The head of our central bank is now on record bemoaning business’s lack of action on wage growth
It
is becoming harder to deny that without changes to our industrial
relations system, low wage growth will remain locked in. After the fight
over tax, this should be the main focus of the next election campaign
given even the head of the Reserve Bank, Philip Lowe, concedes the
evidence is “pretty compelling” that changes in industrial relations
designed to bring greater flexibility and less centralisation have
contributed to our current state of record low wages growth.
This week, Lowe noted, while in Portugal at a forum for central bankers, that “the relationship between wages and unemployment looks to have changed” – historically the current level of unemployment should see us having wage growth about 3.7% instead of the current rate of 2.1%.
It has now been more than five years since private sector wages in Australia grew on average by more than 3%. And this is not good for the economy.
Lowe noted with concern that “a 2% wage norm has become the standard in Australia” despite the fact “we’re getting reasonable labour productivity growth”. As a result, he has been “talking publicly quite a lot about trying to lift wage norms back to where they start with a three rather than a two”.
But the one crucial thing about wage rises is that businesses will always resist giving them even if they know they are in the interests of the economy.
Lowe might be pushing for higher wages, but he is not meeting with much success because, he notes, business owners “agree in principle that the country would be better off having wage growth of a three-point-something than a two-point-something, but not in their business!”
Businesses resist not because of low productivity growth – but because they claim to be worried about international competition and also because “the changes in the industrial relations landscape” have ensured they are able to resist even when there is low unemployment.
Lowe referenced a paper delivered at the forum on productivity, wage growth and unions, of which he said “the evidence is pretty compelling – changes in industrial relations arrangements in Germany have affected wage and employment outcomes and the Australian experience is very similar to the German one. It’s hard to escape the conclusion that changes in industrial relations has changed the inflation process.”
Less bargaining power means less ability to get better wage rises. The paper Lowe referenced found that over the past 20 years productivity grew by similar amounts in France and Germany, but unlike in France, in Germany – with its much more decentralised industrial relations system – “wages largely stagnated (until 2008) and inequality increased (until 2010)”.
Germany did see lower unemployment than France and yet from 1995 to 2007 the German “real median wage barely showed any improvements”.
It’s a situation that resonates very much with what Australia is experiencing.
The bad news is that Lowe thinks the current situation of low wages growth is likely to stay in place for some time.
He noted that “the inflation rate has been below the mid-point of our target for some years and it’s going to stay that way. I think wage growth has repeatedly surprised on the downside. The current rate of wage growth isn’t consistent with us achieving our inflation target on a sustained basis.”
We have a situation where the power in industrial relations has been skewed for 20 to 30 years towards employers and is now coupled with greater globalisation, where, as Lowe notes, there are “increased perceptions of competition.” He notes how business services, which in the past were assumed necessary to be done in Australia, are now “now supplied in Manila or in Chengdu or Bangalore”.
Added into the mix is the fact that the changed industrial relations landscape has led to an increase in flexibility at a time when older workers are staying in the labour force longer than in the past because of the ability to work part-time and because “our bodies are lasting longer as we’re working in services and not manufacturing”.
It makes for a pretty potent recipe that is a killer for wages growth.
The old rules of seeking to improve productivity to improve wages growth – one of the main justifications by the government for its company tax policy – is no longer holding up.
Lowe at no stage bemoaned our productivity growth but he did worry that his pleading for higher wages growth was largely going unheeded by businesses. And that is a pretty startling admission, given his argument that higher wages growth would be better for our economy.
It means the head of our central bank is on record as saying businesses are resisting doing something that would benefit our economy. At such a point, surely we need to realise that a hands-off industrial relations system is not in the best interest of households, let alone the economy.
It is clear that maintaining the status quo – or advocating even more flexibility, as was suggested by Queensland Liberal party senator Amanda Stoker in her maiden speech this week – will not see wages growth improve.
The time is ripe for a more activist approach to industrial relations, and a big fight on the issue at the next election.
This week, Lowe noted, while in Portugal at a forum for central bankers, that “the relationship between wages and unemployment looks to have changed” – historically the current level of unemployment should see us having wage growth about 3.7% instead of the current rate of 2.1%.
It has now been more than five years since private sector wages in Australia grew on average by more than 3%. And this is not good for the economy.
Lowe noted with concern that “a 2% wage norm has become the standard in Australia” despite the fact “we’re getting reasonable labour productivity growth”. As a result, he has been “talking publicly quite a lot about trying to lift wage norms back to where they start with a three rather than a two”.
But the one crucial thing about wage rises is that businesses will always resist giving them even if they know they are in the interests of the economy.
Lowe might be pushing for higher wages, but he is not meeting with much success because, he notes, business owners “agree in principle that the country would be better off having wage growth of a three-point-something than a two-point-something, but not in their business!”
Businesses resist not because of low productivity growth – but because they claim to be worried about international competition and also because “the changes in the industrial relations landscape” have ensured they are able to resist even when there is low unemployment.
Lowe referenced a paper delivered at the forum on productivity, wage growth and unions, of which he said “the evidence is pretty compelling – changes in industrial relations arrangements in Germany have affected wage and employment outcomes and the Australian experience is very similar to the German one. It’s hard to escape the conclusion that changes in industrial relations has changed the inflation process.”
Less bargaining power means less ability to get better wage rises. The paper Lowe referenced found that over the past 20 years productivity grew by similar amounts in France and Germany, but unlike in France, in Germany – with its much more decentralised industrial relations system – “wages largely stagnated (until 2008) and inequality increased (until 2010)”.
Germany did see lower unemployment than France and yet from 1995 to 2007 the German “real median wage barely showed any improvements”.
It’s a situation that resonates very much with what Australia is experiencing.
The bad news is that Lowe thinks the current situation of low wages growth is likely to stay in place for some time.
He noted that “the inflation rate has been below the mid-point of our target for some years and it’s going to stay that way. I think wage growth has repeatedly surprised on the downside. The current rate of wage growth isn’t consistent with us achieving our inflation target on a sustained basis.”
We have a situation where the power in industrial relations has been skewed for 20 to 30 years towards employers and is now coupled with greater globalisation, where, as Lowe notes, there are “increased perceptions of competition.” He notes how business services, which in the past were assumed necessary to be done in Australia, are now “now supplied in Manila or in Chengdu or Bangalore”.
Added into the mix is the fact that the changed industrial relations landscape has led to an increase in flexibility at a time when older workers are staying in the labour force longer than in the past because of the ability to work part-time and because “our bodies are lasting longer as we’re working in services and not manufacturing”.
It makes for a pretty potent recipe that is a killer for wages growth.
The old rules of seeking to improve productivity to improve wages growth – one of the main justifications by the government for its company tax policy – is no longer holding up.
Lowe at no stage bemoaned our productivity growth but he did worry that his pleading for higher wages growth was largely going unheeded by businesses. And that is a pretty startling admission, given his argument that higher wages growth would be better for our economy.
It means the head of our central bank is on record as saying businesses are resisting doing something that would benefit our economy. At such a point, surely we need to realise that a hands-off industrial relations system is not in the best interest of households, let alone the economy.
It is clear that maintaining the status quo – or advocating even more flexibility, as was suggested by Queensland Liberal party senator Amanda Stoker in her maiden speech this week – will not see wages growth improve.
The time is ripe for a more activist approach to industrial relations, and a big fight on the issue at the next election.
- Greg Jericho is a Guardian Australia columnist
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