wages economics Alan Krueger

Australia’s private sector workers, unless they’re in health, face many more years of stagnant incomes — and they’ll be permanently one inflation spike away from a serious drop in real wages.

Appearing before the House of Representatives Standing Committee on Economics in Sydney on Friday, RBA Governor Phillip Lowe described how poor wages growth has significantly affected the economy. “Since 2016, aggregate household disposable income has grown at an average rate of around 2.75% per year. This is down from an average of 6% over the preceding decade. It is plausible that households have responded to this extended period of weaker income growth by progressively downgrading their spending plans. For many people, it has become harder to see the lower growth in income as just a short-term development that can be looked through.”

And while the data was particularly volatile at the moment, complicating the Bank’s analysis, Lowe noted “on balance, though, the available data suggest that the underlying trend in consumption is softer than it earlier looked to be and this has affected the outlook for the economy.” 

But Lowe remains optimistic — or more accurately Pollyannaish — that wage stagnation is just a passing phase. “…we are expecting better news ahead, with growth in disposable income forecast to increase. Wages are rising more quickly in almost all industries and in all states than they were a year ago.” Except, as Crikey has been regularly pointing out, that’s because we’re pumping billions of dollars into health, which is the biggest-employing sector, and the fastest-growing, in the economy. And there are some notable exceptions to Lowe’s insistence wages grew faster in 2018 than 2017 — in manufacturing and construction, two big employers, private sector workers’ wages growth slowed in 2018 compared to a year earlier.

While Lowe was speaking, the International Monetary Fund (IMF) was chipping in with its economic forecasts for Australia. It sees nominal wages growth for all workers reaching 3% in 2020, but plateauing after that, only reaching 3.3% in the mid-2020s — and at no stage does it see real wages growing by more than 0.8% a year. That will mark around fifteen years since most workers had a decent pay rise.

The IMF’s short-term predictions might be overly-optimistic (they’re based on consultation with our economic bureaucrats anyway) but its longer term forecasts suggest that policymakers — all of whom are ensconced in high-paid, secure jobs, for whom wage stagnation is an issue to debate about over lunch at conferences, not to experience first-hand — think we should all get used to a world without decent pay rises.

Judging by today’s press, corporations and employers remain locked in a Howard era Workchoices mindset. Behold one Anthony Wood, a lawyer for employer groups, who thinks wage stagnation is because industrial relations laws aren’t flexible enough and workers aren’t prepared to give away benefits in negotiations. Wood wants the removal of “inflexibilities and prohibitions on efficiency” to boost productivity (inflexibilities like “the inability to work more flexible hours”). Over at the AFR, an economist, Peter Downes, insisted we needed more “structural reform” to boost productivity. Such people forget, or prefer to ignore, that Workchoices caused productivity to collapse. Productivity has lifted since Labor’s Fair Work Act but — contrary to the claims of IR deregulation advocates — little of that has flowed to workers, as Philip Lowe himself noted last Friday. Instead, corporations have simply added the extra productivity of recent years to their bottom lines, exploiting their greater power in wages negotiations to grow the profit share of income and reward shareholders, not the people actually working for them.

Then again at least this “cut wages so wages will grow faster” garbage is a policy position. The Coalition simply doesn’t have a wages policy except to object to minimum wage increases and engage in the Sisyphean task of forecasting improvements in wages growth in the budget and then revising them down again in MYEFO. Labor, at least, is taking wage stagnation seriously as a policy issue, and plans to amend the Fair Work Act to tilt the wages bargaining process a little back toward workers. This is being portrayed in the usual apocalyptic manner by business and the Murdoch press, but the reality is that, even if Labor is elected and managed to get such reforms through the Senate, their impact will be limited and long-term. And with union membership low and falling, they’re unlikely to yield significant wage rises anyway.

Decent real wage rises will only come from larger, and more militant, unions forcing corporations to hand over profits — and we’ve spent decades demonising that.