Economy

Nov 22, 2017

Who’s behind the wages drought?

If business is to blame for wage stagnation, what role do investors play? The Reserve Bank has a view, write Bernard Keane and Glenn Dyer.

Bernard Keane and Glenn Dyer

Politics editor / Crikey business and media commentator

Reserve Bank Governor Philip Lowe

As Crikey showed last week, even experts have divergent views on what’s causing the wages stagnation currently plaguing Australia. The less-informed, and more biased, have other explanations. In June, Scott Morrison suggested that wages growth would pick up when corporate profits picked up — a view not merely at odds with economic orthodoxy but the long-standing position of the Liberal Party itself.

Free Trial

Proudly annoying those in power since 2000.

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

29 comments

Leave a comment

29 thoughts on “Who’s behind the wages drought?

  1. [email protected]

    The elephant in the room behind the wages drought is the oversupply of labour.

    Net migration to Australia is running at around 270,000 per year, and yes these foreigners are taking some jobs that locals would otherwise be doing.

    However, it is hard to have a discussion on this, without being accused of racism.

  2. Graeski

    I have a great strategy for increasing Scott Morrison’s wealth. He should give me $10 million. That way, when I spend it, I might buy something from someone who knows someone who knows him, who might buy something from someone who might shout him a round of drinks next time he’s down the pub, thereby making him richer. Or I might not.

    I call it “trickle-back economics”.

    1. Rodney Pearce

      Clearly works. We don’t need evidence, it’s just obvious. Sign me up.

  3. drsmithy

    Wages are stagnant because labour (outside of some unions) no longer has bargaining power.

    There are many factors at play, but the biggest ones are the sustained attack on workers rights normalising exploitative employer-employee relationships and, of course, astronomically high levels of immigration.

  4. bref

    Hundreds of billions of dollars over decades of kickbacks (or tax breaks) to businesses, the neutering of unions, the illegality of protests, decades of policy stupidity and deregulation have got us to where we are now. Its too late for this generation and probably the next.
    With the best will in the world how are wages going to go to the level where housing, energy and the general cost of living is as affordable as it was in the 60s and 70s.
    The ‘trickle down’ policies have utterly failed and yet they’re still advocating them now, using the same method Howard used, you know, the equivalent of a pie and coffee for the hoy polloy against an a la carte dinner for the wealthy, a 5-star weekend for the super wealthy. Only now they’re only offering a couple of bucks a week… Way to go guys!

  5. brian crooks

    the greatest reason for low wages is the inherent stupidity of voters that elect conservative governments time and time again, its very hard for labor governments to help idiots once the rot has started

    1. Bill Hilliger

      Yes! Australian working class voters have a propensity to vote against their own long term well being.

  6. gumshoe

    This is CBA’s take on the matter… from their latest CommSec Update:
    “Wages are growing at a far slower pace than in the past. The latest data shows that wages are growing at a 2 per cent annual pace. Go back around five years ago and wage increases were regularly between 3-4 per cent. Now they are rising at roughly half the pace.
    It’s important to note that this isn’t an Australian thing, rather it is happening across advanced economies. And a key reason is the fact that business competition has become more global. In short, consumers can buy goods whenever they want and wherever they are.
    As a result, businesses are reluctant to raise prices. And if prices aren’t going up, then neither are wages.
    While wage growth is still outpacing prices, wage earners are still responding to the new norm. So people are carefully watching what they buy. And that is putting pressure on some retailers, especially across food, clothing and household appliances.
    Now the job market is indeed strengthening with demand for workers lifting across the country. And eventually this should lift to higher growth of wages and prices – a development certainly expected by the Reserve Bank.
    But at present wage growth is still low, and that suggests interest rates are going nowhere in a hurry.”

    1. Desmond Graham

      that is only half the story – add to the above analysis the cost of business is rising due to 3 tiers of government adding to the cost of business before even considering wages. The Taxes are being frittered away in social schemes [NDIS, etc] which create never doing costs that are to finances what black holes are in astronomy. this financial black holes are consuming the nations financial health – so businesses cannot afford to reward their workers and stay viable.

    2. bref

      Yeah, so? That’s the state of play as it is. They’re hoping the demand for workers will lift wages, but with so much loss of manufacturing over the last decade, there are a hundred thousand extra workers looking for work and with no mechanism to demand a fair wage there will be very little or no wage growth.

  7. Dog's Breakfast

    Lots of theory to poke a stick at on this one. I have no doubt that the highest ever levels of immigration for close to two decades now probably has something to do with it.

    Workers have no power when the bosses can just bring in a worker on a visa because they couldn’t find anyone locally to do the job at the pittance they were prepared to pay.

    But that’s all a bit obvious. Sure there are other factors, but that is the one that is most easily rectified and most directly likely to have an effect.

    What we do know is that it isn’t about profits, as they are surging, and it isn’t about productivity as there is a clear departure from productivity and wages growth over the last 5 years. We can discount them, those ideas are wrong, by definition. Taxes are also a non-sequitur, so why not try some things that might have an effect.

  8. kyle Hargraves

    As usual, with brevity as the object, I will confine my remarks to illustrative aspects of the article.

    >As Crikey showed last week, even experts have divergent views
    > on what’s causing the wages stagnation currently plaguing Australia. .

    Keynes made the problem (and the solution) only too clear in the General Theory which was published 81 years ago.

    >Then there’s the view of the head of the BCA Grant King, that
    > wages growth will only happen when business gets a tax cut
    > so it will invest.

    A typical Supply-Sider (read “free marketer) argument with no basis in history otherwise tax cuts would be the solution to any recession or depression
    > And Richard Goyder’s view that low productivity is to blame for
    > low wages growth.

    Which is also at variance with the facts.
    > Yesterday, he [the Governor of the Reserve Bank – my edit]
    > went further, saying businesses were part of the problem.

    A contributor has mentioned immigration; i.e. (alleging “too many workers” in the country now for a wage/salary rise to occur. Such is not the case (not even close) and I will argue the matter with the gentleman at his choosing. As an aside, just think about the “trees-worth” of legislation generated at every sitting of Parliament. A good deal of this crap affects businesses and, at the risk of over-generalising, damn all of it for the better. By and large businesses take it in their stride and can (or could) just “move the costs on” but with no growth in salary/wages this option is becoming confined.

    The remainder of the article if fairly basic except for this snippet “the stock market is rewarding cost reduction rather than investment spending where the payoffs are multi-year rather than immediate.”

    A very sound and lucid point. What is happening in the real world (outside of Australia)? Of course, there are numerous answers to this question but one answer requires only one word : robots. A number of insurance companies have robots assessing claim forms. Within 18 months or so (Moore’s Law refers) the assessment will not require human interaction. Such is just the start.

    Then there is the sociological imperative to ensure that the society remains “normal” and appears “normal” – read : no wild changes in either the means of production of the distribution of the means of production.

    Negative gearing has placed the cost of a house well beyond its cost of production. Moreover the percentage of rent or a mortgage repayment (per month) from a “standard” income thirty years ago is utterly different to that that percentage nowadays. The populace is chained to its job and the last thing big business desires is a boom where employees can shift about seeking better employment deals and conditions. Of course it’s a double-edged sword. The costs of production might be low but the receipts from consumers are not getting any larger.

    Secondly, there is the phenomenon of internet anything; buying, banking, communicating; anything. E-commerce amounts to about 15% (in rough terms) in English speaking countries; a tad more in Europe but upwards of 30% in Asia. Given the present mentality of shopkeepers in Australia were e-commerce to touch a third of all trades one could drive down George St at 90km per hour with impunity; there would be no one about.

    The effect of e-commerce on the banks has been wonderful for profits; in fact they could not have performed as they have without it. Ditto for the budget and larger airlines. But there isn’t a polli in a decade that has given a second thought to the sociological consequences other than “its great mate”.

    If the picture isn’t already complicated, using e-commerce, one can contract for IT (e.g. configure a CISCO router – and email the config to the customer – which is just a text file or build a website etc.) or architecture (build a house) of a legal opinion from anyone in the world. I know of firms who use lawyers in India for advice that they use in courts in Australia and New Zealand (at about 1/20 of the Oz/NZ legal fee).

    Taking the wider view each of the above is an example of globalisation. Globalisation, like firearms, can be both good and bad. For some countries and for some sections in modern economies it has been rather bad.

    >The question is now whether there’ll be any rate rise at all until 2019.

    …err .. sorry? … what part of “globalisation” do the authors with the question not understand ?

    1. drsmithy

      A contributor has mentioned immigration; i.e. (alleging “too many workers” in the country now for a wage/salary rise to occur.

      My comment re:immigration was actually that we have had extremely high levels of immigration for the last 15ish years, primarily for the purposes of suppressing wages (and it has achieved that well).

      Maths says if there can be not enough jobs, there can be too many workers. One of the variables in that equation is far, far easier to tweak than the other, in practical terms.

      1. kyle Hargraves

        Ok – it required a few hours but I now have the data. However, prior to continuing I wish to make it clear that the purpose of the rebuttal to the gentleman is to inform and correct numerous implied myths with regard to immigration to Australia that has been sloshing about – in greater or smaller
        versions for twenty years or more.

        Addressing the more extreme assessments of the country’s plight concerning this vexed matter, the leader of a prominent political party (of which the polled raw
        vote is, apparently, somewhere around 1/5 to 1/4 of the country) has told us {on and off} that we’re being “swamped” [sic] by Asians. Of late the quantity of Asians has been, apparently, superseded by the quantity of Muslims. I, for one, didn’t see this coming!

        As for facts, I refer to http://www.abs.gov.au/ausstats/[email protected]/mf/3412.0.55.002
        where it is stated : “Each year, there are more than 30 million overseas arrivals and departures (OAD) crossing Australia’s borders, but only about 1% of these movements end up part of net overseas migration (NOM) estimates”

        The top Ten countries in terms of immigration to Australia for more or less this century are as follows : India, UK, China, NZ and the Philippines to a total of 625,000. The remaining five countries include South Africa, Malaysia, South Korea, Vietnam and Sri Lanka of about 45,000 each. Overall the number is in ther order of 875,000 in total.

        The work force (of working age : 20-64) comprises 13.9 million(s) and 60% (59.7) of the population. As an aside, as recently as today, the ABS announced that 13% of those over 65 are still in work.

        Immigrants from the “top” five countries comprise 625,000 people or about 5% (in fact just under) of the population of working age. Immigrants in total comprise just under 6% However, by no means are all of the immigrants in work or indeed looking for work (see below).

        Data for Australia as to reasons for immigration is not all that it might be. In fact, as a data site, the ABS is rather sloppy in its organisation of data with stuff strewn everywhere. However, the experience from the UK is clear and one could claim representative of Australia. Given the EU policies that the UK has had to observe, the the motivation of a job is higher for the UK – especially for those of English-speaking backgrounds (than it might be for Australia)

        For the UK “Looking for Work” and “Definite Job” comprised 42% of all immigration which happens to be comparable to the percentage for “Formal Study” and “Joining Friends & Family”. The remaining 16% is, obviously, slight. {www.statistics.gov.uk – not a bad site}

        So, one could infer, with considerable justification, that the immigrants that are either arriving for a job or will look for a job amount to under half of all immigration or about 41%. Forty one percent of the composition of immigrants comprising the population is 41% of 6% or about 2.4%.

        Three percent is not regarded as creditable in standard statistical tests because the variation could have occurred by chance and clearly 2.4% is less than 3%.

        I suggest that that above has concluded the matter and, moreover, has illustrated the fictions that surround the vexed issue.

        To argue the benefits of immigration would take the matter off topic. The media, if it has sufficient expertise (which is doubtful) ought to convey that the “problem” is world-wide amongst first world countries. The issue has no association with declining union membership (as an aside the unions have been out-witted by the capitalists in no uncertain terms over the last 40 years) or the citizenry being scared of unions. Take a look at the letters to the Times during the 1830s (at the time of the Factory Reform Acts) for an illustration.

        Lastly, it is my vain hope that someone in the media will acquire a sense of history – hopefully by Christmas.

        1. drsmithy

          I’ve read that several times and I must admit, other than the vague – and comically inaccurate – implication of some sort of One Nation association at the beginning, I am somewhat at a loss as to what your point(s) is/are. In particular, the reason for your focus on a detailed breakdown of the countries of origin completely eludes me.

          1. kyle Hargraves

            Given that no one has been sufficiently motivated to remark upon the reply for almost a week (I’m a patient man) I will jot a few additional lines (expanding upon what I submitted previously).

            (1) The majority of immigrants come from 3rd world countries; the net immigration from NZ is not unduly large. As a side-point the “breakdown” was highly aggregated [and hence anything but detailed]
            but any reader can compute the same for himself (given the sources).

            (2) The proportion of immigrants either looking for work or arriving for work is a marginal percentage of the Australian workforce.

            (3) The asserting that “we have had extremely high levels of immigration for the last 15ish years” is just plain incorrect – vis a vis percentages (and evidence).

            (4) and, by no means least, “primarily for the purposes of suppressing wages (and it has achieved that well)” is a remark that is just as uninformed as the quotation in (3).

            The condition of near zero wage growth (and indeed negative wage growth in some first world countries) this century is a world-wide phenomenon. The causes vary in significance from country to country but, in the main, as pointed out in the original article the emphasis, nowadays, is on reducing costs and NOT on productivity per se.

            What was not mentioned was the reason for the emphasis on reducing costs (for largish organisations). Increases in productivity tend to be short-lived. If a firm achieves x% in a particular year (given new equipment or processes or new management or whatever) somewhat less than x% is typically achieved the following year. However, with a reduction in costs, however effected, is generally permanent and is often susceptible to replication if only on a smaller scale.

            Then, on the other (consumer) side, the mortgage brigade, especially in Australia, is “maxed-out” financially – thanks to years of negative gearing.

          2. kyle Hargraves

            I ought to make the last point (time-stamped 30 Nov 07:30pm) clearer.
            A workforce which is maxed-out financially is rather compliant. Add to that factor the option of contracting services internationally from ones computer (often at considerably less cost) there (in gross terms) isn’t a lot of room to bargain.

            As to “unionism” I support it, in principal; I am a long time and long term Marxist. But I have had only one intelligent conversation in something like 35 years with with a Union Official or a person with a similar occupation. Most, whom I have encountered are, at best, reactionary prats.

            Recapping on some of what I have written : all political parties have gutted the middle class. Fraser, although having no love for Whitlam, left the reforms of Whitlam in place. Hawke, a closet Liberal, destroyed most of the working and middle class advantages that Whitlam obtained; it started (globally) from there. Hawke was, however, against negative gearing; at least in December 1985.

            All members of all parties have mates who are fat-cats; many are in bed (not infrequently literally) with them. Hawke, for example, was great mates with Sir Peter Abeles. As to what extent this friendship influenced the politics of Hawke (for and against labour) cannot be determined but such associations are common. No longer is there any divide.
            As a yank might declare : “I think I’m done”.

    2. Geo

      Thank you Kyle.

      I would add that both corporations and governments have broken the social contract of maintaining full employment. The idiotic mechanisms of measuring unemployment are an example of complicity to obfuscate those larger issues of immigration, automation and globalism.

      We live in a bi-corporatist state where both major parties adhere to neoliberalism, seeing their purpose as only a Corp/Govt partnership aimed at extracting wealth efficiently from citizens.

      When corporations and religions can abdicate their responsibility to pay the tithe that keeps our society running fairly, you can bet their money/profit/efficiency outlook will make them blind to getting more people working, using money, and working to the extent that they can.

      There will be more people and less work. As a sovereign nation we need to rethink the corporatist view of how our society functions and how money is used for prosperity. It’s time to bring the universal basic income into the discussion about corporations, governments and religions paying their way and keeping up their end of the social contract.

  9. klewso

    I blame these godless, rapacious unions – that our employer unions, the great and good government they pay, and all their media angels (everyone of them, with only our best interests at heart) keep telling us to beware of – they must be right. Everything else they do and say (will happen) has worked out so well. Why would they be lying to us now?
    Long live the ABCC, the ROC and Cash-in-Hand!

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

Sending...