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Federal

Feb 20, 2014

The dirty secret behind those calls for employee wage cuts

While business demands lower wages, the current system has delivered a real wages cut to Australian workers, Bernard Keane and Glenn Dyer write.

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It was truly awful timing.

Yesterday Australian Industry Group boss Innes Willox delivered a lunchtime address to the “workplace relations special interest group” of the exclusive Brisbane Club. It was billed by his media people as a “major IR speech”, though as it turned out it was the same industrial relations speech every employer representative has given for years, calling for flexibility and reform and attacking trade unions and the Fair Work Act as impediments to productivity growth and getting business costs down. Within a couple of sentences, Willox was declaring “we are a high-cost economy … We need to start cutting our costs now … We need to find ways to lift productivity,” etc, etc — you know the drill.

But even before Willox’s audience had settled down to enjoy their entree of Hervey Bay scallop ceviche (with compressed melon, lemon puree, hoisin, furikake seasoning and soused fennel), the Australian Bureau of Statistics had inflicted a savage blow on Willox’s argument. It revealed that the seasonally adjusted wage price index in the December quarter had risen 0.7%, giving a growth rate for the whole of 2013 of 2.6% (seasonally adjusted) or 2.5% (trend) over the last year. That was the lowest wage growth on an annual basis since the ABS had begun the series in 1997.

In fact it’s so low it was below the rate of inflation for 2013, which was 2.7%, so Australian workers had a real wage cut, which a number of commentators have been complaining we need to have, if only we could have an IR system that delivered it. And the decline in real wages accelerated in the second half of 2013 — in the six months to December, the consumer price index  rose at an annual rate of 4.0%, while wages growth was 2.4%.

Today the ABS inflicted more damage on the Willox case. Full-time adult average weekly ordinary earnings grew by just 3.2% in trend terms in the year to November — the lowest annual growth since 2006.

The reason for such persistently slow wages growth, as the Reserve Bank of Australia has pointed out, is a weak labour market. And, equally relevantly, an IR system that has not prevented weak demand for labour from translating into weak wages growth. The Fair Work Act, if you believe business and their cheerleaders at The Australian and The Australian Financial Review, is a throwback to the pre-1993 era of industrial relations responsible for low productivity and high wages that have made Australia “an expensive place to do business”. But first it delivered labour productivity growth, and now it has delivered low wage growth.

So while Willox was explaining the need for urgent IR reform to the very special interests at the Brisbane Club as they tucked into their Northern NSW veal fillet prepared sous vide with horseradish milk puree, mushroom saute, sweet peas, roast celeriac and spinach dressing, his argument, to the extent it had ever held together, was falling apart.

“The dirty little secret of our economic debate at the moment is that business has rarely had it so good.”

But not all employer group were caught on the hop. The ABS data produced a moment of Pythonesque absurdity when the Australian Chamber of Commerce and Industry issued a media release complaining about “stagnant real wages growth” and blaming Labor for it, saying the National Broadband Network and the Renewable Energy Target were responsible. Even better, ACCI reckoned low real wages growth demonstrated the need for IR reform. “The Productivity Commission review of the Fair Work Act cannot come soon enough for the business community,” trilled ACCI’s Burchell Wilson.

Bear in mind that only this week, ACCI produced a small business survey that complained that “wages appear to be out of step with trading conditions”. In January, ACCI head Peter Anderson was calling for wage restraint and no minimum wage rise. And ACCI’s economic “blueprint” last year repeatedly complained of high labour costs and particularly penalty rates.

It was in a similar spirit of utter hypocrisy that the AFR reported “Real wages fall, raising growth fears” on page five today, a month after reporting on page one that “Real wages have to fall“. Likewise, The Australian covered the fall on pages four and five but put the news under the utterly misleading headline “ACTU declares government must defuse the ‘wages explosion'”, while on the same page reporting Willox’s claim about “unions seeking over-the-top work payouts”.

ACCI’s remarkable backflip isn’t unprecedented. And of all people, it’s IR Minister Eric Abetz who reminded us. Abetz was the one who just three weeks ago warned us of “a wages explosion of the pre-accord era when unsustainable wage growth simply pushed thousands of Australians out of work”.  We’ll politely leave aside how foolish Abetz has been made to look since then, for he has done us a service. Those with long enough memories will recall that the election of the Hawke government paved the way for an accord — indeed, a series of accords — with the union movement that dramatically lowered wages growth in exchange for “social wage” contributions like Medicare and (later) superannuation, and personal income tax cuts. Oh, and by the way, labour productivity growth was significantly higher under centralised wage-fixing in the 1970s and 1980s than it has been for the last 10  years — but don’t let that spoil the current narrative, OK?

The success of the accords blunted the perpetual criticism from business and the Right that Labor and the unions combined were an inflationary menace to the economy. In response, the Right simply shifted the goalposts: having for so long complained of excessive wages growth because of centralised wage-fixing and unions, it turned on a dime and began attacking Labor for limiting wages growth via centralised wage-fixing and the unions.

The dirty little secret of our economic debate at the moment is that business has rarely had it so good. Wages growth has plummeted, interest rates are remarkably low, the dollar is well below parity with the US dollar, profits are surging, companies large and small are boosting dividend payments to shareholders in the current reporting season faster than anyone expected, and the economy looks set for a transition back to trend growth, provided consumers don’t spook over manufacturing job losses and Treasurer Joe Hockey doesn’t slash and burn in the budget. And they have a government that is gunning for the union movement and that, while it insists it doesn’t believe in cutting workers’ wages, as we’ve learnt today urged SPC Ardmona to slash wages by up to $30,000.

Yet still, we’re told of the Herculean task the Coalition has to rebuild the economy, how appalling things are for companies and how desperately they need IR reform to slash wages and conditions.

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