Real wages are under threat (Image: Gorkie/Private Media)

Wage booms scare policymakers and employers alike. But what about wage slumps? Here we are, a month on from the federal budget papers: halfway into a decade-long trend of zero growth in real wages.

Worse, with the government’s policy settings, “zero” may be optimistic. The Morrison government settings are, after all, designed to hold back pay. If they keep working as well as they have been for the past five years, it will be no surprise if real wages actually fall over the next five.

The government wants to waive it off. The traditional media want to ignore it. But inside economic circles (and around kitchen tables), it’s starting to be recognised as a real threat to Australia’s future.

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For nigh-on 50 years the economic boffins, from Treasury through to the Reserve Bank and on to the op-ed pages of The Australian Financial Review and The Australian, have been doggedly chasing the puttering car of wages, confident that restraint was the answer to all economic ills from inflation to deficits.

Five years after the wages car slowed and then stopped, how do those policymakers react, now they’ve caught the car they’ve been chasing? The budget papers — and the response since — suggests they’re no closer to an answer.

For the first two years after the 2016 close-call election, Treasury said last month, real wages were flat, before a fortuitously timed small blip (0.7%) in the lead-up to the 2019 election. By the next election, they predict, real wages will be down (about 0.4%) and not much different by the election after that.

Treasury has been notoriously over-optimistic in its predictions of wages growth. Fair enough. As it’s said (perhaps by Danish physicist Niels Bohr, perhaps by US baseballer Yogi Berra), it’s difficult to make forecasts, particularly about the future.

However, if Treasury’s forecasts now are only as wrong as they’ve been over the past five years, then we’re facing five years of significant falls in wages — and the buying power that goes with it.

Treasurer Josh Frydenberg may be confident the economy is “roaring back” — if we ignore the wages that give the “economy” meaning). The government is relying on growth to push down unemployment, thus magicking up a wage rise through the wand of supply and demand. It’s an interesting real-life economic test: can a flat (or declining) real wage economy drive the optimistic forecasts of economic growth?

Not while all the other policies of the government are designed to hold back wages. Traditionally, governments shift the wages dial by giving unions space to bargain, by raising minimum rates and conditions (through legislation or through various tribunals), and as an employer.

Union power and individual workers (when they can) and market forces (when they must) turn the dial to positive. Employers are encouraged to push back by turning to the low-wage alternatives of casual and gig-workers (and outright wage theft).

The Morrison government? They’re busy throwing grit into the gears, making it more likely that real wages ratchet down.

Unions still influence the wages of more than half of all employees, either through enterprise bargaining (covering about one in three employees) or by shaping the minimum conditions of the awards that cover about 20% of workers. But it’s harder now to spread wage improvements that can lead to nationwide rises

While residual political fears have constrained the government from a Howard-era style WorkChoices offensive, the transaction costs for bargaining have been ramped up by criminalising activity, demonising unions and wrapping them up in bureaucratic red tape.

The government has pushed back against wages and conditions either directly (think: penalty rates) or by stacking the Fair Work Commission with ideologues to do it for them. Right now, it’s arguing against significant rises in the first post-COVID national wage case.

As an employer, the federal government froze wages for its own workers (but not its own MPs) last year and is forcing continued restraint for the 20% of the workforce employed by state, federal and local governments.

The government seems confident it can hide its wages failures behind high-vis photo ops. But as wages fall, it may have to choose between its electoral prospects and its low-wage DNA.

Is the lack of wages growth something that worries you? Let us know your thoughts by writing to (Please include your full name to be considered for publication in Crikey‘s Your Say section.)

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Peter Fray
Peter Fray
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