The real wage cuts you have when you're not cutting wages
Having lost the productivity debate, some in business are pushing for real wage cuts -- an approach the Coalition supports but doesn't want to be seen endorsing. Bernard Keane and Glenn Dyer write.
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A subtle shift — or subtle as these things go — has occurred over the last 12 months in the industrial relations debate, and it’s an important one. The business lobby, its media cheerleaders and the Coalition have shifted ground on IR, from productivity to wages.
That’s primarily because business lost the productivity “debate”, such as it was. We have a major problem with labour productivity, business insisted, via organs like the Financial Review, because the Fair Work Act is too inflexible. And every quarter from the end of 2011, the national accounts would emerge to show growing labour productivity under the Fair Work Act.
Significantly, at last week’s SPC media conference, Prime Minister Tony Abbott was asked if he believed there was enough flexibility in the FWA to allow the company to negotiate lower costs with its workers, and he failed to deny it.
By the second half of 2013, the productivity line was fading, even as a few holdouts manfully toiled to demonstrate the FWA had locked the economy into a straitjacket of laziness and trade union bastardry. It’s a crude measure, but somehow telling: the number of mentions of “labour productivity” in stories in the last six months in the AFR, which now essentially functions as a media release service for business, is half what it was in the same period in 2012, and lower than the first half of 2013, too.
But while “productivity” was being retired, a new IR argument was being prepared: the wages of Australian workers were too high. A couple of weeks ago, the AFR explained that “business leaders and economists” believed Australians would need to accept wage cuts in order to reduce inflation. The “business leaders and economists” turned out to be Coalition-aligned businessman Don McGauchie and JP Morgan’s Stephen Walters, while the Grattan Institute’s Jim Minifie said real wage growth should be lower and Australian Chamber of Commerce and Industry’s Burchell Wilson said wage growth was already so low that real wages might fall (so much for the “Fair Work Act drives wages up” argument).
Whether McGauchie is in a strong position to demand Australian workers take pay cuts is moot. This is the man who presided over a disastrous period in the life of Telstra as a private company, hiring the highly aggressive Sol Trujillo and his friends to pursue a strategy of all-out aggression against the government and regulators that failed disastrously. McGauchie is also chairman of agribusiness company Nufarm, which has been a serial disappointment to investors in recent years, at least until McGauchie gave them hope by declaring in July last year that the company had turned a corner and the worst was behind it. Alas for investors, McGauchie turned out to be wrong: in December, the company’s share price crashed yet again, and it is now back near its historic lows.
Walters, who at the start of 2012 boldly suggested Australia could be in for a recession that year, followed up last week, saying that Australia could only restore its competitiveness by cutting wages. Then he confused things by saying that nominal wages “couldn’t” fall but that there should be “a demonstration of restraint”. Presumably not by investment bankers and chairmen of underperforming companies, but by workers.
“It’s a lazy call from ‘business leaders and economists’ — and from politicians, too …”
Walters’s nuance about nominal hourly wages is noteworthy. Calling for wage cuts outright is a bad look, and one Abbott sought to avoid last week at the SPC announcement when he said:
“I think that the unions should do everything they possibly can to ensure that this is a viable business for the long term, a viable competitive business and that obviously means not cutting wages — no way.”
The transcript doesn’t convey the strong emphasis that Abbott put into the final part of that statement, in a media conference that was fascinating for its positioning of responsibility for any future bad news from Goulburn Valley around the neck of Coca-Cola Amatil and David Gonski (no mention of Terry Davis, the CEO of Coca-Cola Amatil, who paid $500 million for SPC Ardmona a decade ago and is now about to retire from the company with his black hole still not repaired). But while saying that, Abbott also lamented that the company’s enterprise agreement was generous and above-award levels in areas such as loadings and leave, and that it needed to be renegotiated.
If you had seen the Workplace Relations Minister Eric Abetz on Insiders yesterday morning, you would have got the feeling that neither Abbott nor Abetz had a good idea of what was in the industrial agreement at SPC Ardmona. Barrie Cassidy, quoting local MP Sharman Stone, who has gone hard at her own frontbench for last week’s decision, noted that contrary to Abbott’s claims, workers can’t cash out sick leave and the company doesn’t pay overtime. In neither case did Abetz answer the questions.
This isn’t to say the SPC Ardmona agreement isn’t overly generous — it may well be, particularly given it’s in an industry in which any trade-exposed Australian firm will struggle to compete. But Abbott’s nuanced response on this point is important: nominal wage levels can’t be touched, but other forms of remuneration like loadings and leave are fair game — even if they’re every bit as important to a worker’s income as base pay.
And ACCI’s Wilson is correct: real wage growth is slowing — during the final half of 2013 the CPI rose at an annual rate of 4%, but the wage price index for the September quarter (when the CPI rose 1.2%) rose 0.5%, seasonally adjusted for an annual rate of 2.7%. In trend terms, the quarterly rise was 0.6%, for an annual rate of 2.6%. As it turns out, a softer economy is already delivering very moderate wage growth, and the FWA is doing nothing to prevent it.
Cutting loading and leave still means a substantial cut in real wages, whether or not nominal rates of pay or awards change. And that will flow through to demand (particularly in more fragile regional economies). Cutting wages across industries, indeed across the economy, as McGauchie appears to suggest, would help guarantee that an economy currently running a little below trend would slow still further, lifting unemployment and exacerbating job security fears, which already appear to be growing. It’s a lazy call from “business leaders and economists” — and from politicians, too, even if they want to disguise under talk of leave and loadings.