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Author: Greg Jericho

  • Will curing inflation cause a recession?

    Labour market and fiscal policy director, Greg Jericho writes in Guardian Australia that the rising level of inflation, which combined with low wages growth has led to massive falls in real wages, has many Australians wondering if increasing interest rates is going bring the economy to a halt.

    He writes that for now a recession is unlikely, but the risks remain. Previous periods of sharply increasing rates have been followed by rising unemployment, and the current market expectations for the cash rate rising above 3.5% within a year would certainly create a massive brake on the economy.

    The story from overseas is also worrying, with the United States battling even higher inflation than Australia and suggestions that the market is already pricing in a recession.

    It all highlights that while today’s labour force figures are on the surface very promising, they also show just how affected the economy continues to be by the pandemic. Nearly 300,000 employed in June worked zero hours because of sickness or injury – well over double the usual amount.

    The nearly 50-year low unemployment rates are also failing to lead to wages growth anywhere near what would have been expected in previous years, let alone at a level that is keeping up with inflation.

    While inflationary pressure do remain, the risk that the Reserve Bank will raise rates too high and too fast remains very much in place – especially given the lack of wages growth.

    The post Will “curing” inflation cause a recession? appeared first on The Australia Institute's Centre for Future Work.

  • Employer Arguments Against Minimum Wage Boost Don’t Hold Water

    Even with this new increase, however, real wages for the lowest-paid Australian workers are likely to go backwards this year, with inflation pegged to accelerate to as much as 7%. Nevertheless, Australia’s business lobby are repeating tired old complaints about minimum wages being too high, stoking further inflation, and undermining profits.

    In his latest commentary, published in The Guardian, Policy Director Greg Jericho reviews and debunks these predictable complaints. The evidence is clear that wages are not causing inflation. Profit margins have grown along with prices. Workers deserve to have their real incomes protected, as the true sources of the problem (arising mostly from after-effects of the pandemic and the global energy price shock) are addressed.

    Please see Greg’s full column, “Workers and their wages are the collateral damage of the war on inflation.”

    The post Employer Arguments Against Minimum Wage Boost Don’t Hold Water appeared first on The Australia Institute's Centre for Future Work.

  • The recovery needs to deliver for workers

    As we now enter a phase where the Reserve Bank is raising interest rates in an effort to reduce demand in the economy and keep down inflation and prices and wages, labour market policy director, Greg Jericho, notes in his Guardian Australia column that workers risk seeing their real wages continue to fall.

    It is clear that the major pressures for inflation have come not from labour costs but from the input costs of goods and material. While these costs have been passed on to consumers, there has been much less flow through to workers.

    While the Reserve Bank notes that there are some signs of rising wages, these will inevitably be reduced due to the impacts of rising interest rates.

    After a year in which real wages have plummeted, the recovery is very much looking like one where company profits have risen, but where workers will miss out on wage growth that would undo the damage of the past year.

    The post The recovery needs to deliver for workers appeared first on The Australia Institute's Centre for Future Work.

  • GDP figures show workers are losing out

    The national accounts released on Wednesday revealed that in the first 3 months of 2022 a record level of national income is going to corporate profits. At the same time real unit labour costs for non-farm workers fell 2.3%. Labour market and fiscal policy director, Greg Jericho, notes in his column in Guardian Australia that real (non-farm) unit labour costs are now 5.3% below where they were before the pandemic.

    This data provides a strong fact check to arguments that workers need to take a pay cut to prevent rising inflation. The increase in inflation is not coming from labour costs, indeed workers are feeling the pain while in the words of the Bureau of Statistics, “Australian businesses benefited from rising prices.”

    The GDP figures reveal that far from needing workers to be the ones who need to shoulder the burden of rising inflation, they clearly already have been the ones who have hurt the most. Asking them to continue to take real wage cuts will not help the economy, it will only exacerbate the shift of income going to profits and not to employees.

    The post GDP figures show workers are losing out appeared first on The Australia Institute's Centre for Future Work.

  • Real wages plummet and will take years to recover

    Labour market policy director, Greg Jericho notes in his Guardian Australia column that the fall in real wages has been the worst since the introduction of the GST and in the first 3 months of this year real wages fell 1.5%.

    So steep has been the fall that real wages are now back essentially to where they were at the time of the September 2013 election.

    The fall highlights that talk about Australia having recovered from the pandemic ignores the most basic aspect of the economy – the living standards of workers from their wages.

    The fall is such that even with the RBA’s estimates of solid wage growth recovery over the next two years, should Australia return to pre-pandemic trend real wages growth, it would take till 2031 to recover workers purchasing power back to the levels of 2020.

    That would we a lost decade of living standards.

    The post Real wages plummet and will take years to recover appeared first on The Australia Institute's Centre for Future Work.

  • To really address housing affordability we need to think differently

    The problem is that for many decades, housing policies have overwhelmingly been geared toward increasing demand within the private-sector housing market. This has only served to pump prices and make it harder for first-home buyers to enter the market, and also increasing the age that people are buying their first home.

    Policy Director, Greg Jericho, writes in a column for Guardian Australia, that we need to instead focus on the supply side – increasing the stock of housing – and we also need to be bold enough to look outside the typical private-sector model.

    The Australia Institute’s Nordic Policy Centre has proposed a number of measures that have been pursued in Norway, Sweden and Finland that show the solution to housing affordability is not about creating tax distortions that benefit homeowners or which serve only to transfer money from low-income people to the wealthy, but instead treats housing as a need rather than just a wealth-building asset.

    After decades of failure, the solution to housing affordability needs to be something other than more policies designed to lift housing prices.

    The post To really address housing affordability we need to think differently appeared first on The Australia Institute's Centre for Future Work.

  • Real wages should rise – anything else means declining living standards

    Labour market policy director, Greg Jericho, in his column in Guardian Australia, however notes that wages should grow faster than inflation, and so long as real wages are not outpacing productivity growth then such rises are not exerting any inflationary pressure. He also shows that given the recent estimates for inflation by the Reserve Bank, a 5.1% increase would not be enough to prevent the minimum wage falling in real terms over the next financial year.

    The problem is not that wages have been fuelling inflation, but that for the past 20 years real wages have risen slower than productivity.

    We need to change the debate from a reflex that assumes low wages is the ideal to realising that given workers are the economy they should be rewarded fairly for their efforts and improvements in productivity.

    You cannot say the economy is healthy if real wages are falling, and most certainly not if the lowest paid in Australia are seeing their living standards decline.

    The post Real wages should rise – anything else means declining living standards appeared first on The Australia Institute's Centre for Future Work.

  • Why commentary that wages growing in line with inflation will drive up inflation is completely misguided

    Today the opposition leader, Anthony Albanese was asked about wages in the following exchange:

    Journalist: “You said that you don’t want people to go backwards. Does that mean that you would support a wage hike of 5.1% just to keep up with inflation?

    Anthony Albanese: “Absolutely”.

    Any other response would be to suggest that real wages – and thus people’s ability to purchase goods and services with the money they earn – should decline.

    The suggestion that wages rising in line with inflation or even marginally above inflation will increase inflation in a “return to the 1970s” wage spiral ignores basic economics and the advice of the Treasury department.

    Real wages should rise – and unless they are outpacing productivity there is no case to be made that they are driving inflation.

    This very point was made in February by the Secretary of the Treasury, Steven Kennedy when he noted

    “if we can achieve productivity growth of 1.5 per cent, then nominal wages [assuming inflation of 2.5 per cent] can grow at four per cent and put no pressure on inflation”[i].

    The problem is not that wages are growing too fast, but that over the past 3 years they have not kept pace with inflation and productivity growth.

    From June 2019 to the end of 2021 inflation has increased 5.7% and productivity has grown by 4.5%. And yet rather than wages growth being equal to the sum of those two measures, nominal wages in that period increased just 4.8%, and real wages have fallen 0.8%. Real wages have thus declined, while real labour productivity increased.

    The evidence is clear that wages did not cause the current surge in inflation. There is no reason to believe that suppressing wages will cause inflation to moderate. Asking workers to accept a permanent reduction in their real living standards to fight inflation that they did not cause is neither fair nor economically sensible.

    The Reserve Bank has rightly suggested that it will keep an eye on labour costs, however it should be noted that in the 12 months to March while the Consumer Price Index grew 5.1%, the Producer Price Index, which measures the inflation of input costs, rose 4.9%, and nominal unit labour costs grew just 4.0%. This confirms that inflation is not being driven by labour costs.

    Moreover, Non-farm, Real Unit Labour Costs are now 3.1% below their pre-pandemic level of December 2019.

    That decline is even faster than the long-term trend.

    Real unit labour costs index (non-farm)

    A fall in real wages will only continue the transfer of national income from workers to corporate profits – something which also occurred when inflation was falling. Workers were told then to accept lower wages growth (and also public-sector wage caps) because inflation was low. Now they are being told to accept lower wages because inflation is high – and for no fault of their own.

    [i] Economics Legislation Committee, 16 February 2022.

    The post Why commentary that wages growing in line with inflation will drive up inflation is completely misguided appeared first on The Australia Institute's Centre for Future Work.

  • Rate rises are going to cause a housing affordability crunch

    But that is about to change.

    The signal that interest rates are going to rise by possibly 2.5% points over the next 18 months means that for new mortgage holders the cost of repaying a mortgage is going to be harder than ever before – harder even than when interest rates hit 17% in 1990.

    It is a hit that will only exacerbate standard of living problems as wages will struggle to keep up with the rising cost of of holding a mortgage – especially given the belief that wage rises need to be contained below inflation rises continues in economic debate.

    The post Rate rises are going to cause a housing affordability crunch appeared first on The Australia Institute's Centre for Future Work.

  • High inflation means real wages have plummeted

    Labour market policy director, Greg Jericho, notes in his column in Guardian Australia that even if wages have increased by 2.5% in the next release (up from 2.3% in the 12 months to December) real wages will have fallen 2.5% in the past 12 months.

    That would mean real wages would be back at 2014 levels and barely above where they were when the LNP took office in September 2013.

    Worse still for low-income earners, in the past 12 months the prices of non-discretionary items rose 6.6%. For those whose income goes more towards paying essential bills than does the average household, the pain of these price rises has been much higher. Their real wages have likely fallen by more than 3% in the past 12 months.

    This is why any gloating about a recovery from the pandemic must be tempered to consider the reality of workers’ lives. It is not enough to point to lower unemployment if real wages are falling faster than they ever have outside of the introduction of the GST – especially for lower income earners.

    That is not a recovery; that is a failure.

    With interest rate rises now very much on the way, without wage rises that account for inflation and properly reward for increases in productivity, workers standard of living is set to fall and see them back where they were nearly a decade ago.

    The post High inflation means real wages have plummeted appeared first on The Australia Institute's Centre for Future Work.