A while back wage rises were being touted as evidence of the Fair Work Act putting upward pressure on interest rates.
“…the key question is whether we will see a generalised wages breakout, or simply pockets of intense pressure, offset by subdued growth in the slow lane,” opined one commentator in (where else?) The Australian. “Labor’s new Fair Work regime also has business is a state of panic as unions seize the prospect of sub-5 per cent unemployment to push for big wage settlements.”
In the June and September quarters in 2010, the ABS’s wage price index grew at 1% a quarter in trend terms. It fell back to 0.9% in December 2010 and stayed there throughout this year. According to today’s release of wage price data for the September quarter, the index fell back to 0.8%. The threatened “breakout” never happened.
IR deregulationists keep insisting that there’s an urgent need for reform of the Fair Work Act. But the arguments they keep advancing for why — whether it’s wage pressures, the link between IR deregulation and productivity, the purported novelty of unions being able to negotiate over issues like job security — never withstand analysis.
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And what was the industry with the lowest quarterly growth? Mining — which was supposed to be the source for wage inflation for the rest of the economy courtesy of the resources boom. Even under-the-hammer manufacturing had a higher rate of quarterly wage growth.
The result, however, will be carefully parsed for evidence about a soft economy and the need for the RBA to cut interest rates again in December. Based on last week’s unemployment data, it’s unclear why the Bank would move again, unless Round 56 of the Eurozone crisis erupts in the next fortnight. As the Bank has said repeatedly, the key threat to the economy is external, not internal, and it only narrowly concluded there was a case for cutting at its last meeting.
We’re at an interesting juncture in the economic debate, distracted as we might be by presidential visits and yellowcake presents to India. There are fundamental divisions within the business community over the two key economic issues currently on the agenda. The business community is hopelessly split over the surplus, with some groups like ACCI warning of cuts to “economically valuable programs” and the inevitable Heather Ridout fearing the spending cuts needed to shore up the surplus will significantly cut growth.
But the Business Council wants a surplus, come what may. A strange sight, the fiscal hairshirt brigade backing a Labor government’s policies against their business colleagues.
Much of the debate around the surplus has been reduced to whether spending cuts will be big enough to prompt the RBA to cut rates further — this is the tenor of Alan Mitchell’s front-page comment piece in the Fin Review today. This seems a perverse substitution of two policy mechanisms — fiscal and monetary policy — for actual outcomes, but one partly caused by the government itself, which locked itself into a surplus seemingly regardless of whether it is actually the most sensible policy for jobs and growth.
The Opposition continues to call for spending cuts. “Wayne Swan must immediately ease the cost of living pressures by slashing reckless spending,” said Joe Hockey earlier this week. That will make it rather difficult for Tony Abbott to make political capital out of any unpopular cuts.
Meantime the divisions in the mining industry seem to be growing more bitter over the MRRT. In a peculiar case of reverse Stockholm Syndrome, the Minerals Council — which destroyed a Prime Minister and nearly a government with its massive campaign against the original tax — is suddenly the chief disputant of claims from Fortescue that the burden of the tax would be borne by smaller miners.
It would be rich irony indeed if the Minerals Council’s arguments convinced wavering independents like Andrew Wilkie of the merits of the legislation to be considered when Parliament returns to business as usual next week.