There’s a huge and growing divide in Australia over economic policy on wages and jobs, and it’s going to determine the country’s economic trajectory for the next few years. And there’s a very great deal of nonsense being peddled about it by interested parties.
Australia’s jobs market is now booming — both because of Australia’s success in handling the pandemic and massive fiscal stimulus, and because we’ve cut off the supply of temporary labour to employers by closing our borders. Hundreds of thousands of foreign students, temporary visa workers and working holidaymakers are no longer here to put downward pressure on wages in the occupations they tend to work in: retail; hospitality; care services; agriculture.
Yesterday’s May jobs data saw unemployment fall to pre-pandemic levels, at 5.1%, after 115,000 new jobs were created and participation rose to 66.2%. Participation has completely recovered from the recession collapse of 2020 and is now back in record territory, led by female participation.
But this great news for Australia leaves employer groups with a dilemma, because they’ve been insistent this week that they can’t afford the 2.5% minimum wage increase the Fair Work Commission (FWC) decided in its annual wage review, saying it will kill off jobs growth. Employers are simply refusing to pay their workers more despite complaining about skill shortages.
Reserve Bank governor Philip Lowe explained why in a speech in Toowoomba yesterday, noting that despite strong jobs growth, wages weren’t shifting. “It is noteworthy that even in those pockets where firms are finding it hardest to hire workers, wage increases are mostly modest,” he said. “There are some exceptions to this, but they are fairly isolated.”
Most businesses feel they are operating in a very competitive marketplace and that they have little ability to raise prices. As a result, there is understandably a laser-like focus on costs: if profits can’t be increased by expanding or by raising prices, then it has to be achieved by lowering costs. This has become the predominant mindset of many businesses. This mindset can be helpful in making businesses more efficient, but it also has the effect of making wages and prices less responsive to economic conditions.
This mindset became entrenched during the resources boom when the exchange rate appreciated very significantly. When one Australian dollar was worth more than one US dollar, many Australian businesses felt that their Australian dollar cost structure was simply too high. You might recall that through this period many businesses were saying that Australian costs, including labour costs, were leaving them uncompetitive. This experience has left a lasting imprint on many businesses and it has reinforced the narrative about the importance of cost control.
And it is wages growth that the RBA is focused on in its assessment of when it will start lifting interest rates. Jobs growth is just a means to that end. Lowe sees a “predominant mindset” in business as getting in the way of achieving that goal.
But the dollar hasn’t been above parity for many years; no treasurer has had to grapple with the challenge of managing an economy with a super-strong Australian dollar since Wayne Swan. Instead, the “laser-like focus” on costs has fed into much bigger profits. The March national accounts showed the wages share of national income at record lows for the past year (and dipping under a 50% share for the first time ever) and the profits share at all time highs — a situation that has been evolving since 2012.
Breaking this self-serving mindset is something the RBA continues to deal with. It won’t get much help from the government, business or its media cheerleaders. A truly idiotic editorial in The Australian Financial Review yesterday argued that Australians are still overpaid and any wage rises are unaffordable and “premature”. Of course, for employer groups and the AFR, wage rises are always unaffordable and premature — which is why employer groups were denouncing a modest 2.5% minimum wage rise in the middle of a jobs boom.
It’s not all business: despite the FWC foolishly giving some sectors, such as retail, a three-month delay in the wage rise, Woolworths yesterday said it will be passing on the wage rise to all of its 115,000 employees in its supermarkets and Big W chains straight away.
But for many other businesses, and major employer groups, the answer isn’t paying workers more to attract and retain them, but to demand that temporary workers be allowed back in immediately, COVID or not. The federal government would be happy to accommodate them except that it understands the electoral benefits of closed borders. But that didn’t stop them announcing a new visa this week for workers from low-income countries in our region to work in the exploitative horticulture industry.
It’s a small preview of an interesting political and policy problem that will arise next year: just when wages growth has picked up and Australians — hopefully — can see the prospect of decent wage rises for the first time in a decade, will the government be willing to allow in hundreds of thousands of temporary workers with the aim of restoring wage stagnation? Especially when they know the Reserve Bank’s view of when the time will be right to lift interest rates.
“Employers are simply refusing to pay their workers more despite complaining about skill shortages.”
Where are the free-market proponents blithely referring to the laws of supply and demand on this? Instead we get rhetoric about needing to make life on Welfare even more intolerable and punishing the poor for not uprooting their lives to move to the middle of nowhere to work in industries notorious for exploitation.
Free markets are only for other people. Business people and their political and media allies believe in “free markets” – until they don’t.
No robodebt for farmers though, they get to keep their ‘underestimation’ of income……
Looks to me like employer’s main – disguised – gripe, is that they “can’t find enough workers prepared to work for the minimal wages, to be bullied and pushed around, stood over, short-changed and ‘robbed’ of entitlements” that those employers are prepared to bestow – leaving more to engorge their profits.
“The poor put-upon tourism industry” – crying out for sympathy? Try getting a plane/train to somewhere like Cairns (eg to attend a funeral?), where fares aren’t inflated, where car rental isn’t hyperinflated and where accommodation isn’t super-heated – where they look like they’re trying to make up for the last few month’s lost revenue, by gouging those of us that would like to get-away and support “tourism” …. if it wasn’t so bloody expensive.
We should ignore their self-interested bleating.
As others have pointed out elsewhere, a load of people lost their jobs – airline workers, university workers, hospitality workers. The jobs recovery is illusory, sustained by a venal definition of employment. The conversation really needs to be about the kind of economy the country, not the wealthy, needs going forward and a number of good proposals were put on the table last year but here we are, back in the meaningless halls of jobsngrowth, the lies over a gaslighted recovery, that mythical new powerstation at Kurri Kurri, more shovelling of pork. The govt, steering to an election between steaming mounds of exploding manure, might find this too tricky for its own subterfuges. But only if enough people get their arses onto the streets demanding a fair wage in a secure job, as MMT suggests is perfectly doable, after breaking through the mirror world of neoliberals.
Good to see Dr Philip Lowe finally standing up to Business. Business has been having their cake and eating it too for far too long. Governments of both stripes but mainly right-wing have fallen all over themselves trying to keep Business onside, got to keep those donations coming in.
I expect the Murdoch stables will start a negative campaign against Dr Lowe in 3 2 1.
This government has adopted a purely US approach to politics, particularly economics, having the reserve bank question their approach must be annoying, can’t they just privatise it?
The reserve bank also has dirt on its hands though, why don’t they just come out and say that skyrocketing house prices is mega inflation, they tippy toe around it, and why isn’t Labor doing the same?
NewsCorpse just ignores the public service if it doesn’t like what it says, but they must be backgrounding the governor like crazy, calling him a lefty commo just doesn’t quite stick.
But…The AustralianFinancial Review yesterday argued that Australians are still overpaid and any wage rises are unaffordable and “premature”….well that is just gold.
The Nationals now seem to be more supportive of large agri business, big supply chains like Wesfarmers and mining more than anyone working in a country town. Small farmers need a party that supports them and stops the squeeze. The Nationals approach is to increasingly drive a wedge between country/ city dwellers when it is their own sponsors that are doing the damage.
If the all powerful election sponsors won’t allow wage rise, why doesn’t the government simply allow people to top up unemployment payments with work, you know so it is possible to save rather than go backwards ?
Buried deep in the economic outcomes will be proof that paying the unemployed double actually stimulates the economy and has no adverse effects, add tax free thresholds to farm labour, add unemployment or low pay benefits to the wage and watch country towns boom.
Tiny wage increases don’t cut it.
I bet the “journos” at the AFR are paid a lot more than then minimum wage and get decent pay rises every year.
And none of them are worth even close to what they are paid – a bunch of clowns.
“why doesn’t the government simply allow people to top up unemployment payments with work, you know so it is possible to save rather than go backwards ?”
They do.
Many welfare recipients also have employment, sometimes only a few hours per week.
But there is a threshold after which the benefits are reduced in accordance with how much was earned.
The point is that the threshold is too low, and anything over just removes the jobseeker payment quickly., and that farmers don’t want aussie workers because of cost.. and they often know their rights for that matter.