time to manage their health, invest in social relationships or pursue activities they enjoy. While negative experiences of casual work


socialised to set aside personal feelings or familial needs in order to yield to enforced schedules, there is an ‘emotional incompatibility’ between the Aboriginal cultural self and regimented Western institutions like school and paid work.

A key point, then, is that notions of ‘correct behaviour’ and ‘achievement’ are socially constructed. It is pertinent to reflect on the long inculcation of the value of paid work in Western societies, with the idea that paid employment is a ‘rational’ use of our time a product of particular historical circumstances. As Kral (2010: 1) has noted, for some Indigenous people the ‘normative logic’ of a sequenced pathway involving the individual pursuit of educational credentials and subsequent entry into paid employment is a notion introduced only in very recent generations. It should not be surprising, then, that for many people the much more longstanding adherence to cultural systems in which value and meaning derive from kin-based obligations remains dominant.

Differing attitudes to paid work give rise to much misunderstanding, if not animosity. Activities that Aboriginal people perceive as highly productive – especially skipping work to attend to familial needs – may be perceived by non-Indigenous work managers as simply lazy. In addition, because the demands of relatedness cannot be left at the workplace door, it may be ‘rational’ for an employee to display what others perceive as unproductive behaviours at work – such as disobedience or disengagement – to position themself in the ongoing negotiation of kin relations (McRae-Williams & Gerritsen 2010). Returning to the idea of work-family conflict, these can be seen as examples of ‘family interference in work’, in which behaviours learnt in the family (or non-work) environment inhibit performance in the work role.

The other side of the same coin is ‘work interference in family’. For many Indigenous people this may be particularly pronounced. Putting work commitments ahead of kinship obligations can sometimes result in strong criticisms that one has abandoned Aboriginality and ‘gone whitefella way’ (Gibson 2010: 150), and even in being ‘disowned’ – temporarily or permanently – by a kinship group (Macdonald 1986: 213). Clearly, in these circumstances, participation in regular paid work

Several recent case studies support this view. For example, McRae-Williams & Gerritsen (2010: 18) have argued that, among Aboriginal people in the remote Northern Territory community of Ngukurr, negotiating kinship relationships takes considerable time and energy, and is usually prioritised over employment commitments. This reflects the ‘Ngukurr Aboriginal world view’ in which work is ‘primarily managing social relatedness and autonomy’ and ‘reaffirming ties is equally, if not more, important than attendance at the formal workplace’.

Such findings are not reserved for remote regions. Gibson (2010) has examined attitudes to paid work among Aboriginal people in Wilcannia in regional New South Wales. Here, too, paid work and the benefits it can bring ‘sit uneasily’ with the demands of relatedness and sociality, so that while many people recognise that wages would increase their access to desired material items, few are prepared to make paid work their daily priority if it means forfeiting ‘other culturally perceived and culturally attributed values, social obligations and desires’ (Gibson 2010: 154). To meet one’s social and moral obligations in Wilcannia, as in Ngukurr, one must productively work outside the sphere of paid employment – taking a grandmother to the doctor; attending a funeral; or staying with friends or relatives to prevent an argument. This means that there appears to be ‘a “take it or leave it” attitude to employment as well as a prioritisation of other things’ (Gibson 2010: 148).

Such attitudes are very deeply ingrained. For example, according to Gibson (2010: 155), not only do they reflect the centrality of relatedness in Aboriginal personhood but, at least in the Wilcannia context, they have also become a ‘companion’ of Aboriginal identity. Here, ‘asserting blackness often means positioning oneself against whiteness’, including positioning oneself against ‘white ways of working’. Burbank (2006: 4) has suggested that ways of being that collide with Western work practices may be ingrained not only socially, but also neurologically. She argues that early learning – such as the socialisation that occurs in families – is ‘instantiated in patterns of the brain’s synapses’ and becomes both ‘enduring and highly motivating’. Since Aboriginal children are less likely than Western children to be


employment for remote-living Indigenous people who lacked access to other jobs. Its key feature has been the public provision of block grants to Indigenous organisations, enabling them to employ participants on local projects at a wage notionally approximating, at a minimum, the welfare benefits they would otherwise receive.

CDEP participants have been expected to work around 16 hours per week and have often worked longer hours to receive additional income. To this extent CDEP, too, has been an attempt to instil a Western notion of work discipline in Indigenous participants. However, under the more liberal policy approach of ‘self-management’ that was dominant from the 1970s to mid-1990s, the significance of culture in work practices was much more readily acknowledged. The Hawke Government, for example, explicitly recognised what were deemed ‘traditional activities’ – including artefact production, the intergenerational transmission of cultural knowledge and subsistence food production – as ‘legitimate’ forms of employment under CDEP (Commonwealth of Australia 1987: 11). Moreover, Indigenous people were ‘empowered’ to make their own decisions about what constituted employment in line with local circumstances.

Recent changes to CDEP are a clear example of the way dominant policy thinking has radically shifted. Since the mid-1990s the aims of the scheme have been significantly redefined, moving away from direct job creation under community control towards the placement of participants into non-CDEP jobs. Key changes since then – including the closure of urban CDEPs in 2007 and regional CDEPs in 2009 – have seen the number of participants fall from over 30,000 to less than half that figure. The culmination of these changes is the current plan to transition all remaining CDEP participants onto unemployment benefits in 2012, with the stated aim of encouraging them into the mainstream labour market.

The Australian Government sees this as part of its strategy to halve the gap in Indigenous employment by 2018, but the predicted outcomes are strongly contested. Critics of CDEP have characterised the scheme as creating ‘pretend jobs’ and a disincentive to look for alternative

may not be a straightforward route to feelings of pride and self-esteem. Indeed, where work commitments compromise the ability to support kin in expected ways, the emotional response may instead be one of shame (see McRae-Williams & Gerritsen 2010: 11).

Policy implications

The scenario described in this article – in which Indigenous cultures and mainstream work practices may collide – will not match the experience of all Indigenous Australians. Moreover, cultures are never static and inflexible: Indigenous people even in the remotest regions are often highly inter-cultural, adapting to and acting on contemporary environments by synthesising existing cultural knowledge and a multiplicity of other influences (Kral 2010).

Areas for serious consideration, then, are the extent to which Indigenous cultures that are ill-suited to regimented work should be accommodated by policy-makers and, conversely, the extent to which governments should seek to elicit cultural change. The current approach – dominant for at least the last decade – is to pathologise Indigenous disengagement from mainstream employment and implement policies designed to alter individual behaviour. For example, the central thrust of the Gillard Government’s approach is to:

…transform individuals, families and communities by rebuilding the positive social and economic norms that underpin daily life – like going to work and paying the rent (ALP 2010: 11).

At a minimum, the government is seeking to inculcate work discipline and create ‘job-ready’ subjects through the instruments of mutual obligation requirements and mainstream employment services. Ultimately, the hopes are for moving people off welfare and publicly-funded employment programs into mainstream jobs.

This approach is a sharp contrast to those of earlier decades. Particularly significant in this context is the Community Development Employment Projects (CDEP) scheme, introduced in the late 1970s. While eventually expanded to include urban areas, it was originally an attempt to create


being the high rates of alcohol and drug abuse and interpersonal violence. And there is no doubt that these – along with well-documented educational disadvantages and the de-motivating influences of unemployed peers – are significant contributors to the low levels of Indigenous participation in non-CDEP employment.

However, this article suggests we should be wary of analyses that cast the lack of engagement with mainstream employment as simply ‘bad behaviour’ (Johns 2010). Such analyses conflate serious social problems with highly valued aspects of Indigenous cultures that also precipitate conflicting attitudes to paid work.

Looking for a way ahead

In policy debates where such strongly held and opposing positions endure, it is difficult to see a way ahead. It is perhaps easier to be torn between competing views. For example, one may acknowledge that Indigenous cultures and priorities are intrinsically valuable irrespective of their compatibility with regimented work, while at the same time support interventions that seek to change these priorities in the hope that socio-economic gains might be made. However, if the studies documented here are right, then the internal contradictions of this position are clear: it is likely that any efforts to force change in Indigenous cultures will have significant trade-offs for Indigenous wellbeing wherever a sense of purpose is more closely attached to kinship obligations than paid work.

A more promising way forward, then, is to build on the emerging research highlighted in this article; not only exploring ways in which some Indigenous cultures and mainstream work may collide, but also identifying the kinds of work – and work practices – that might better match diverse Indigenous attitudes and aspirations.

Dr Kirrily Jordan is a Research Fellow at the Centre for Aboriginal Economic Policy Research, Research School of Social Sciences, College of Arts and Social Sciences, at the Australian National University.

employment (see Hughes 2007). From this perspective, the changes should produce positive results. On the other hand, supporters of CDEP have argued that it has underpinned a range of productive economic activities (like enterprise development, arts production and natural resource management) as well as facilitating transitions into suitable mainstream jobs where available (see Altman, Gray & Levitus 2005). This perspective suggests that, when ‘work’ is appropriately defined and sympathetic to cultural practices, Aboriginal people are no less likely to be committed and industrious than other workers. It also raises concerns that the changes to CDEP and reorientation towards mainstream employment services will be incompatible with realities in remote areas and, in practice, lead to increased welfare dependence if CDEP participants are shifted on to unemployment benefits but do not transition into other jobs.

Unfortunately, a government review of the impacts of closing urban CDEPs was quickly terminated and no results have been publicly released. The little evidence available is garnered only from questions put to a Senate committee. This suggests that in March 2009 – around two years after the closures – 40 per cent of former participants were receiving unemployment benefits. It is not known what proportions had secured ongoing non-CDEP work or exited the labour force. However, this figure might suggest that, even in areas with relatively robust labour markets, the removal of CDEP as a supposed incentive to find alternative work has not resulted in strong employment outcomes. More robust data are needed if the impacts of the next round of changes are to be rigorously assessed.

The changes to CDEP have come amidst a broader critique of self-determination that suggests it exacerbated social problems by reducing external authority and allowing access to alcohol and passive welfare money; and that it allowed naïve notions of ‘Indigenous culture’ to impede progress by facilitating disengagement with the market economy (see Sutton 2009). Of course, there is no denying the significant socio-economic problems and serious social pathologies in many Aboriginal communities, perhaps most troubling

Work and Indigenous wellbeing: Developing a research agenda

References

Altman, J.C, Gray, M.C and Levitus, R, 2005, ‘Policy issues for the Community Development Employment Projects scheme in rural and remote Australia’, CAEPR Discussion Paper No. 271/2005, Centre for Aboriginal Economic Policy Research, ANU, Canberra.

Australian Labor Party (ALP) 2010, ‘Closing the Gap’, Australian Labor Party, Canberra, viewed 13 August 2010, <http://www.alp.org.au/agenda/more-policies/closing-the-gap/>.

Burbank, V, 2006, ‘From bedtime to on time: Why many Aboriginal people don’t especially like participating in Western institutions’, Anthropological Forum, vol. 16, no. 1, pp. 3-20.

Cape York Institute for Policy and Leadership (CYI) 2005, ‘Freedom, capabilities and the Cape York reform agenda’, Cape York Institute for Policy and Leadership, Cairns, viewed 31 August 2010, <http://www.cyi.org.au/WEBSITE%20uploads/Speeches_Articles%20Folder/Papers%20and%20Position%20Pieces/6%20Freedom,%20capabiltiies%20and%20Cape%20York%20reform%20agenda.pdf>.

Commonwealth of Australia 1987, ‘Aboriginal employment development policy statement: Policy paper No. 1’, Australian Government Publishing Service, Canberra, viewed 11 January 2011, <http://www.voced.edu.au/td/erd_87.24>.

Gibson, L, 2010, ‘Making a life: Getting ahead, and getting a living in Aboriginal New South Wales’, Oceania, vol. 80, no. 2, pp. 143-160.

Greenhaus, J.H, Allen, T.D and Spector, P.E, 2006, ‘Health consequences of work-family conflict: The dark side of the work-family interface’, Research in Occupational Stress and Well Being, vol. 5, pp. 61–98.

Hughes, H, 2007, Lands of shame: Aboriginal and Torres Strait Islander ‘homelands’ in transition, Centre for Independent Studies, Sydney.

Johns, G, 2010, ‘Submission to the Australian Government 2010 Indigenous Economic Development Strategy: Draft for consultation’, Australian Catholic University, Brisbane,

viewed 31 January 2011, <http://www.deewr.gov.au/Indigenous/Employment/Pages/IEDSsubmissionsreceived.aspx>.

Kral, I, 2010, ‘Generational change, learning and remote Australian Indigenous youth’, CAEPR Working Paper No. 68/2010, CAEPR, ANU, Canberra, viewed 21 January 2011, <http:// caepr.anu.edu.au/publications/working.php>.

Macdonald, G, 1986, ‘The Koori way’: The dynamics of cultural distinctiveness in settled Australia, PhD thesis, Department of Anthropology, University of Sydney, Sydney.

McRae-Williams, E and Gerritsen, R, 2010, ‘Mutual incomprehension: The cross cultural domain of work in a remote Australian Aboriginal community’, The International Indigenous Policy Journal, vol. 1, no. 2, Article 2.

Pearson, N, 2000, Our right to take responsibility, Noel Pearson and Associates, Cairns.

Sutton, P, 2009, The politics of suffering: Indigenous Australia and the end of the liberal consensus, Melbourne University Press, Melbourne.

Wooden, M, Warren, D and Drago, R, 2009, ‘Working time mismatch and subjective well-being’, British Journal of Industrial Relations, vol. 47, no. 1, pp. 147–179.

36


career paths and their driving forces

In some respects it might be viewed as unusual and risky to build several careers in vastly different institutions and sectors of the economy

An edited version of his Occasional Address delivered at Wilson Hall, the University of Melbourne, on 15 December 2010.

by leon m l’huillier

influencing broader aspects of society. For example, George Schultz, my Dean at the University of Chicago Business School, went on to become Secretary of State in the US Government and then President of the global Bechtel Corporation.

My own career, of course, has not reached such lofty heights. However, I was able to make a difference to society when I left the corporate sector to become Executive Chairman of the Transport Accident Commission, which has made a significant contribution to reducing thousands of deaths and serious injuries on our roads. Paradoxically, after I graduated from the University of Melbourne, I commenced a retailing career with Myer in Melbourne; today, many decades on, I have ended up back in retailing as a Director of Australia’s leading retailer, Woolworths.

Similar career opportunities exist in North America, South America, Asia, Europe and Africa. However, although there have been marginal changes, mobility is still very difficult in Australia, especially between full-time positions in business and government. Regrettably, a variety of factors limit mobility between business, government, academia and professional firms. These include a lack of appreciation by business leaders of the competency of top bureaucrats and administrators,

I have been fortunate to have enjoyed several distinct career paths. I started as an academic for a relatively short time at the University of Melbourne and Monash University. I then worked as a management consultant in the UK and the US, and subsequently became a chief executive in both the corporate and government sectors. Most recently, I have been a non-executive director of large businesses.

In some respects it might be viewed as unusual and risky to build several careers in vastly different institutions and sectors of the economy, including business, government and academia. As I describe the paths my career has taken, you will see that it is not always the case.

Driving forces in a varied career

Reflecting on my career, I believe there were three driving forces that form the basis of my forthcoming observations and the advice I offer to graduands.

Firstly, I had a passionate desire to try to make a difference to society. I am sure this reflects the ideals of graduands here tonight. Whilst at the University of Chicago, it became apparent to me that it was acceptable to move between academia, government, business and the professions, thus

37Insights Melbourne Economics and Commerce

occasional address

Article heading here38 Career paths and their driving forces

Drawing upon these three driving forces behind my career, I would suggest that there are certain practical steps you can take as you build your own career.

Mentors

At different stages of your career, find people who can help to guide you with career and life choices. This goes much deeper than networking – it requires trusting relationships with a variety of individuals. Initially, your family and extended family will help guide you, but you need more than this. Search outside the family circle to obtain advice, and although your employer may have a structured mentoring programme it still pays to get external advice. This is particularly important when considering changing careers or organisations, because corporations today are demanding higher levels of commitment and job stability. Mentors will help you to get to the core of an issue, while providing integrity and hopefully displaying good instincts. They will help you read the culture or DNA of your employer or future employer. In my own case, for example, I was guided in my early career by Sir Roderick Carnegie, whose wise counsel led to my early career with McKinsey.

Other mentors inspired me to challenge conventional thinking both in business and government. This lead me to develop a controversial road safety campaign in 1989 to ‘outrage, appal and upset’ the community. We needed to confront community tolerance of road trauma head-on in order produce a change in its attitude to road safety and driving behaviour.

Alumni

One of the best starting points for seeking mentors is your own alumni. Wherever you live, it is likely there will be a University of Melbourne alumni group nearby. I would strongly encourage you to participate actively in the group, as it will provide you with the opportunity to meet individuals of different ages and experiences who can help mentor your career and life choices.

the rigid thinking of corporate HR departments and search firms, and the adversarial nature of the political system.

Secondly, I wanted to work in organisations that have a culture of employing highly talented individuals and a reputation for integrity. This was the basis behind my choice to work with McKinsey and Company in the UK and US, and my current role as a Director of Woolworths. Working with talented people will always push you to excel and provide enormous job satisfaction. However, talent alone is not enough. Society has witnessed the failure of many organisations and governments with highly talented individuals.

In my experience, the critical component of a company or organisation is the culture or DNA that binds the talents together – this is the key ingredient for sustained success and job satisfaction. Culture is essentially ‘the way we do things around here’. It is very difficult to measure and varies enormously between corporations and institutions. It is hard to read from the outside, but when you join an organisation you soon becomes aware of its key elements. In most respects, this will be the critical factor in your job and career satisfaction.

Thirdly, I had an ambition to travel and work in a global economy. I was fortunate to work in the UK, Europe and the US. Further, whilst relatively young, I had a wonderful experience of working in China in the 1970s. It bore little resemblance to the China of today with virtually no cars, few trucks, little infrastructure and no advanced industries. It was a huge challenge, but tremendously rewarding.

There is no doubt that developing and emerging countries will continue to have a major economic and political impact on your career. Take advantage of your degree and the mobility it gives you to live and work in different parts of the world. You have a magnificent opportunity to work in corporations and professions both in Australia and globally – corporations whose links with developing and emerging economies are increasingly important. It is interesting to note, for example, that over seven per cent of large Australian company chief executives have significant international experience. Soon this will be close to 100 per cent.

Insights Melbourne Business and Economics 3939Insights Melbourne Economics and Commerce

Concluding remarks

You are indeed fortunate to graduate from this great University, which is renowned for its teaching, research, scholars and, importantly, the success of its graduates. It has outstanding day-to-day leadership from your Vice Chancellor and the Dean of your Faculty. The reputation of the University of Melbourne is not necessarily just about its ranking in the latest league tables. Reputations of great universities require consistent performance over long periods of time. This University was founded in 1853 – the year my family arrived in Australia from France – and it has consistently been recognised as one of the finest in the world.

Leon M L’Huillier is Non-Executive Director of Woolworths Limited. He was formerly Chief Executive of Lion Nathan, Executive Chairman of the Transport Accident Commission, and Chairman of the Royal Children Hospital, Brisbane.

Article heading here

work-life balance

You really work to live rather than live to work

Today I enter my thirtieth year in the workforce since graduating from this Faculty. I will devote most of my comments to the late phase of my university life and the early period of my career, when I was making all the work and life choices that lay ahead of me. Most of these decisions I am glad to have made, but I also learnt a lot entering into business in the early days and made mistakes that I am happy to share with you today.

Like many of you, I was not certain that the choice I made to join chartered accounting firm KPMG following my degree was the right one. I really did not know what to expect. Yet, in the four years I was there, I learnt a lot. Hopefully, as I rumble through my six key ‘learnings’, something may resonate with you.

First, over-communicate with your colleagues, to ensure ‘no-surprises’ outcomes. Often this correlates with having a keen self-awareness of the issues around you, rather than it all being about you. As good and great as we all think we are, and the more focused on self we become, the more blind spots we have. This lack of self-awareness is a real inhibitor to working collaboratively and progressing our careers. So communicate often, escalate often, and be humble!

Second, while work ethic is crucial, be smart. If everyone does the same thing at the same hour of the day, it can waste crucial time. Being prepared to do work in ‘off peak’ times can work well when you are busy. Why not allocate an ‘off peak’ time, such as early on a Sunday, to complete the work that needs to be done, instead of constantly

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missing mid-week family dinners? There is no substitute for hard work and innovation, but be smart, use the time effectively and be prepared to question your superiors if your efforts can be better directed.

Third, being consistent in your behaviour is a differentiator for young people. You are always ‘on stage’ at work – playing the ‘nice guy’ to your boss and then berating a subordinate in front of others shows you are insincere and not to be trusted. Always make your colleagues look good in front of their peers, even if in private you sometimes need to be more frank. Consistency of character and behaviour will build collaboration and success throughout your career.

Fourth, you will constantly be asked to make key decisions that affect others. Never make a crucial decision by yourself; consult someone you trust and do not be afraid to approach a mentor. Furthermore, for controversial decisions, be thoughtful but put an expiration date on them otherwise things will not get done. Decision-making and the exercise of judgment are qualities that differentiate people, so consult, consult, consult and then act in an informed manner.

Fifth, putting family as a distant priority is not an option. By all means, start your workday early so you can finish at a reasonable hour, hopefully to facilitate family life, recreation and exercise. And be productive. Over the years, I have witnessed considerable unproductive time in the office as people ‘hang around’ wasting their own and colleagues’ time. While my career is everything

An edited version of his Occasional Address delivered at Wilson Hall, University of Melbourne, on 20 December 2010.

by craig drummond

Work-life balance

41Insights Melbourne Business and Economics

to me, my family is more important and they know it. You really do work to live, rather than live to work.

Finally, commit to further education. Seek to understand what you are passionate about over the next two years and then undertake alternative post-graduate study. A few years of contemplation after entering the workforce rather than jumping at the first post-graduate opportunity is advisable. The number of postgraduate courses I have seen young work colleagues (and myself) abandon is frightening. Genuine points of difference today amongst your cohort are difficult to identify, but having employed several thousand people over the past 20 years, I believe that one thing that will single you out is insufficient relevant study. Completing some relevant post-graduate study in your youthful years is strongly advised, as career and family will take more of your time as life progresses.

To the students, you probably do not fully appreciate today how fortunate you are to have had family, friends and this institution to support you in your successful pursuit of a Bachelor of Commerce. I certainly had no idea at the time, but now look back with great appreciation. Our bank employs many graduates, but this University is one of only a handful that we recruit from. Your Faculty is a priority target and if you are thoughtful, humble and work hard to identify your personal points of difference, you cannot lose.

Craig Drummond, BCom, FICA, became Chief Executive of the Australian operations of Bank of America Merrill Lynch in October 2009 after seven years as Chief Operating Officer, co-CEO and then Executive Chairman of Goldman Sachs JBWere. He is also a director of Australian Financial Markets Association Ltd, Scotch College and the Florey Neuroscience Institute.

Article heading here4242 Harriet Amies

At her death on 7 November 2006, one month short of her ninety-ninth birthday, Harriet Margaret Pilgrim Amies was almost certainly the last survivor of the original 1925 Commerce intake. She also had the distinction of being the first female BCom and the first with an accounting ‘major’, a prelude to later membership of the accounting profession in which she is also accorded a ‘first’.

Born on 4 December, 1907 at Riverside, outside Horsham, her family were orchardists, a farming venture which ended during World War 1 when her older brother, an AIF volunteer, was severely wounded, causing the amputation of a leg. The family then moved to Melbourne and later to Moonee Ponds, where she attended Essendon High School, completing Leaving Honours in 1924.

Aged just 17, she enrolled in the BCom in 1925 on a Free Place which covered all tuition fees (then £5 per subject per annum) but paid no living allowance. While she was the first of her immediate family to enter the University, two of her sisters became pharmacists and a first-cousin, Arthur (later Sir Arthur) Amies, five years her senior, became Professor of Dental Science. That Harriet was an excellent student is demonstrated by her second place in Accountancy I in 1925 and honours in Commercial Law and Economics subjects plus Chemistry I (an unusual option in a BCom).

Following her graduation, Harriet worked for a time at the Commercial Bank, then at an engineering firm, but by 1930 had determined on a career in teaching. Completing the Diploma of Education in 1931, for most of the 1930s she taught commercial subjects at the Clarendon Presbyterian Ladies College (PLC), Ballarat before transferring to the Melbourne PLC as bursar. Through passing additional exams in auditing and taxation, she qualified in 1933 as a ‘Licentiate’ member of Australia’s largest accounting body, the Commonwealth Institute of Accountants – now CPA Australia – the first female to do so largely on the strength of undergraduate studies in accounting.

In February 1943, Harriet’s occupational situation took a major diversion when she enlisted into the Australian Women’s Army Service. Initially a private, her abilities were quickly recognised and within eight months she had been commissioned Acting Lieutenant with duties that included stores and ordnance control. Demobilised in January 1946 with the rank of Acting Captain, she resumed her career in accounting. Her post-war employers included the Epworth Hospital, clothing concern Samos Modes, and the Presbyterian Bookshop. After her retirement from business in 1969 she provided taxation-related services for private clients until well into her seventies. Possessing a diversified investment portfolio, she followed the stockmarket, regularly

the university of melbourne’s first female commerce graduate

Harriet Amies, BCom (1907-2006)

attended company annual meetings and, until late in life, provided investment advice to her nieces and nephew.

Harriet never married and is described by family members as an ‘extremely private person’, with great ‘depth of character’. While frugal in her personal habits, she gave generously to charities. She also contributed to the University in two unusual ways: first, by accommodating Colombo Plan international students at her house in Moonee Ponds in the 1960s, and second, in a wonderful altruistic gesture, by donating her body to the Department of Anatomy for the purposes of teaching and research.

Despite Harriet’s status as the first female BCom graduate in Victoria, and the first female graduate to gain entry to a professional accounting body in Australia largely on the basis of university studies in the discipline, there is no evidence that she identified herself as a pioneer or feminist in any way. Nevertheless, her quiet achievements arose from first taking the path that many young women would subsequently follow. The arc of her life, spanning a century of massive social, economic and technological change, is emblematic of the choices, possibilities and constraints that female graduates faced and continue to face today.

Jane J F Hronsky is a lecturer in the Department of Accounting and Business Information Systems, Faculty of Business and Economics, University of Melbourne.


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Published by the Faculty of Business and Economics, April 2011© The University of Melbourne

DisclaimerInsights is published by the University of Melbourne for the Faculty of Business and Economics. Opinions published are not necessarily those of the publisher, printers or editors. The University of Melbourne does not accept responsibility for the accuracy of information contained in this journal. No part of this journal may be reproduced without the permission of the editors.

insights volume 9 april 2011

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