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Restoring Real Wages Growth

Times are tough if you are an Australian worker. Not only are unemployment levels presently high (currently around 6%) but wages in real terms are falling (except those who are ensconced in feather-bedded public sector jobs).

Now, as I have argued in previous essays, one of the major reasons for these dismal outcomes is the fact that we have seen no significant growth in labour productivity. We are of course very susceptible to the cycles in commodity prices, but in other times we have managed to insulate ourselves from those impacts by improving our productivity.

Now slowing wages growth causes a number of dilemmas for both the government and employees.

To begin with, reducing real wages outcomes stifles consumer spending and as a result dampens consumer confidence. This, of course, puts a brake on economic growth and employment creation. Low employment is always a problem for workers, not only because it threatens job security and makes it difficult for new entrants to gain a foothold in the labour market, but it weakens the bargaining power of employees, resulting in lower wages outcomes.

As well, with the government facing a parlous budgetary position, its principal mechanism for increasing revenue unfortunately, is it reliance on “bracket creep”. (Bracket creep occurs when inflationary pressures raise incomes so that taxpayers are forced into higher income tax brackets, thus resulting in an increased level of income tax.)

Historically workplace productivity has been stimulated by industrial relations reform. The micro-economic reform agenda commenced under the Hawke Government and continued under the Keating Government was followed the Howard Government’s Work Choices .These initiatives all served to raise workplace productivity and resulted in some of the best productivity gains recorded in Australia’s history.

Freeing up the workplace has usually been seen as an anathema by unions. They would prefer to put imposts on labour productivity in the workplace to boost short term employment numbers thus reducing the profitability of enterprises but defending the reducing numbers of union members. This makes business less competitive, stifles investment and employment growth.

It took the vision of Bob Hawke and Bill Kelty to convince the union movement Australia needed to be more internationally competitive if we were going to be able to provide long-term, secure jobs for more Australian.

Of course the union movement was entirely opposed to the Howard Government’s Work Choices initiatives. It is not hard to argue that in the end the Howard Government went a little too far, but it can’t be denied that Work Choices provided another stimulus to the economy that led to higher levels of employment and higher growth in real wages. It was probably the strong reaction of the union movement to Work Choices and their aggressive campaigning in the subsequent election campaign, that lost Howard government.

And then with the election of the Rudd/Gillard Governments, now seriously beholden to a politically resurgent union movement, many of the productivity gains were reversed allowing unions to intervene in workplaces to a degree we haven’t seen since the 1970’s.

Consequently labour productivity has fallen away and undue industrial imposts are again placed on business. Where there has been productivity improvements it has largely been due to technology, but even here full advantage is often not taken because of industrial constraints.

The union movement often takes the simplistic position that enterprises only prosper at the expense of employees. Whereas the reality is, as the historical evidence above shows, that when business prospers employees prosper as well. When the economy is growing and there is more competition for labour, employee outcomes are always better, not only because of the improved bargaining power that employees have but because of the improved capacity to pay that employers have.

This is reason enough for the Government to intervene to curb union power and seek to unleash another bout of labour productivity to stimulate growth and improve our international competitiveness.

But of course the Heydon led Trades Union Royal Commission has shown union power has been frequently abused by examples of extortion, exploitation and other forms of thuggery. Some unions have held the law in little regard and have often acted in ways not beneficial to their members.

Consequently it is important that the government not only act to restore the rule of law as far as unions are concerned but also to free up workplaces so that labour productivity can be advanced. In the end this will contribute to economic growth resulting in higher employment and increasing real wages, which is an undeniable benefit for the workforce.

Unfortunately the government is not showing any signs that it is prepared to take the challenge of industrial reforms. Consequently we are probably doomed to have to endure continuing low employment and little growth in real wages.

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  1. 1 Comment(s)

  2.   By Greg Brown on Feb 28, 2016 | Reply

    We seem to be experiencing a boiling frog situation. It requires insight and honest contemplation of the facts to first recognise there is a problem (the water is getting hotter) but also a great deal of courage and effort to jump out of the pot. The easiest way to convince people to stay in the pot is to spread fear about what might happen if they were to jump out. Fear seems to be the most potent political weapon there is. It is really just bullying though in my opinion. Forcing people to respond the way you want by creating fear for what might happen if they don’t. If it was at an individual level it would probably be unlawful but when it is done as part of a media campaign it is just good politics.

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