My Blog

Tag: Wages & Entitlements

  • Productivity in the Real World

    Claims that Australia faces a productivity crisis are overblown. Weak productivity didn’t cause the current problems facing Australian workers (falling real wages, high interest rates, unaffordability of essentials like housing and energy). Nor will higher productivity fix these problems.

    Faith that higher productivity will automatically trickle down, to be shared by all workers, is unfounded. Pro-active measures to lift wages and living standards are needed if stronger productivity growth is to support stronger living standards.

    This report presents empirical evidence showing that productivity growth in recent decades has not been equally reflected in higher real wages and better living standards.

    • Productivity grew four times faster since 2000 than average wages adjusted for consumer prices; it grew almost twice as fast as average wages adjusted for producer prices.
    • If workers had received wage increases since 2000 that matched productivity growth, wages would be as much as 18% higher than they are at present – worth $350 per week, or $18,000 per year.
    • Over time, the failure of wages to keep up with productivity has created a “productivity debt” effectively owed to workers, worth hundreds of thousands of dollars per worker.

    The fruits of productivity growth have been disproportionately captured in the form of business profits, dividend payouts, and executive compensation. It is only through deliberate measures to ensure productivity growth is reflected in improved compensation and conditions for workers that Australian workers can have any confidence their contributions to improved productivity will pay off in better lives. Repairing the link between productivity and mass prosperity, by strengthening the institutions of distribution and pushing wealth downward (rather than hoping it will trickle down automatically), is as important to Australia’s future productivity as any labour-saving technological breakthrough.

    The report concludes with a broad agenda of high-level policy themes that should be pursued to challenge and support Australian workplaces to become more productive – and to ensure the resulting gains are broadly shared.

    The post Productivity in the Real World appeared first on The Australia Institute's Centre for Future Work.

  • Australia does not have a productivity crisis

    Like the rest of the world, productivity has been sluggish since the COVID pandemic, but that is largely due to businesses failing to adequately invest in machinery, equipment, technology and skills, at a time when many are recording record profits.

    The research also reveals that disappointing productivity is not the cause of the problems facing Australian households, like falling real wages, high prices, high interest rates and the unaffordability of housing.

    Key findings:

    • If real wages had grown at the same rate of productivity since 2000, average wages would be 18% – or $350 per week – higher.
    • Australian businesses now invest less than half as much in research and development as those in other OECD countries.
    • Higher productivity does not automatically “trickle down” to workers in terms of improved wages or living standards.
    • Productivity benefits are trending toward high-paid executives, shareholders and profits, rather than workers.
    • Business claims that productivity can be improved by wage cuts, tax cuts, deregulation or reduced unionisation are false.
    • The idea that workers should “tighten their belts and make do with less” to improve productivity is a lie.

    “Productivity has become an excuse for big, profitable businesses to do whatever they like,” said Greg Jericho, Chief Economist at The Australia Institute‘s Centre for Future Work.

    “Peter Dutton said he’d tear up the new right-to-disconnect laws, saying they hampered productivity, as if allowing employers to call staff any time of the day or night would somehow make them more efficient. This research dispels that kind of nonsense.

    “Australia’s so-called ‘productivity crisis’ is massively exaggerated. Low productivity is not to blame for the problems facing households today, like soaring interest rates, prices or low wage growth.

    “This research also shows that sluggish productivity is caused by companies investing far less in things like machinery, equipment and research.

    “The benefits of productivity should not go straight to profits, shareholders or fat cat CEOs. They should be shared with workers in the form of wages which grow at a similar rate.

    “That way productivity would deliver its true purpose: to provide economic prosperity and a higher quality of life for everyone.”

    The post Australia does not have a “productivity crisis” – new research appeared first on The Australia Institute's Centre for Future Work.

  • The curious incident of low wages growth

    A new Carmichael Centre report by David Peetz considers why wages growth has been so low, despite a tight labour market and a brief surge in inflation.

    Asking why has there been no wages explosion, Peetz finds the answer lies in loss of power.

    The report documents how workers have lost power in the past two decades, with almost every change in the economy taking away workers’ bargaining power.

    From 2014 to 2022 most government policies took away workers’ bargaining power. The most recent industrial relations reforms in 2022-2024 shifted the pendulum back some way towards workers. These laws increased workers power and have also boosted wages growth.

    The analysis shows that all workers have had their wages damaged by lack of power. And all workers have been able to recover some ground since the recent industrial relations laws have come into effect.

    • Australian workers can no longer obtain the wage increases that they previously could from wage negotiations. Workers do not contribute to inflation.
    • Changes in power have combined to normalise low wages growth, for both union and non-union workers, even in tight labour markets. Of 16 developments in the labour market and economy over the past 50 years, 14 signalled deterioration in worker power, one an improvement in power for female workers only, and one an improvement only from 2010 until 2023 (lower unemployment).
    • The one countervailing force in recent times has been public policy which, since 2022, has led to some increases in workers’ power. Analysis of 34 policy events showed that the majority of those before 2022 further reduced workers’ bargaining power, while almost all of those since then have increased workers’ power.
    • In March 2014 wages were 53.0% of national income, but by December 2022 they had fallen to just 50.3%, before recovering to 53.5% by September 2024.
    • Wages grew at a little over 2% per year through most of the period from 2013-14. After September 2022, they grew more quickly, to over 4% per annum throughout 2023-24.
    • The wage gains associated with increased worker power are not just restricted to unionists, but they are likely greater for unionists than non-unionists.

    The post The curious incident of low wages growth appeared first on The Australia Institute's Centre for Future Work.

  • The Continuing Irrelevance of Minimum Wages to Future Inflation

    Updated analysis by the Centre for Future Work at The Australia Institute reveals that a fair and appropriate increase to the minimum wage, and accompanying increases to award rates, would not have a significant effect on inflation.

    The analysis examines the correlation between minimum wage increases and inflation going back to 1990, and finds no consistent link between minimum wage increases and inflation.

    It also reveals that such an increase to award wages could be met with only a small reduction in profit margins.

    The report, authored by Greg Jericho, based on previous work by both he and Jim Stanford, finds that an increase to the National Minimum Wage and award wages of between 5.8% and 9.2% in the Fair Work Commissions’ Annual Wage Review, due in June, is required to restore the real buying power of low-paid workers to pre-pandemic trends.

    The report also finds that this would not significantly affect headline inflation.

    Key findings of the report include:

    • Last year’s decision, which lifted the minimum wage and award wages by 3.75 per cent, offset the inflation of the previous year but still left those on Modern Awards with real earnings below what they were in 2020.
    • By June this year, the real value of Modern Award wages will be almost 4 per cent below what they were in September 2020.
    • Despite increases in the minimum wage over the past 2 years above inflation, inflation fell by a combined 4.5 percentage points.
    • There has been no significant correlation between rises in the minimum wage and inflation since 1990.
    • Raising wages by 5.8 to 9.2 percent this year would offset recent inflation and restore real wages for award-covered workers to the pre-pandemic trend.
    • Even if fully passed on by employers, higher award wages would have no significant impact on economy-wide prices.
    • A 9.2 per cent increase in award wages could be fully offset, with no impact on prices at all, by a 1.8 per cent reduction in corporate profits – still leaving profits far above historical levels.

    “Australia’s lowest paid workers have been hardest hit by inflation over the past 3 years,” said Greg Jericho, Chief Economist at The Australia Institute’s Center for Future Work.

    “The price rises of necessities always hurt those on low incomes harder than those on average and high incomes.

    “This analysis shows there is no credible economic reason to deny them a decent pay raise above inflation.

    “It’s vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation but also returns the value to the real trend of before the pandemic.”

    The post The continuing irrelevance of minimum wages to future inflation appeared first on The Australia Institute's Centre for Future Work.

  • Economic Prosperity, Public Sector Restraint (SA)

    New report contrasts South Australia’s economic progress with continued public sector wage restraint

    By many measures, South Australia has enjoyed the strongest economy of any state in Australia. Its economic growth has been faster in recent years than any state – and in per capita terms, its prosperity has improved twice as fast as the national average. It enjoys a stable, diversified economic base: reflecting a virtuous combination of strong business investment, exports, household consumption, and government spending (both on current services and on capital investment). The state’s labour market has been operating at or near record-low levels of unemployment and underutilization.

    Unfortunately, this economic progress has not been reflected in improvements in state-funded public services in South Australia. The proportionate share of the economy contributed by state-funded services and infrastructure investments has been declining since before the pandemic (and is now lower as a share of the state’s economy than any other state). State public sector workers have borne the burnt of this restraint: their wages have lagged far behind inflation, resulting in a painful real wage cut for state employees.

    In a new research report, Economist Jack Thrower shows that real wages for state public servants in South Australia have declined by as much as 10% since 2019. This represents a one-tenth reduction in the real purchasing power of their salaries, imposing severe financial stress on tens of thousands of households – and undermining consumer spending and economic growth.

    The report also confirms that South Australia possesses abundant fiscal capacity to repair this damage to real compensation for public sector workers. The state government’s core revenues are growing much faster than core expenses, and the budget is projected to return to surplus this year – faster than any other state other than Western Australia. Rebuilding public servant wages to catch up to past inflation should be a vital priority for the state government.

    Please read the full report, Economic Prosperity, Public Sector Restraint: Unpacking South Australia’s Economic and Fiscal Advantages in the Shadow of Public Sector Pay Erosion, by Jack Thrower.

    The post Economic Prosperity, Public Sector Restraint appeared first on The Australia Institute's Centre for Future Work.

  • Public sector wages fall further behind

    Analysis of public sector wage caps and their economic impact.

  • Solid Foundations, Bright Future (NSW)

    New South Wales has one of the most prosperous and productive economies in Australia, with a diverse base of economic activity and strong labour market. However, years of austerity have hollowed out its public sector, creating one of the proportionally smallest state public sectors in the country in terms of both economic activity and employment.

    Despite the instrumental role the public sector played in navigating the state through the pandemic, weak wage growth and rising inflation have compounded the impacts of austerity, leading to significant reductions in public sector real wages. While the current government’s scrapping of the wage cap and implementation of public sector wage rises has undone some of this damage, most notably the October 2023 wage rises for public school teachers, more repair is needed.

    The NSW government has a strong fiscal position with which to manage these challenges. NSW maintains nearly the highest credit rating in the country and relies on revenue bases that are both diverse and stable. Additionally, there is considerable evidence that, if needed, several options are available to increase state government revenue. As the state economy weakens in response to high interest rates and declining real incomes, the state government has the responsibility to contribute to support the economy and broader society, through expansion of public services, repair of public sector wages, and support for the most vulnerable.

    The post Solid Foundations, Bright Future appeared first on The Australia Institute's Centre for Future Work.

  • Minimum wage increase won’t cause inflation

    Research showing minimum wage rises do not drive inflation.

  • Why Australian wages are stuck

    Analysis of the structural factors keeping Australian wages stagnant.

  • Increasing minimum wage would not drive inflation up: new report

    The analysis, The Irrelevance of Minimum Wages to Future Inflation, examines the correlation between minimum wage increases and inflation going back to 1997.

    It finds that, contrary to employer concerns, there is no consistent link between minimum wage increases and inflation in the modern Australian context.

    The report finds that a minimum wage rise of between five and 10 per cent in the Fair Work’s Annual Wage Review, due in June, is needed to restore the real buying power of low-paid workers to pre-pandemic trends, but would not significantly affect headline inflation.

    Key points:

    • Last year’s decision, which lifted the minimum wage by 8.65 per cent and other award wages by 5.75 per cent, offset some but not all of the effects of recent inflation on real earnings for low-wage workers.
    • At the same time, inflation fell by 3 full percentage points.
    • There has been no significant correlation between rises in the minimum wage and inflation since 1997.
    • Raising wages by 5 to 10 per cent this year would offset recent inflation and restore the pre-pandemic trend in real wages for award-covered workers.
    • Even if fully passed on by employers, higher award wages would have no significant impact on economy-wide prices.
    • A 10 per cent increase in award wages could be fully offset, with no impact on prices at all, by just a 2 per cent reduction in corporate profits – still leaving profits far above historical levels.

    “Australia’s lowest paid workers have been hardest hit by inflation since Covid. There is a moral imperative to restore quality of life for these Australians and this analysis shows that there is no credible economic reason to deny them,” Australia Institute and Centre for Future Work Chief Economist Greg Jericho said.

    “It’s vital the Fair Work Commission ensure that the minimum wage not only keeps up with inflation, but also grows gradually in real terms – as was the trend before the pandemic.

    “Whenever wages go up, the business lobby cries wolf, claiming it will cost people their jobs, shutter businesses and stifle competition.

    “The business lobby always has some reason that wages should be suppressed. But the historical data prove that concerns about inflation are not a credible excuse to deny low-paid workers a much-needed pay rise.

    “Even if businesses respond to minimum wage rises by charging consumers more, it would have a minuscule effect on inflation because it would be subsumed by much larger factors including chain disruptions, energy shocks, and corporate profits.”

    The post Increasing minimum wage would not drive inflation up: new report appeared first on The Australia Institute's Centre for Future Work.