Worker underpayments and digital skills deficit among top five sleeper issues for business in 2020

Industrial relations risks such as the underpayment of Australian workers’ entitlements, estimated at $1.35 billion per year, is one of the top five sleeper issues for business leaders in the year ahead according to PwC.

PwC’s ‘Australia Matters’ analysis puts the spotlight on five issues that Australian business leaders need to be laser focused on in 2020 – industrial relations risks, the workforce digital skills gap, ongoing currency volatility, sustained sluggish growth and the loss of capital to offshore markets.

Worker underpayments as high as $1.35 billion per year

In the analysis of industrial relations risks, PwC draws on Fair Work Ombudsman data to estimate that 13 percent of the total Australian workforce are impacted by the underpayment of workers’ entitlements.

PwC Chief Economist, Jeremy Thorpe said: “Our analysis shows worker underpayments rise to 21 percent for sectors most at risk including construction, with an estimated $320 million per year in underpayments, followed by healthcare and social assistance at $220 million, accommodation and food services at $190 million and retail at $180 million.

“Complexity is a hallmark of the system and a significant contributor to the underpayments issue but it is no excuse and employers must keep track of and correctly apply all the rules. Industrial relations reform is always challenging but this is an area where Government, business, unions and workers should see the incentives for simplification.”

PwC Payroll Consulting Practice Leader, Rohan Geddes added: “The vast majority of employers set out to do the right thing by their workers, but the chances of inadvertently making a mistake are extremely high and, as we are witnessing, small mistakes made across large workforces over several years add up to very large numbers.

“This is due to three intersecting issues: the underinvestment in payroll systems and processes, the complexity of the industrial relations system and the declining presence of unions as a source of oversight within the workplace.

“Small errors magnified over a long period expose businesses to the risk of substantial financial penalties, reputation damage and remediation work. No doubt there is work to be done to simplify the system and improve oversight, but in the interim, business leaders must ensure their people are paid right by keeping track of and correctly applying all the relevant industrial relations rules and policies,” Mr Geddes said.

Digital upskilling could add $40bn to GDP by 2040

Failing to close the digital skills gap is another growing issue for business. A new PwC survey of 22,094 adults in 11 countries, including 2,000 Australians, shows 60 percent of Australian adults are worried automation is putting jobs at risk, but only 23 percent are upskilling through their employer.

The survey finds Australian and British workers are the least likely to be upskilling in new technologies compared to 11 other countries. 40 percent of Australian workers are not upskilling in new technologies in any way.

There is a significant financial benefit if Australia can close its digital skills gap. PwC’s analysis reveals training an additional 100,000 technology sector workers above current levels over the next five years could add $40 billion in net present value terms to GDP over the next 20 years.

PwC National Skills Leader, Sara Caplan said: “Technologies will continue to alter the nature of work in Australia in the coming years and this will lead to growing pains for business if we don’t address the widening digital skills gap. A big part of the problem is that the majority of workers are not being upskilled at work – Australia is trailing global peers on this front.

“To take advantage of new technologies business leaders need to support workers to adapt to them. Automation, robotics and analytics in particular are having a big impact on industry and should be included in upskilling programs. The pay back on the skills investment will be more than worth it.”

Australian business needs backing of local investors

Local capital increasingly going offshore is another concerning trend, with analysis showing Australian investors are shunning local opportunities to chase higher returns overseas.

“There is a trend for Australian super funds to be preferencing foreign equity investments ahead of Australian-listed investments. Given the large pool of investment capital they control, super funds are a bellwether for where Australian investors are seeing opportunities and they’re not finding them at home,” Mr Thorpe said.

“A big part of the problem is that Australian businesses are underweight in research and development (R&D), a key pillar of growth and an important antidote to local capital going offshore. Our modelling shows Australia spends just 1.9 percent of GDP on R&D and needs to spend an additional $13.7 billion or an additional $575 per person to reach OECD top 10 R&D spending levels.

“Australia is also not developing high growth startups to the degree we should be either. Startups by nature are high productivity and high growth ventures so it’s important for our economy that we get the settings right to encourage startup development. Yet, our angel investment trails behind New Zealand, and is well behind the UK and US.

“To attract more capital and investment, there is a role for business to be challenging government and themselves on whether the right structures and incentives are in place to encourage business innovation and make our businesses more competitive in the minds of investors.”

Currency volatility and slow growth sure bets in 2020

There are also a number of economic risks for business’ to be thinking about including currency volatility and the impacts of sustained slow growth.

Australia’s economic growth remains persistently lower than at any point in the past two decades. Average real GDP growth is down to 2.64 percent and is forecast to fall even further, with Australia’s economic growth predicted to be sitting around 2.3 percent for the next two decades.

Mr Thorpe said: “Australia has enjoyed almost three decades without a prolonged downturn but slow growth is the new normal and businesses and Governments have to find ways to boost productivity.

“Individual businesses will need to respond in different ways, but there are a number of opportunities that cut across industries. For example, businesses should look for opportunities to improve productivity through robotics, AI and digital solutions, be prepared to cut services that aren’t sustainable in the current growth environment, and invest in innovation.”

A shock for the Aussie dollar should also be on the watch list as a result of the ongoing US/China trade war and Australia’s exposure to the People’s Republic of China.

“It’s the first time in recent memory that local interest rates are lower than US interest rates and they may go even lower with the RBA open to further cuts,” Mr Thorpe said. “With these macros economic trends in mind, ongoing currency uncertainty is definitely on the cards.

“The good news is there’s plenty business leaders can do to understand their exposure to volatility and determine whether to hedge or bet. For example, leaders should be thinking strategically about offshore operations in multiple currency locations and looking for opportunities to participate more fully in global supply chains.”