Australia will be left with significantly worsened inequality and greater structural impediments to its reduction in coming years, as a result of pandemic monetary and fiscal policy decisions and the government’s recovery agenda.
Higher-income, better-educated and older Australians will get further ahead while low-income Australians, younger people and low-skilled workers will increasingly be left behind.
We already know that the pandemic saw the wealth of billionaires soar around the world. But that process of growing inequality is also playing out in miniature across all incomes, courtesy of government policies.
The poor level of wages growth over most of the last decade is set to continue in coming years. The Reserve Bank, which has a long record of wrongly predicting increases to wages growth, now forecasts wages growth won’t return to 2% until 2023, with workers eking out real wages growth of just 0.25% a year before tax.
But within that average figure are many separate stories. Private sector workers have done worse than public sector workers in recent years — until governments began cutting public service wages growth down to private sector levels. Many industries, especially blue-collar ones like construction, have underperformed on wages growth compared to regulated, publicly funded and heavily unionised industries like health and education.
But there are other demographic stories that point to growing inequality. According to a paper last year by Guyonne Kalb and Jordy Meekes of the Melbourne Institute, higher-income earners have faster mean wages growth than low-income earners. Moreover, the gap between those groups grew over the 10 years to 2018, which incorporates the period of wage stagnation that set in in 2013. While both groups’ wages growth slowed compared to the period before the financial crisis, the wages growth of the lowest quintile of incomes slowed by 33% compared to 22% for highest-income workers.
Similarly, wages growth was highest among university graduates and fell by less than wages growth for Year 11 and 12 graduates compared to pre-GFC levels; those with long-term health conditions had lower wages growth than those without; low- and medium-skill occupations like labouring, retail and machinery operators had significantly lower wages growth; accommodation and food services, retailing and manufacturing had the lowest growth (though mining, reflecting the mining boom in the Labor years, had the highest).
This pattern is continuing to play out now. According to the Reserve Bank’s February Statement of Monetary Policy, “wages growth has been weakest in industries most reliant on award wage increases, including accommodation and food services and retail trade.”
Something similar can be seen in the United States. According to the most recent jobs report from the Bureau of Labor Statistics, wages growth in the lowest paid sector of the US workforce, leisure and hospitality, has been negative over 2020, with average weekly earnings now (US$364.08) still lower than in January last year (US$366.55).
To this mix must be added growing precarity. After remaining relatively stable over the last decades, the level of casualisation in the workforce has surged in the wake of the pandemic, with “non employees” (i.e. gig economy workers) making up much of the recovery in jobs. In August, literally all additional jobs were for “non employees”. Of normal jobs, 60% of the jobs created since the pandemic have been casual.
The government’s omnibus industrial relations bill threatens to, according to a group of industrial relations law experts, “increase the casualisation of the Australian workforce”. It will fail to address the casualisation imposed on workers by labour hire companies and does nothing to address the rise and rise of the gig economy, which primarily exploits low-income and younger workers.
The Reserve Bank’s bleak predictions for wages growth mask an even grimmer reality for low-skilled and low-paid workers in the private sector, especially in struggling sectors like hospitality and tourism that may not recover for years. Australia needs an effective wages policy aimed at increasing real wages growth. Monetary policy alone will not deliver wages growth, as the Reserve Bank acknowledges in its forecasts (and wages growth declined despite the 2019 interest rate cuts). Nor will fiscal policy: the Morrison government plans to remove fiscal stimulus starting next month.
Australia hasn’t had a true wages policy since Keating. The assumption has been that industrial relations policy is sufficient. But the result has been a de facto wages policy which, under this government for seven years, has been to drive down wages, reduce workers’ bargaining power and undermine minimum pay rises — all with disproportionate effect on low-income and lower-skilled workers.
The pandemic has accelerated that trend and made the need for a wages policy clearer than ever.
Tomorrow: the housing market and the rise of the bank of mum and dad.