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Newman the dinosaur has some prehistoric ideas on labour market

Maurice Newman, Tony Abbott’s hand-picked business adviser, is misguided on Australia’s labour markets, according to former Labor adviser and Per Capita research fellow Stephen Koukoulas.

dinosaur

Last week’s national accounts data confirm the economy is growing at a sub-trend pace of 2.3%. Alongside that, though, the productivity performance remains solid with a 1.4% rise over the past year. And just as importantly for those concerned with “labour market rigidities”, unit labour costs fell 0.4%, which reflects the softer jobs markets in the past year or so and shows that the workforce is able to adapt to changing economic conditions.

These hard numbers on the economy cast a curious light on the recent comments from the head of the Prime Minister’s Business Advisory Council, Maurice Newman, who reckons that “Australian wage rates are very high by international standards, and our system is dogged by rigidities”. Newman suggested that greater flexibility in the labour market is needed and that lower wages are required to boost Australia’s competitiveness and by inference its longer-run economic well-being. Newman also suggested that lower wages would raise demand for labour and lead to an unemployment rate lower than would be the case with a high wage structure.

Apart from being porous with facts, Newman’s claims are a 1980s view of “us versus them” — bosses versus unions — approach to labour market positioning. The union movement abandoned the other side of Newman’s silly “anti-boss” and “anti-business” notions with the Price and Incomes Accord and the embrace of productivity-linked pay claims.

The Australian economy has been all the better for it, with basically two decades of real wages growth, an unemployment rate below 6% for more than a decade and ongoing improvements in working terms and conditions. Newman’s view, conversely, is the old-school, obsolete, anti-union “wage cuts are good for the economy and employment” camp. His views are worse than that in that they are meaningless in terms of linking wage levels and the unemployment rate.

In an attempt to support his view, Newman cites wages levels across a number of countries. This is where he inadvertently kicks a quite embarrassing own goal because each country he cites with a lower minimum wage than Australia has a higher unemployment rate.

According to Newman, Australia’s minimum wage is US$33,355 for a 38-hour week while Canada, which is mysteriously referred to as “our closest competitor”, has a minimum wage of US$22,766, for a 44-hour week. Newman goes on to say:

The European minimum wage is around $US 22,000, New Zealand is US$ 23,000 and the United States, US$15,000, all rounded and for 40 hour weeks. A British worker receives about US$20,000 for a 38.2 hour week.”

Newman’s ineptitude failed to grasp the fact that Australia’s “high” wage structure is associated with the current unemployment rate of 5.7%, whereas the “low” wage countries all have higher unemployment rates. The unemployment rate in Canada is 6.9%, in the US is 7%, in the eurozone it is a record high above 12%, in New Zealand, it is 6.2%, and in the UK it is 7.6%.

It is even more extreme than that when one looks at some longer-run context. In the 38 years since 1975, Canada has never had an unemployment rate below 5.9%, compared to Australia, where it has not been above that level since 2003. So much for low wages helping labour market efficiency and driving unemployment lower. It is worse for the eurozone, where the unemployment rate has not dipped below 7% since its establishment 14 years ago, despite low wages.

The US and New Zealand have had occasions in recent years when the unemployment rate fell below 5%, matching the performance of Australia. With the economic boom that preceded the economic crisis which started in 2008, Australia, New Zealand and the US all had unemployment rates in the 4-5% region — Australia certainly did not lag these low wage countries.

What is more important is that when the going got tough, Australia’s “high wage and inflexible” labour market, as Newman believes, was able to adjust with a peak unemployment rate at 5.9%. In New Zealand, the unemployment rate peaked at 7.3%, and in the US, 10%. Recall that for Australia, each 0.1% on the unemployment rate is approximately 11,500 jobs.

These dynamics fly in the face of Newman’s assertions and other like-minded zealots on labour market reform and flexibility in Australia. They are simply not correct.

If Australia had an inappropriately high wage structure and was as inflexible as Newman asserts, it would have shown up in a jump in the unemployment rate above the unemployment rates in alternative low-wage countries. It clearly hasn’t.

It is disconcerting that someone of Newman’s calibre is an important economic advisory role to the Abbott government. He is a dinosaur on economics, the labour market and fiscal issues, which I haven’t touched on here. Let’s hope Abbott realises Newman is not suitable for such a role and replaces him with someone with some knowledge, vision and understanding of 21st-century economics.

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  • 1
    MJPC
    Posted Tuesday, 10 December 2013 at 12:25 pm | Permalink

    Interesting figures, tks. Newman is the surrogate for the PM and his ministers not saying what they want to but the workchoices debacle stoppped them last election. Labour market rigidities and greater flexibilities are the weasel words we always hear from these imposters.
    It is ever interesting the workers are always paid too much but the management are not paid enough, and deserve those big paycheques because of the profit they bring, even when they make decisions that bring in losses and job cuts, then the workers are always cut (et al Qantas now).
    Newman and the rest of this incompetant government will have their way, workchoices Mk2 will be imnplemented, he is the foot soldier carring the message: Revolution Now!

  • 2
    leon knight
    Posted Tuesday, 10 December 2013 at 12:37 pm | Permalink

    If Abbott and his front bench had some genuine “smarts” themselves, then a crook advisor like Newman could not do much damage - but we have a dangerous situation here….stupid decisions come easily to this lot.

  • 3
    Pedantic, Balwyn
    Posted Tuesday, 10 December 2013 at 2:04 pm | Permalink

    It amazes me that Neanderthals like Newman can’t grasp the simple fact that realistic wages drive consumer spending and thus the mighty economic wheel turns; more spending, more jobs, more profits and thus we are all happier little Vegemites.
    When will people like Newman understand that concentrating money in the hands of the “bosses” is self destructive, because there aren’t enough of them to turn the economic wheel!

  • 4
    Bill Hilliger
    Posted Tuesday, 10 December 2013 at 2:25 pm | Permalink

    Let’s hope Abbott realises Newman is not suitable for such a role …well, fools seldom differ. Looks like Newmanomics is there for the duration.

  • 5
    Yclept
    Posted Tuesday, 10 December 2013 at 4:34 pm | Permalink

    So when will Newman drop his salary to $20,000pa to show us how it stimulates the economy?

  • 6
    Dogs breakfast
    Posted Tuesday, 10 December 2013 at 6:04 pm | Permalink

    All of the above!!

    Of course, the corollary of high wages is that businesses have to be good businesses to survive. In fact, it is a better argument to say that Australia’s relatively high wages ensure that only businesses that are sustainable and productive are going to survive.

    Sort of a survival of the fittest, and you know how much these great corporate geniuses love to pit themselves against their competitors on an even playing field.

    You can be fairly sure that a company that thinks the only way to profitability is to pay their workers less has run out of ideas. In fact, it should be a measure by which you invest in the stock market.

    As much as people are a cost, they are also the buyers. Low wage competitions against the our Asian neighbours will only leave us poorer.

    Well, most of us!

    Wage restraint for the worker is hardly inspired by the grotesque remuneration of the bosses.

    And Stephen is right, the ‘us/them’ mentality was jettisoned by the better companies in the 80’s.

    Out of date, and wrong. Some adviser!

  • 7
    Dogs breakfast
    Posted Tuesday, 10 December 2013 at 6:04 pm | Permalink

    Of course the other possibility is that they just got someone dumb so they could look smart in comparison.

  • 8
    tonyfunnywalker
    Posted Wednesday, 11 December 2013 at 12:16 pm | Permalink

    Newman is the Herman Cain if the IPA and prehistoric in his thinking is apt. It is Ricardian and the Iron Law of wages in the 19th Century. His international comparisons are absurd and where the US has 42 million people living below the poverty line and on food stamps - is that what Newman wants?
    He is just tea party IPA who refuse to lift the minimum wage in the US by 50C and hour. It would seem that Lee with her refusal to provide pay rises for the lowly paid early childhood teachers is just the beginning. Will she begin to suggest that the low paid join the ” soup kitchen queue’ or the working poor.

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