My Blog

Tag: Economics

  • 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.

  • Exit Poll: Overwhelming Majority of Australians Want Wage Growth in Line with Cost of Living

    As the Fair Work Commission prepares to announce this year’s increase in the national minimum wage, new polling data shows that the vast majority of Australians support lifting wages to keep up with rising inflation.

    The Australia Institute conducted a special exit poll, surveying a nationally representative sample of 1,424 Australians on the evening of Saturday May 21, following the federal election. Among other questions, the survey asked about voters’ attitudes towards cost of living and low wage growth.

    Key Findings:

    • An overwhelming majority of Australians (83%) support wage increases that keep up with cost of living, only 10% disagree.
      • Strong support for boosting wages to keep up with inflation was expressed across all voting intentions (Coalition 79% agree, 13% disagree; Labor 88% agree, 8% disagree; Greens 83% agree, 11% disagree; PHON 70% agree, 14% disagree; IND/other 84% agree, 7% disagree.)
    • In this context, criticism directed at Mr. Albanese during the election campaign for agreeing that wage increases should keep pace with inflation more likely hurt the Coalition campaign, not the Labor leader.
      • 39% of respondents felt Labor was best placed to address the issues of wages and the cost of living, compared to 26% who felt the Coalition had the stronger position.
    • Almost two in three Australians (65%) believe their nominal incomes have lagged behind inflation in the past year.
      • Regarding what can be done to ameliorate this problem, Australians were evenly divided: about half of respondents believe government policies can significantly alter the course of wage growth, while the other half do not.

    “Our research shows that while conservative commentators might be alarmed at the idea that wages should increase as fast as prices, among the voting public the idea seems reasonable and fair,” said Dr Jim Stanford, Economist and Director of the Centre for Future Work.

    “There is no economic basis for the view that wages keeping up with inflation will only cause further inflation. The current cost of living crisis is clearly due to factors (like supply chain disruptions and global energy prices) that have nothing to do with Australian wages.

    “Unit labour costs in Australia are falling, not increasing. Workers should not be punished further with falling real wages for a problem they did not create.

    “Wages can and should keep pace with rising prices to protect the real living standards of Australian workers, while the true causes of inflation are addressed.”

    The post Exit Poll: Overwhelming Majority of Australians Want Wage Growth in Line with Cost of Living appeared first on The Australia Institute's Centre for Future Work.

  • Wages, Prices and the Federal Election

    The recent federal election featured important debate regarding the rising cost of living in Australia, and whether and how wages should be boosted to keep up with higher prices. One exchange, late in the campaign, occurred when ALP leader Anthony Albanese stated his belief that wages should keep up with prices — but then was strongly criticised for that view by Coalition leaders and some business commentators.

    New exit poll results from the Australia Institute indicate that a very strong majority of voters (83%) in fact support the idea that wages should at least keep up with prices. This opinion was shared broadly across the political spectrum. Even 79% of Coalition voters supported lifting wages to at least keep up with inflation.

    It seems likely, therefore, that this debate over wages and prices worked to the advantage of Mr Albanese. The exit poll indicated that voters identified the ALP, by a large margin, as having enunciated the best position on the problems of wages and the rising cost of living. 39% of voters (including 11% of Coalition voters) indicated the ALP had the strongest position on this issue, compared to 26% who thought the Coalition had the best policy.

    The post Wages, Prices and the Federal Election 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.

  • Enterprise Bargaining System no Longer Fit for Purpose

    The new Commonwealth government has pledged to find ways to strengthen collective bargaining. In this feature interview with the ABC’s national economics program The Business, Senior Economist Alison Pennington discusses the reasons why the current system is not working, and some of the reforms that will be required to support bargaining and lift wages.

    Alison Pennington on ABC

    The post Enterprise Bargaining System no Longer Fit for Purpose 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.

  • Joseph E. Stiglitz Australian Speaking Tour: July 2022

    Nobel Laureate, former World Bank Chief Economist, and best-selling author Professor Joseph E. Stiglitz will visit Australia in July 2022 to discuss the need to expand the role of governments, unions, and civil society.

    The tour, hosted by the Australia Institute, will see Professor Stiglitz speak at a wide range of events for the general public, policymakers, unions, civil society, investors and philanthropists.

    “Professor Joseph Stiglitz is not only one of the world’s leading intellectuals and policy advisers, he has a unique ability to translate complex economic issues into language that both engages and informs, something essential for our democracy to flourish,” said Ben Oquist, executive director of the Australia Institute.

    “The Australia Institute is delighted to host such a guest at such an important time in Australia’s economic policy debates. The essential and expanding role for government in driving economic prosperity is too little discussed. We hope this tour can help address that deficit.”

    Professor Stiglitz will visit Sydney, Hobart, Canberra, and Melbourne in July 2022

    The post Joseph E. Stiglitz Australian Speaking Tour: July 2022 ‘The Role of Government in the Modern Economy’ appeared first on The Australia Institute's Centre for Future Work.

  • Unemployment Rate Does Not Tell the Whole Story

    In this commentary, CFW Associate Dr Anis Chowdhury explains why a lower unemployment rate, on its own, is not a solution to Australia’s labour market and social challenges.

    Don’t Be Fooled: A Lower Unemployment Rate is Not a Magic Bullet

    Two days before the federal election, comes news that Australia’s unemployment rate had slipped below 4% in March, to 3.9% – the lowest rate in 48 years.

    But this aggregate number hides some hard realities for struggling vulnerable people. For example, the youth unemployment rate increased to 8.8%. About 3 million Australian workers lack basic job security. That includes some 2.4 million workers in casual positions, with no paid leave entitlements. A further 500,000 are on fixed-term contracts. A survey by PwC found that anxiety about the economic future intensified due to the pandemic. Some 56% of Australians now believe few people will have stable, long-term employment in the future (more than two years).

    Meanwhile, the labour force participation rate decreased to 66.3% in March as workers continue to suffer from the pandemic’s scars – including mental health challenges and long COVID’s debilitating health issues. So this apparent labour market tightening is misleading: it is mainly due to this decline in the participation rate, as well as pandemic restrictions on migrant workers (including students and seasonal travellers) which have sharply constrained the size of Australia’s labour force.

    Most telling, Australia’s recent falling unemployment rate is having little effect on wages growth; wages grew 2.4% in the year to March, up only marginally on the 2.3% from the previous reading; and less than half the 5.1% rate of inflation.

    Rising interest rates will now deliver a further blow to the living conditions of ordinary citizens as they struggle to service their debts. With household debt equal to about 120% of annual GDP, Australian households are among the most indebted in the world. As the Reserve Bank is poised to raise interest rates further, Andrew McKellar of the Australian Chamber of Commerce has warned that Australians “have to be very careful”; interest rate hikes are “set to affect Australian businesses nationwide across a number of sectors”.

    So it’s not being alarmist to warn that a recession could be just around the corner: one that would see unemployment rising alongside inflation. The Reserve Bank has little control over the factors (mainly global supply chain disruptions, and rising food and fuel prices) that have led the current cost-of-living inflation. Past history suggests that central banks’ efforts to disinflate the economy produce slower growth, higher unemployment, and often recessions.

    Address the deeper malaises

    No matter who wins the current federal election, the incoming government will have to tackle deeper malaises in the Australian economy. They include stagnating productivity growth and the falling labour income share in GDP.

    Australia’s aggregate labour productivity growth (real output per hour) has stayed mainly in a band between 1.2 and 2.5% per year during the last 50 years; it fell to 0.2% during 2018-2019, but has rebounded since the pandemic (averaging 2% per year from end-2019 through end-2021). Productivity growth is a key source of long term economic and income growth, and as such, is an important determinant of a country’s average living standards. Productivity gains also drive down the cost of goods and services and enhance international competitiveness.

    The impact of productivity growth on standards of living has been undermined, however, by capital’s capture of productivity gains. Real wages have grown much more slowly than real labour productivity (and now, with surging inflation, real wages are falling rapidly). Thus, labour income’s share in Australia steadily declined from the peak of around 58.5% in the mid-1970s to a record low of 46% of GDP at end-2021, as the gap between productivity growth and real wage growth widened.

    Among many factors, wage-suppressing policies and increased job insecurity have contributed to this dismal outcome. More than half of Australian participants in the PwC survey (61%) felt the government should act to protect jobs, with that opinion more acute among 18-34 year-olds (63%) than those over 65 (50%).

    Both the Reserve Bank of Australia and Treasury have made clear, Australia’s low wage growth is a major drag on the economy. But low wage growth was not accidental; the former Coalition Finance Minister, Matthias Cormann, now OECD Secretary-General, described (downward) flexibility in the rate of wage growth as “a deliberate design feature of our economic architecture”.

    Looking after workers is good economic policy

    Coalition leaders attacked Labor leader Albanese’s support for raising the minimum wage, claiming without evidence that a big increase in the minimum wage might force some workplaces to close. The business lobbies also joined the chorus.

    But is this opposition to higher wages grounded in good economics? The available historical evidence, as well as theoretical considerations, say: “no”.

    Robert Bosch, the German industrialist, engineer and inventor, founder of Robert Bosch GmbH (electrical co), introduced 8-hour working days in 1906, free Saturdays in 1910, and other benefits for his workers. He said: “I don’t pay good wages because I have a lot of money; I have a lot of money because I pay good wages.”

    Henry Ford, the American industrialist, the founder of the Ford Motor Company, and developer of the assembly line, doubled the pay of his workers to $5 a day in 1914. In justifying his decision he said: “Of course the higher wage drew a more productive worker. But that wasn’t the real reason. The fact was, it was no good mass-producing a cheap automobile if there weren’t masses of workers and farmers who could afford to buy it.”

    Both Bosch and Ford realised that better pay and working conditions attract better workers and raise their productivity. They also knew that better pay and working conditions also lead to higher sales and revenues. Therefore, overall profit rises despite a higher labour cost. It is no wonder that both their companies not only survived but also became leading global companies.

    Singapore, which began its industrialisation by initially taking advantage of cheap labour, has used a deliberate high-wage policy since the early 1980s to move toward high value-added activities. It thus maintained its dynamism not by cutting wages and working conditions, but by incentivising companies (in part through higher wages) to upgrade skills and technology, and hence improve productivity.

    In other words, regular upward adjustment of wages can be an effective industry policy tool for accelerating innovation, upgrading, and productivity. Hence, higher wages and better working conditions do not necessarily cause loss of competitiveness in the international market.

    Industry-wide bargaining can boost productivity and real wages

    More than half a century ago two leading Australian academics – WEG Salter and Eric Russel – argued for tying wage increases in any industry to productivity trends across the whole industry, through a system of industry-wide bargaining. By adhering to industry-wide average productivity-based wage increases, they argued, industry bargaining raises relative unit labour costs of firms with below-industry-average productivity, thereby forcing them to improve their productivity or else exit the industry. At the same time, firms with above-industry-average productivity enjoy lower unit labour costs, hence higher profit rates for reinvestment – favouring the growth of more efficient firms. As mentioned earlier, Singapore used this approach to restructure its industry in the 1980s towards higher value-added activities, with great success.

    In contrast, trying to compete on the basis of low wages is a recipe for failure. Low-wage countries typically demonstrate lower productivity; and research by a leading French economist, Edmond Malinvaud, showed that a reduction in wage rates has a depressing effect on capital intensity.

    Salter’s research implies that the availability of a growing pool of low paid workers makes firms complacent with regard to innovation and technological or skill upgrading. Under-paid labour provides a way for inefficient producers and obsolete technologies to survive. Firms become caught in a low-level productivity trap from which they have little incentive to escape – a form of ‘Gresham’s Law,’ whereby bad labour standards drive out good. The discipline imposed on all firms as a result of negotiated industry-wide wage increases forces all of them to innovate and become more efficient.

    Need wide-ranging policy shifts

    Of course, industry-wide bargaining alone cannot solve all the problems of wage inequity or wage stagnation. It must be part of a broader suite of policy measures, to provide all-round support for greater equality and inclusive prosperity.

    For example, the next government should also address the system that produces sky-rocketing executive pay at the expense of workers. The annual CEO pay survey shows a drastic jump of an average of 24% during the pandemic, with annual bonuses soaring by 67% – the highest increase in recent record, while workers are suffering real income losses.

    A lower marginal tax rate is one of the incentives for the executives to pay themselves heftily, but tax cuts are not found to boost growth or employment. Share options for CEOs, which encourage job cuts and discourage re-investment, also must be reined in.

    If anything is making the Australian economy vulnerable, it is the growing economic disparity between self-serving executive compensation and stagnant wages for the rest of the population.

    The post Unemployment Rate Does Not Tell the Whole Story appeared first on The Australia Institute's Centre for Future Work.

  • More Resources on Australia’s Wages Crisis

    Our Centre continues to develop resources documenting the dimensions and causes of declining real wages, and countering the claim that trying to protect real living standards (by boosting wages at least as fast as inflation) will somehow cause hyperinflation and economic ruin.

    Our new landmark report, The Wages Crisis: Revisited, provides comprehensive data on the scale of Australia’s wage slowdown – which began in earnest around 2013. Even after the dramatic events of the COVID-19 pandemic, and the surprising decline in the official unemployment rate (now slightly below 4%), wage growth has only regained the same sluggish pace demonstrated for several years before COVID. And with consumer price inflation accelerating, weak nominal wage growth is now corresponding to major erosion in real wages.

    The three authors of that report – Prof Andrew Stewart from the Adelaide Law School, Assoc Prof Tess Hardy from Melbourne Law School, and the Centre for Future Work’s Director Jim Stanford – participated in a webinar hosted by our colleagues at the Australia Institute. They reviewed the main findings of the report, and answered several questions from the audience about the wages crisis and possible solutions. The webinar was hosted by Ebony Bennett, Deputy Director of the Australia Institute.

    Our team has also been working to analyse the implications of the latest wages data for real incomes, macroeconomic performance – and the federal election, in which wages have emerged as a major point of contention. Please see the following analysis from our team:

    Our team will continue to research the dimension, causes, consequences, and potential solutions to the worsening wages crisis in the coming weeks — no matter who wins Saturday’s election!

    The post More Resources on Australia’s Wages Crisis appeared first on The Australia Institute's Centre for Future Work.

  • Webinar: Changes to the SCHADS Award and Next Steps to Improve Job Quality

    We recently hosted a special webinar to discuss the Commission’s changes, their significance, and what comes next in the struggle to improve and properly value work in human services.

    The webinar featured two representatives from the Australian Services Union, which was centrally involved in the campaign for these changes: Emeline Gaske, Assistant National Secretary for the ASU, and Michael Robson, National Industrial Coordinator. They reviewed the economic and policy context for the review, the specific changes that have been announced, how they will be implemented, and the next steps in lifting the quality of work in these vital sectors. The conversation was chaired by our Policy Director for Industrial and Social issues, Dr. Fiona Macdonald.

    The post Webinar: Changes to the SCHADS Award and Next Steps to Improve Job Quality in Human Services appeared first on The Australia Institute's Centre for Future Work.