Don't panic about wages, this isn't the '70s
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This isn't the 1970s and real wages
aren't exploding, so the business community will have a tough time
calling for even lower pay for employees, writes Mike Steketee.
Inaren't exploding, so the business community will have a tough time
calling for even lower pay for employees, writes Mike Steketee.
January, Employment Minister Eric Abetz warned of a "wages explosion"
if employers and unions did not take account of the cost to the economy
of the agreements they struck.
In a speech
that received prominent media coverage, he evoked the bad old pre-Hawke
government days, when large wage increases won by the metal trades
union flowed through to other parts of the economy and priced employees
out of jobs.
Paul Keating as treasurer summed up the consequences
in his characteristically forthright manner by accusing then
metalworkers union boss (and later senator) George Campbell of carrying
the corpses of 100,000 unemployed around his neck.
Abetz lamented
that some unions saw the present system as "an opportunity to simply
ratchet up wages to further unsustainable levels", while many employers
adopted a strategy of harm minimisation, rather than improving their
competitive position. He added portentously: "If the system is not
driving the parties to act more responsibly, then it needs to be
reformed so that it does."
That suggested that the Coalition,
together with business, still hankers for industrial relations reform,
even if political experience, to wit, its loss of government in 2007,
dictates that it treads very warily down this path. (It has put any
substantial changes off to a second term, following a report from the
Productivity Commission.)
The problem with Abetz's comments is
that they came hard up against reality. There has been no wages
explosion, nor is there any prospect of one. Another reality is that the
industrial relations system is one of the least of our economic
problems.
Three weeks after his address, the Australian Bureau of Statistics released figures showing
that wages grew by 2.6 per cent (seasonally adjusted) over 2013 - the
smallest increase for the wage price index in the 17 years it has been
compiled.
The latest figures,
extending to the June quarter this year, show the slow wages growth
continuing, with the annual figure remaining at 2.6 per cent. With
inflation, as measured by the CPI, running at an annual rate of 3 per cent, that means real wages are falling.
No sign of a wages explosion there.
In
truth, the situation could not be more different to that of the 1970s
and early 1980s, when the cost of living and similar pay for similar
work were important ingredients in wage determinations by the
Conciliation and Arbitration Commission. These days the labour market
responds primarily to the economic conditions faced by employers. The
small increase in wages reflects the low growth in demand for the goods
and services that businesses produce.
This is confirmed by the
Reserve Bank, which expects wages to continue growing at a relatively
low pace in the September quarter.
"Wage growth in the mining and
business services industries slowed particularly sharply over the past
two years ... consistent with a larger increase in estimated
unemployment for workers from these industries," it says in its latest statement on monetary policy.
The
RBA also points to other costs to business coming down. The exchange
rate has fallen and labour costs are falling slightly against those of
many of Australia's major trading partners. Labour productivity had been
growing faster than the average over the last decade. And it adds that
time lost to industrial disputes is well below its 10-year average.
It
is a quite different picture to that regularly portrayed by employer
groups: that Australia is too expensive a country to do business.
As
for comparisons with three or four decades ago, there is none.
Economist Saul Eslake told me this week that profits as a share of
national income fell as low as 17 per cent during the 1970s. Now they
are at about 27.5 per cent, slightly down from their peak in 2007, just
before the global financial crisis.
Businesses can sustain high
wage increases if they are matched by rises in productivity - that is,
improved work practices that result in higher output per worker. In the
1970s and 1980s, wage increases ran far ahead of inflation and
productivity. Now they are falling behind them.
Working days lost to industrial disputes totalled 88,600
in the year to the end of March. If that sounds high, you must be
either young or have forgotten the glory days of the union movement. In
1985, when the ABS first started collecting these statistics, working
days lost totalled almost 1.3 million and three years later were more than 1.6 million.
The
business community was strident its opposition to the Fair Work Act,
implemented by the Rudd government in 2009 to replace John Howard's Work
Choices. Their concern was that unions would receive a new lease of
life and press unsustainable wage claims.
It didn't happen.
One
obvious reason is that, though the Fair Work Act did tilt the balance
back towards unions to some degree, they are a shadow of their former
selves. In August last year, 17 per cent of Australian employees were trade union members in their main jobs. In 1992 the figure was 43 per cent for males and 35 per cent for females.
Earlier
legislative changes did lead to fundamental changes in the operations
of the labour market. They started with the introduction of enterprise
bargaining by the Keating government. The Howard government extended the
decentralisation of the system, and, notwithstanding frequent claims of
a return to the pre-Keating era, most of the changes were maintained by
the Rudd and Gillard governments.
In our conversation this week,
Eslake said that, given issues to do mainly with timing, caution was
needed in using statistics on wages and productivity to draw conclusions
about the effect of changes to the industrial relations system. But he
said:
Tentatively you could argue that the wagesThat is,
system that Australia now has has not been a barrier to wages growth
moving in line with changes in labour market conditions. The changes to
the Fair Work Act made by the previous Labor government were never
really about aggregate wages growth anyway.
all the signs are that stagnant or falling real wages are a response to
deteriorating economic conditions. Employers facing a slowdown in demand
for their products and services are not being forced to grant wage
increases either by union muscle or award increases handed down from on
high by the Conciliation and Arbitration Commission. Unemployment has
been rising but would have gone up faster if real wages also were
increasing significantly.
So what could businesses possibly have
to complain about? Well, amongst other things, low demand for their
products and services - itself partly a consequence of employees having
less to spend. Nevertheless, having achieved lower labour costs, they
want to get them lower still.
The Australian Chamber of Commerce and Industry used the release of the wages figures a fortnight ago "to renew calls for workplace relations reform". The costs of employment affected decisions to hire workers, said ACCI's chief operating officer John Osborn.
"This is worsened when those costs become out of step with productivity growth that underpins real wages growth."
Except
that is not what is happening. As vested interests, business and unions
will always want the government to do more to make life easier. Bliss
for business would be a free market for labour, with employers able to
hire and fire as they like, no minimum wages and unions out of the way.
But then we are talking about a market that involves people, rather than cans of baked beans or boatloads of iron ore.
Mike
Steketee is a freelance journalist. He was formerly a columnist and
national affairs editor for The Australian. View his full profile here.
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