The only people in Australia who can drive wage growth are employers and the only way they can do that is by giving people pay raises.
The abandonment of what was once called “central wage setting” and the deregulation of the labor market over the past 30 years was intended to give employers the responsibility to decide how much they pay their employees. And guess what, by and large Australian employers have decided to increase their profits rather than raise the wages of their workers.
Just as Scott Morrison wants to see more women in parliament (but not at the expense of men) and wants to see housing affordability improve (without house prices actually falling), the prime minister is all about very much in favor of higher wage growth – but not at the expense of higher profits. Unfortunately for Australians struggling with the rising cost of living, they cannot give their children magic pudding.
Workers’ share of GDP has declined steadily since the Coalition came to power, from 53.2% in 2013 to around 50.6%. To put this drop in context, if the share of wages in GDP had remained stable since Tony Abbott came to power, Australian workers would be bringing in an additional $49 billion for their employees this year. To put that into perspective, we only spend $51 billion on the whole old age pension.
While it is the individual companies that are responsible for raising their prices and profits faster than they are raising the wages of their workers, there is no doubt that they have been encouraged by the government to coalition. Indeed, shortly after Tony Abbott won the 2013 election, his then employment minister, Eric Abetz, calling employers who offered good pay rises “weak knees,” said that: “Employers and trade unions should be encouraged to take responsibility for the cost of their transactions; not just the cost to the companies involved, but the overall cost in terms of the efficiency of our economy and the creation of opportunities for others.
“If this is not done, we risk seeing something resembling the wage explosion of the pre-agreement era.”
Although Abetz was wrong about the risks of a “wage explosion” in Australia, he was right to say that Australian employers must “take responsibility” for the impact of the low wages they offer, not only on their workers but also on the economy. a set.
As the Reserve Bank of Australia and the Treasury have made clear, weak wage growth in Australia is a major drag on the economy. The tens of billions of dollars that have been hidden from Australian workers have obviously not been spent in local shops, have not created local jobs and, in turn, have made it more difficult for some companies to offer higher salaries.
National wage growth is not an abstract concept like “consumer sentiment” or an arbitrary, self-imposed speed limit like “23.9%” – the magic number of the Coalition to Abolish the Tax-to-GDP Ratio .
Annual wage growth is simply the average rate of wage increases paid by Australia’s 2.4 million employers. Just as rainfall in Australia would be above average this year if every city had more rain than usual, the only way to drive wage growth in Australia is for employers to offer bigger pay rises than the last year.
While there is no doubt that wage growth and the share of wages in national income are at historically low levels, there is also no doubt that Scott Morrison is not about to blame employers or his government for the problem. Which means the only people to blame are the workers – kind of like blaming starving people for not eating enough.
Earlier this year, Treasurer Josh Frydenberg argued that “changing jobs allows workers to move up the ladder for better pay”. While that may sometimes be true for a tiny minority, it’s delusional for most of Australia’s 13.3 million workers looking for a pay rise.
It is true that workers have a role to play in demanding higher wages, but it is also true that three successive governments have worked tirelessly to discourage, even criminalize, workers who band together to negotiate wage increases and go on strike if they fail.
Likewise, as Australia’s largest employer, the Commonwealth government has relied heavily on freezing civil servant salaries. Needless to say, if Australia’s largest employer freezes wages, average wage growth will have to fall. Again, it’s not that complicated.
In the great whodunnit of low wage growth in Australia, big business lobbies are quick to provide alibis for why they can’t give their workers a pay rise. But while everyone seems to have an excuse, the evidence is clear: corporate profits have increased by 20% during the pandemic, the first time in Australian history that profits have increased, far exceeding wages.
Australia’s weak wage growth did not happen by accident. It’s the system that works as expected. The only question is whether politicians will continue to blame workers for their lack of bargaining power – or start trying to fix it.
Dr Richard Denniss is chief economist at the Australia Institute, an independent think tank based in Canberra. Twitter: @RDNS_TAI
