Spare us the talk about a wages explosion. There’s nothing wrong with lifting Australia’s lowest wages in line with inflation
- Written by Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
What is it with the Coalition and wages?
When, in the final days of the 2022 election campaign, the then opposition leader Anthony Albanese backed an increase in award wages to keep pace with inflation, his opposite number in the Coalition, Prime Minister Scott Morrison called him a “loose unit”.
“He just runs off at the mouth, it’s like he just unzips his head and lets everything fall on the table,” Morrison said.
Allowing the wages of low-paid Australians to climb with inflation would
make interest rates rise even higher, it would threaten the strong growth we have had in employment, and ultimately it would force small businesses, potentially, out of business altogether.
Now, two years on, after yet another Fair Work Commission decision that lifted award wages in line with inflation, the Coalition has returned to the fray.
On Monday, Shadow Finance minister Jane Hume asked Treasury Secretary Steven Kennedy at a Senate hearing how he could support a wage increase linked to inflation at a time when productivity growth was uncertain.
She was, she said, just asking for treasury’s position.
The Fair Work Commission had just given Australia’s lowest-paid workers 3.75%.
The approach goes back some time. In 2014 the Coalition’s recently-installed industrial relations minister Eric Abetz warned of something akin to the “wages explosions” of the 1970s and early 1980s unless “weak-kneed” employers stood up to unions.
At the time, only 17% of Australian workers were members of unions, down from more than half in the early 1980s. It’s now just 12%.
Far from setting off a wages explosion, increases in award wages (those awarded by the Fair Work Commission to predominately low-paid workers) appear to barely move the dial at all.
Last year the Commission awarded low-paid workers 5.75%. In the year that followed, overall wages climbed 4.1%. The previous year the Commission awarded 5.2%. In the year that followed, overall wages climbed 3.7%.
Overall wages – those received by the three quarters of workers who aren’t paid by awards – have been climbing by less than awards, and for most of the past three years, by less than the rate of inflation.
Conditions were ripe for pay rises
It isn’t because the conditions haven’t been right. For the past two years, unemployment has been lower than it has been in the previous four decades.
From 1974 right through until 2022 unemployment never fell below 4%, and rarely fell below 5%. Yet the past two years haven’t sparked a wages explosion.
It should have been one of the easiest times in our lives to walk into a new higher-paying job, yet the share of us doing that has dived from almost 20% per year at the start of the 1990s to less than 10% today.
At the peak of what was then the biggest mining boom in a century in 2012, only 6,200 Australians were crossing the Nullarbor to live in Western Australia. Five times as many new arrivals were pouring into Western Australia from overseas.
In the past year, in the midst of a new and bigger mining boom, only a net 11,200 Australians have moved west for a better life.
Our remarkable passivity when it comes to moving to earn more and our lack of interest in joining unions has collided with a wage-setting system that for those of us not on awards makes it easy for employers to resist paying more.
Workers are finding it hard to bargain
Individual contracts are usually offered on a take-it-or-leave-it basis. Those of us not interested in leaving (most of us) take them.
Enterprise bargains typically last three years. When they expire there is nothing to stop employers stringing negotiations out or simply not commencing them, leaving their workers on so-called “zombie agreements”.
The Business Council says they can “act like a wage freeze”.
Australia’s total wage bill has been climbing much more slowly than prices. In part this is because decisions on awards, like the ones handed down this week, apply only to awards.
Awards, applying mainly to low-wage jobs, make up only 11% of the total wage bill.
Services inflation is high for other reasons
It is true, as several senators said on Monday, that inflation in the price of services is now greater than inflation in the price of goods. But Treasury Secretary Kennedy doesn’t think that’s because of excessive wage growth.
He said inflation took off as economies ran short of goods when they restarted after closing down in the first wave of COVID. Then Russia invaded Ukraine, pushing up the prices of oil and food.
Inflation in the prices of those goods has receded, but goods are an input to services. Kennedy says what’s happening to the price of services is an echo of what happened earlier to the price of goods.
It will take a while for that to flow through, and for services inflation to follow goods inflation down.
As unthreatening as the latest 3.75% increase in award wages is to inflation, it’ll be welcome to those who receive it.
The national accounts released on Wednesday are likely to show living standards as measured by GDP per person have gone backwards for four consecutive quarters, the first time that’s happened in 40 years. The extra pay will help.
Authors: Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University
