Economy

Jun 14, 2018

Reserve Bank confirms wage stagnation dragging down economy

"Don't mention industrial relations" appears to be the mantra for policymakers as they try to explain why wage stagnation is weighing down the economy so heavily.

Bernard Keane and Glenn Dyer

Politics editor / Crikey business and media commentator

RBA governor Phil Lowe

Australia's governing class is finally starting to have a conversation with itself about the wage stagnation it has inflicted on Australian workers, but it still doesn't get it.

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34 comments

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34 thoughts on “Reserve Bank confirms wage stagnation dragging down economy

  1. 1984AUS

    “[R]eal debt burdens stay higher for longer. Many people who borrowed expected their incomes to grow at something like the old rate rather than the current rate. With their expectations not being realised, the real value of the debt stays higher than they expected and this is likely to affect their spending decisions.”

    And the financial institutions are loving it – household debt the elephant in the room.

  2. 1984AUS

    ‘It seems that, whatever else, there’s a rule that Lowe and his colleagues must not mention the more obvious reason: that the industrial relations landscape and the decline of unions has made collective bargaining and industrial disputation more difficult for workers across Western countries, undermining their capacity to secure pay rises. ‘

    The RBA is a who’s who of the Liberal Party and their mates.
    “The revelations pose serious new questions for Reserve Bank Governor Glenn Stevens about what the bank knew of Australia’s worst corporate corruption case.

    In July 2014, WikiLeaks released a secret censorship order prohibiting publication throughout Australia of information that “reveals, implies, suggests or alleges” corruption involving a number of past and present high-ranking Malaysian, Indonesian, and Vietnamese officials”

    GREG BARNS [Barrister] : There needs though to be an examination of the governance arrangements at the RBA, because this all happened in circumstances where you had the board of the RBA and underneath it these subsidiaries. Effectively, you’ve got to look at the board’s conduct, the subsidiary’s conduct, and find out how it was that these quite huge sums of money were paid to people in circumstances which I think many would say were at least questionable.

    Explosive new evidence shows that RBA subsidiaries paid more than $3 million in commissions to a Malaysian arms dealer to secure bank note contracts in Asia. Even after the arms dealer was sacked for corruption, the payments continued with the RBA’s approach.

    http://www.abc.net.au/7.30/content/2012/s3588021.htm

    1. covenanter

      With former West Germany and now Germany, with an economy largely based upon manufacturing, being the clear exception to this problem of declining wages.
      Manufacturing was estimated to be the most powerful engine for the creation of wealth by that noted Philosopher.
      Henry Ford defied his critics by instituting a doubling of his workers’ wages to the famous “Five Dollar Day”, and with Smith having declared wages to be “Returning Capital”, Ford recouped his wage bills when his workers were then able to purchase the goods they manufactured.
      During the rationalisation of the Australian Steel Industry, starting in the early 1980’s ,BHP went against the grain of other large businesses by declaring it had no problem with high wages for its workers, potential and probably actual steel customers.
      By contrast the service industries, which can by definition only enhance the efforts of the real productive sectors of the economy, will only make a profit by downsizing its wages bill, since it dies not manufacture anything and cannot thus increase its wealth doubling or tripling its services.
      Is this illustrated by the old quip that we can all create employment for each other by taking in each other’s washing?
      People are busy but nothing is actually being created.
      So while the ignoramuses of the right destroy much of Australia’s manufacturing sector, the only real source of wealth which comes with an accelerator attached, and pursue profit at the expense of wages in the service sector, then spending and more importantly savings power declines in the nation.
      All. ironically, expounded nearly two and one half centuries ago, with no one having learned anything at all, it would seem, from the author in question?

      1. Desmond Graham

        very true – Australia relies now on performing services to each other – – biggest gains in employment;loyment NDIS, health sector. Produces nothing – consumes everything. By logic we must be the unhealthiest country in the world as our biggest sector is human pathology. and disabled human beings.

      2. kyle Hargraves

        “Germany, with an economy largely based upon manufacturing, being the clear exception to this problem of declining wages.”

        “Clear exception” do you say? Don’t worry : I’ve accustomed myself to correcting your mistakes. Now to some evidence and some arithmetic

        https://www.statista.com/statistics/612505/average-annual-real-wages-germany

        Over the last 20 years : give or take :
        Year 2000 $41,388
        2016 $46,384

        Percentage (compound) increase per year is : ___ ? Do you want me go give you the answer tomorrow or do you want to try to calculate it yourself ? Hint : the answer is LESS than 1%

        Let me suppose that you don’t like the graph above : it tends to contradict what you have written. Then take a look at
        this : https://tradingeconomics.com/germany/wage-growth

        The “problem” is NOT associated with the decline in manufacturing in Australia but with an inability to develop high-end tertiary industry product. “Heavy Metal” (or some such name) and I had a recent discussion on this point.

        Des – you ought to know better : its NOT “very true” at all; partially true : possibly.

      3. pjp

        “With former West Germany and now Germany, with an economy largely based upon manufacturing, being the clear exception to this problem of declining wages.” – actually you’re wrong here. The SPD (Labour) and Greens coalition which came to power in Sept 1998 responded to a stagnating German economy (and a famous article in The Economist which called Germany “The sick man of Europe) by loosening a whole lot of legislation and weakening workers’ protections and as a result Germany is faced with the same problems as most western countries of casualisation of the workforce and stagnant wage growth for the average worker. Last year the steel industry unions managed to negotiate a very good agreement in one state of Germany but there have been no flow-on effects into the wider economy. Deutsche Post (20% of which is still owned by the state) ignores continued calls to make postal and package delivery staff part of their permanent workforce and all the big car manufacturers employ tens of thousands of workers on a special type of temporary contract. All of these people are outside the protections of the industrial relations system. These were unplanned consequences of the SPD/Green reforms, but Merkel’s conservatives and the SPD (who have been a part of the Grand Coalition for most of Merkel’s time in office) show little interest in changing the system. And just like here in Australia, they have been neglecting investment in public infrastructure to such a degree that the economy is suffering. And many regions of former East Germany are still economic waste lands – almost 30 years after reunification.

        1. kyle Hargraves

          I have an embargoed comment (of 20:38, which hopefully, will be released in a few hours) that states, with graphs etc., much the same thing. I also went to some trouble to point out in my post of 14 June 14:42 (and in previous posts) the idiocy of the assertion to which you refer – but that guy won’t be told.

          “The Economist which called Germany “The sick man of Europe”

          It was actually Turkey who was called the Sick Man of Europe – towards the end of the 19th century – in regard to the moribund administration (and hence the economy) of the Ottoman Empire – but never mind.

          “Germany is faced with the same problems as most western countries of casualisation of the workforce and stagnant wage growth for the average worker.”

          Just my point in regard to “causation” which is far from simple or linear. There are fewer but much more effective unions in Germany and France. As a “cause” for stagnation we can eliminate any reference to Unionism (or lack of it) per se.

          ” Last year the steel industry unions managed to negotiate a very good agreement in one state of Germany but there have been no flow-on effects into the wider economy. ”

          You are correct to identify this even as a micro event. An analogy would be mining in Australia circa 2013. Those that entered the industry (in any capacity) were well remunerated but there was no “flow-on”. Despite retentions the industry is still well remunerated – compared to the “remainder” of those engaged elsewhere with similar skills.

      4. covenanter

        Some if those commenting below labour their points without much profit, but the facts which they choose to ignore remain. Post-war Germany based its growth back to wealth on manufacturing, (though those in the various “service” industries might wish, for obvious ego problem reasons, to wish otherwise), with the Marshall plan having something to do with it.
        Heavy industry sought to be and succeeded in being self financing, thus being able to dictate which parts of capital and labour should enjoy the “profits”.
        The historically chose in closely include their work forces in their “enterprise” management and the workforce where definitely better rewarded than others in maufacturing across the globe. no problems.
        What is happening at this very moment, by way of recent changes. is totally irrelevant to the argument.
        Arguments actually, originally made by Smith, perhaps the incorrigibles commenting below should become his students, instead of dreaming up their own versions of economic reality tediously presented for the unpalatable and unhealthy consumption of others on this site.

        1. kyle Hargraves

          “Marshall plan having something to do with it” [“it” being manufacturing – my addendum].

          Actually the Marshall Plan had EVERYTHING to “do with it”; about 12-15 billion dollars of Keynesian pump-prime in 1946 currency. Pity the yanks, except in drips in drabs, didn’t apply the same methods to their own economy until 1942 – which was still in chronic depression in 1941. The New Deal was no more than 1/2 to 3/4 hearted in this regard – but I digress.

          “What is happening at this very moment, by way of recent changes. is totally irrelevant to the argument.”

          What is irrelevant to “this very moment” is the reference (and implication of 70 years ago) to the Marshall Plan!

          The content of the following link is the last word! In fact the data contradicts the first edition of SideView.
          https://www.statista.com/statistics/295519/germany-share-of-economic-sectors-in-gross-domestic-product

          1. covenanter

            Irrelevant seems the apt descriptor for most of your offerings, and probably why not many will actually ever bother to read them.
            Much quantity, little quality, and not responding to any measurable demand at all.

  3. mg57

    Glad someone has finally “belled the cat” about the relationship between the decades-long, ideologically-driven attack on industrial relations and in particular on the role of unions in maintaining wage parity. For some reason, it has become heretical, even within the Labor Party to say this for fear of being tarnished with the ‘anti-economy’ brush. Time to begin a new narrative that does not look at the issue in a simplistic, binary form. Trump et al are the results of the impact of this serious sense among the community of a lack of the fair distribution of income and prosperity.

  4. Desmond Graham

    Beautiful computer generated graphs do not explain any problems just show what the problems are – The Governor is wrong – it is not that wages growth that is the problem it is the government and government generated costs that is the problem.He said . “[R]eal debt burdens stay higher for longer. ‘ Yes – people are saddled with the creeping charges for living by governments – commonwealth, state, local -all increasing charges on top of utility charges etc – so the wages people have cannot pay for these as well as consumer spending -wage income growth will not fix the problem, the charges, taxes will immediately obliterate any wage growth. Business has not increased its charges because of the competitive commercial activity. In fact businesses cannot afford to have wages growth as businesses face the same struggle as wage earners. There are added problems in the system. For instance, as an example of subtle increasing costs to business -as of July if an employee needs to come to a training session to up skill themselves they must be paid a minimum of 3 hours [ at present they just receive payment for the training time attended] whether the session lasts on hour or two hours. Guess what there goes in house updates. So Phil Lowe is perplexed – perhaps the gurus should take a break from their computers and analyse and address the systemic problems like they did in the past – otherwise any idiot can prescribe more of the same – guess what results in more of the same outcomes.

    1. N.A.F.

      No. Business profits are increasing faster than wages. Put differently, a smaller proportion of gains made by businesses are being returned to workers than in the past. That’s the whole point.

    2. brian crooks

      So the big business puppets at the RBA have finally woken up that low wages kill an economy, how long will it take the corrupt big business puppets in the coalition to break free from the trickle down thievery they imported from the U.S.A and change policies, or do we have to wait another 12 months till the ALP takes over and puts the economy back on track.Desmond, it seems you arrived on the same trickle down space ship the clowns in the coalition

    3. brian crooks

      So the big business puppets at the RBA have finally woken up that low wages kill an economy, how long will it take the corrupt big business puppets in the coalition to break free from the trickle down thievery they imported from the U.S.A and change policies, or do we have to wait another 12 months till the ALP takes over and puts the economy back on track.Desmond, it seems you arrived on the same trickle down space ship the clowns in the coalition

  5. AR

    As far as institutional capture goes, listen to the “Labor” spokesbot Andrew Leigh on why nothing can be done differently, whilst gumBoil Shlernt mewls about… something..something until listeners lose the will to live.

  6. kyle Hargraves

    I feel as If I’m marking a Y10 social studies project. There is a nice and valid treatment from the perspective of small (petty capitalist) business, by Desmond Graham, but it also needs to be noted that the Australian economy is about 40% Gov. and about 40% small business with embedded interrelationships. There are medium business / capitalist and big business / capitalist interests to be taken into account also. We’re NOT “all” consumers (in the same sense); the Gini coefficient refers!

    > Australia’s governing class …still doesn’t get it.
    The governing class most certainly “gets it”. That is WHY they are the governing class. In point of fact it is the lower orders that do NOT “get it”.

    > The government remains in denial about wage growth
    arrant nonsense. The government may not give a damn that such an attitude is not synonymous with “denial”

    > Indeed, would further wage stagnation even lead to another rate cut?
    > That would jolt the “lift rates for the sake of lifting rates” crowd.

    The question to ask now is “just whose interests would this state of affair s serve. Are ALL borrowers “equal”? Do we need that many guesses?

    > “[R]eal debt burdens stay higher for longer.
    Absolutely correct! But borrowing is ALSO cheep. Also, costs are predictable or have an upper bound for budgeting. So its far from all bad. Just be careful about prices (not the value of assets) going into reverse. In such an environment the value of assets WILL decline over time. However, if one owns most of the shop it isn’t going to make any relative difference. With lower asset prices the hoi-poloi will still own most of the shop.

    > the slow wages growth is diminishing our sense of shared prosperity.
    Ditto of hyper-inflation. Deflation is as “bad” as “excessive” inflation. About 1.5 – 2.5% is the Goldilocks zone.

    “Courtesy of wage stagnation, years of corporations enjoying the upside of privatisations while consumers got the downside and unpunished corporate misconduct, voters regard economic reform as a code for screwing them over to the benefit of companies.”

    Your article is misleading the readership to propose that one entails the other. Both events are in existence (no doubt as to that) but you will require a theory as to causality to link the two in a creditable argument; but see below.

    “Lowe yesterday struggled with explaining why wages growth is so low despite a long period of strong jobs growth and employers reporting growing labour shortages”

    Which is because the answer is anything but simple; convoluted – yes – but also a global phenomenon; i.e. independent of the economic activity in Australia. As to graphs, Desmond, a similar graph from Europe or Scandinavia (easily produced) would illustrate the point. Ditto for one from the USA which is NOT pretty at all.

    “more obvious reason: that the industrial relations landscape and the decline of unions has made collective bargaining and industrial disputation more difficult for workers across Western countries, undermining their capacity to secure pay rises.”

    A creditable explanation if there were regions of the 1st world were there was grown in wages and strong unionism. But dispute strong unionism (e.g. Europe and France and Germany in particular) the corresponding percentages in wage growth are comparable to that of the UK, Oz and NZ over the last decade : hence the misleading representation noted above.

    “One more thing: for all those neoliberal heroes at the Business Council or in the commentariat who reckon industrial relations deregulation boosts productivity, Lowe had an interesting graph showing the impact of WorkChoices on labour productivity. Maybe we should be re-regulating workplaces.”

    Such is the difficult approach. The “easy” approach is to identify labour reforms and note (measure) the autonomous increase in productivity (from the Reform Acts of the 1830s). Even with no unions (to speak of) and near to zero legislation of markets and labour markets unemployment wafted around 10% for the latter part of the 19 century and the early 20th century. This observation of itself discredits the Supply Side and neoLib in general.

    I have two observations to make which are motivated by this article. The articles published in The Saturday Paper are superior to those published by Crikey; just consider this week as an example. Perhaps it is assumed that those who read the Paper are smarter and, by corollary, those who read Crikey are dumber. nunno.

    The second is that evidence to refute the general tone of the article is at hand but it is NOT possible (I have enquired) to upload charts (in .png or .pdf – or anything) to Crikey and the technical people at Crikey won’t entertain the feature.

    It would be trivial to superimpose productivity/wages or wages/time of various OECD countries which would, in the main, contradict the general theme of the article – of the problem being a fundamentally Australian problem.

    1. AR

      Agree with all you’ve chiselled in stone here, but too kind with “> Australia’s governing class …still doesn’t get it. The governing class most certainly “gets it”. That is WHY they are the governing class.. . They just don’t give a shit.
      That’s what domestic security legislation is for, then the “ lower orders that do NOT “get it” might twig but it will too late.

    2. Desmond Graham

      Do you mean that Government 40% and small business 40% that is 80% – leaving 20% for medium + big business? – Thanks for supporting my partial picture. Unionism, which is vital to our industrial relations structure, is on the nose because some use its powers like thugs whereas some union leader sell out their members for personal gain [like Shorten ] – what the workers need is someone to represent them when they are disadvantaged – so reregulating workplaces is not a bad idea

      1. kyle Hargraves

        Not entirely Desmond. I did make a point of emphasisinig (but apparently insufficiently) embedded interrelationships. Do you remember your school ‘set theory’ – expressed in what are known as Venn Diagrams; all those funny shapes (some were circles) intersecting with one another?

        The set (small business and gov.) possess an intersection. The sets (sections of the economy are not cumulative (or disjoint – as you have treated them). However your intuition is in the right direction. Big business commands the lion’s share of the GDP but most families are dependent upon small business.

        As to unionism the problem, Desmond, is that the Unionist’s are still stuck in the 19th century. Frankly, I have only met one unionist who wasn’t a dickhead – and that was three decades ago. This is a big topic and screeds have already been written.

        Crikey prevents me from uploading a .jpg or a .png to illustrate points (pity) but you might case an eye over https://www.math.uh.edu/~dlabate/settheory_Ashlock.pdf
        which was the most elementary treatment of set theory that I could find. You’ll get a drift just by flicking through it.

        As an aside I have an embargoed comment (funny that : story of my life) that has a reference to your reply of 14 June 14, 16:05 is, (and I have provided the graphs to enforce the pont) only partially true. With any luck, all will be revealed tomorrow.

  7. klewso

    Re that “commentariat” :-
    Last week’s (June 4) Q&A promo of Grace “Blue Hills” Collier – you could go to China for 6 years and come back to hear her take up where you left her paid cracked record recordings on ‘how incompetent Labor is and how corrupt unions are’ – why the hell do we need our ABC promoting her ‘opinion as news’ habits?
    And Jones introduces her as “workplace relations commentator and consultant” – as if she’s ever had impartial, objective views?
    Then during this exhibition we had that Q&A twitter ribbon showing “Best point of the night @msgracecollier on remoteness of rich political class from common experience” from one “Adan Creighton”? It was only there momentarily, but I recorded it, so I could pause to read the whole drool.
    Could that have been that “Adam Creighton – conservative commentator trained in economics – working for Murdoch’s Limited News, doing Limited News Party PR” Adam Creighton?
    This was over Collier going on about how politicians live like rock stars – not like “us”? …… Paid to push our/Murdoch politics in Rupert’s Limited News Muppet Show????
    Just what is that “commentariat” paid to do? Peddle the politics of one Limited News Party side of politics : and attack the others?

  8. Amark

    Not surprising that productivity isn’t growing, companies care about profit growth and they are achieving that via other means at the moment

    1. 1984AUS

      Australians aren’t being paid for their productivity. Get set for an industrial relations war…An OECD report shows that the gap between productivity and pay is wider in Australia than almost any other advanced economy, including the USA

      https://www.theguardian.com/business/grogonomics/2017/may/23/australians-arent-being-paid-for-their-productivity-get-set-for-an-industrial-relations-war

      … while Australia has achieved some of the strongest productivity growth over the past five years, it has not led to similar growth in workers’ incomes.

      The OECD’s latest “Compendium of Productivity Indicators” gave rather a big tick to Australia. Our productivity growth through 2010-2015 was among the best in the OECD

      While changes to IR since the early 1990s have arguably led to improved productivity growth, that same IR system has not led to a similar improvements in workers’ income.

      As in other nations, our more “flexible” IR system has seen a break between the previously linked productivity growth and worker income…The gap between productivity growth and worker compensation since 1995 is actually worse in Australia than in the USA

      That’s a pretty damning indictment of our IR system – our workers are getting less reward for productivity benefits than the USA.

      The OECD notes major issues about employment that is a result of the Coalition Howard policies and the financial world’s GFC, which are one and the same when it comes to Coalition policies/non policies.

      – “higher employment rates but lower average hours per worker, which points to more part-time working, often in low productivity jobs”…..the hours worked per capita (ie the average hours worked by all people aged over 15) fell to its lowest level since 1994 .This fall is just part of a long running disjoint since the global financial crisis between hours worked and the percentage of adults who are employed..”

  9. Vasco

    Will we little Aussie battlers remember just how deeply we are being rogered come election time.

    1. AR

      ooh, ooh, I know that one! No, not a chance.

      1. Dog's Breakfast

        LoL.

        Except I’m crying.

    2. mongoose

      Sorry, meant for Vasco.
      Well put Vasco except not enough of us recognize that we are being rogered!

  10. gjb

    A fortnight ago the Adelaide branch of the TWU staged a protest march in the city, the main speech to the protestors was in Korean, delivered by a Korean union organiser.
    Australian unions aspire to the level of worker organisation and influence found in Asia…. ???
    Unions are themselves at fault for allowing greed and cronyism to flourish, union hierarchy have taken a back step to feather their own fat arses on workers contributions and shitty backroom deals with employer groups.

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