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.

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.

Free Trial

You've hit members-only content.

Sign up for a FREE 21-day trial to keep reading and get the best of Crikey straight to your inbox

By starting a free trial, you agree to accept Crikey’s terms and conditions


Leave a comment

10 thoughts on “The dirty secret behind those calls for employee wage cuts

  1. MJPC

    Thank you BK and GD for insight into these toady’s (as if it wasn’t already known). Closely allied must the the leaking of information from the SPC debacle where any Fed Govt conditions to accompany bail out money was reduction in their employee’s wages and conditions by placing them into an award.
    Work Choices Mk.2 is coming in by stealth.
    Look what is happening regarding Federal Government employee certified agreement negotiations at present to see the governments ideas at work.
    The missing part from the ABS is how far executive salaries have risen in the same periods? I guess the attendee’s repaste at citizen Wilcox’s feedbag is paid for by the taxpayers as a business expense; It’s enough to make a worker gag; revolution now!

  2. Jimmyhaz

    This is the Coalition’s economic policy succeeding at doing exactly what it is meant to do. This is why they are pushing so hard for the macro-economically meaningless surplus. On one hand it means that they get to slash the welfare payments from those who are undeserving, and on the other, the lack of government spending drives a lack of demand in the economy, which results in a loss of jobs and a decrease in the power of unions, giving an employer’s paradise such as you see in the US.

    The worst thing about this is that the one it hurts the most is these businesses pushing for wages to be driven down. Sure, it decreases overheads in the short term, but the depressed demand caused by the lack of money in circulation hurts them in the long run, as people can’t spend money that they don’t have on their product.

  3. Daly

    Just talked to a US friend who after 40 years work as a physiotherapist is poor. That’s what Abbott and Hockey want to happen in Australia. The facts don’t matter, it is about shredding te community to pay the rich.

  4. klewso

    So what else was on their “bill of fair” – besides scapegoat?

  5. Electric Lardyland

    Well put, Jimmy. I’ve always thought that was a major flaw of the market fundamentalist argument; that is, they never quite seem to grasp, that if you destroy the purchasing power of everyone except those working in management, then this is likely to see a downturn in the amount of your product being purchased.
    On a slight tangent, I think this article hints at why so many modern right wing ideologues, gibber on about elites. I mean, so often the figures, supplied by academics, scientists and public servants, just don’t back up the ideology. So instead of adjusting the ideology, they launch campaigns labelling these people as elites, and labelling their studies, as data that has been manipulated to preserve the author’s privileged position in society.
    Strangely, these criticisms never seem to apply to overpaid columnists, writing for multinational media organisations, who get much of their story ideas, from wealthy conservative think tanks, who in turn, get their funding from some of the world’s most opulent corporations.

  6. Bill Hilliger

    I believe mainstream churnalists are grossly overpaid, that’s why newsprint media such as the Fin Review, the Age, Herald and the Australian are doing it so tough (apart from being such a p#sspoor product that nobody wants to buy). How could an organisation pay so much to those with so little talent? The print media business model is clearly broken.

  7. AR

    It would only be “awful timing” if facts mattered out in reality world. This was a fever swamp of the worst.
    What if the remuneration of everyone present has risen considerably more than 2.6%?

  8. Itsarort

    The irony here is that as the average punter’s real buying power diminishes, instead of buying the daily rag, he’s more likely to look for free tid bits on the internet. Talk about chopping off your nose to spite your face News Corp.

  9. Liamj

    Good job Keane & Dyer, ta particularly for detailing the revisionism from AIG & ACCI. Never again need anyone doubt for a second that they are the merest liars & chisellers, out to enrich their already over-privileged management class and bugger the workers and the national interest.

  10. Bill Hilliger

    Itsarort …yes you have it in one.

Share this article with a friend

Just fill out the fields below and we'll send your friend a link to this article along with a message from you.

Your details

Your friend's details