My Blog

Category: Wages & Entitlements

  • Doing it Tough

    Inequality, Unions & Collective Bargaining, Wages & Entitlements

    Doing it Tough

    How Australians are experiencing the cost of living crisis
    by Lisa Heap

    Author

    Lisa Heap

    Senior Researcher

    This report documents the results of a recent survey of Australian adults regarding their experience of the cost of living crisis. Australian workers are doing it tough. Costs are increasing faster than wages and incomes. Those with less are doing it the toughest.

    The current cost of living crisis in Australia has two components – the incomes that people receive, and the prices they pay for goods and services. This is what Alan Fels has recently referred to as the “two faces” of the crisis .  Action to protect the living standards of Australians must address both faces of the crisis.

    As part of a broader research initiative investigating the human costs of the crisis and the impact of austerity on Australian workers, the Australia Institute’s Centre for Future Work surveyed a nationally representative sample of 1014 adults living in Australia about their household income and the costs of living.  The results show that:

    • Almost three-quarters (72%) of respondents felt their wages had grown slower than prices over the previous year.
    • Over half of respondents (53%) said their household’s financial situation was worse that it was two years ago.
    • The cost of living crisis has had differential impacts. Because it has affected lower-income Australians most severely, the cost of living crisis has exacerbated inequality.
    • Respondents identified higher grocery prices as the most visible source of the increased cost of living. Six out of 10 (60%) of respondents identified groceries as the purchase where they have most noticed higher prices followed by utilities (21%) and transport (7%).
    • There was strong support for measures across a broad range of policy areas to address the costs of living. 64% of respondents said it was very important to lower utility costs to reduce cost of living pressures. 64% said it was very important to increase supermarket competition, 60% to lower medical costs, and 58% to increase the pace of wages growth.

    The respondents to this survey supported a suite of policy initiatives designed to both reduce the cost of living, and to increase wages and income supports. In their view, addressing the cost of living crisis requires a multi-dimensional approach, rather than a singular reliance on high interest rates to slow inflation.

    The report is published by the Centre for Future Work in conjunction with a one-day symposium it is hosting in Melbourne on 17 October on the crisis in living standards in Australia, and how to address it through greater investments in wages, public services, and affordable housing and energy.



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  • Solid Foundations, Bright Future

    Education & Training, Industry & Sector Policies, Tax, Spending & the Budget, Wages & Entitlements

    Solid Foundations, Bright Future

    An Analysis of New South Wales Economic and Fiscal Advantages
    by Jack Thrower

    Author

    Jack Thrower

    Senior Economist

    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.



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  • Budget 2024-25: Resists Austerity, Reduces Inflation, Targets Wage Gains

    Macroeconomics, Public Sector, Procurement & Privatisation, Wages & Entitlements

    Budget 2024-25: Resists Austerity, Reduces Inflation, Targets Wage Gains

    Important support to help with cost-of-living challenges, but more needed
    by Greg Jericho, Lisa Heap, Charlie Joyce, Fiona Macdonald and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Lisa Heap

    Senior Researcher

    Charlie Joyce

    Researcher

    Fiona Macdonald

    Acting Director, Centre for Future Work

    Jim Stanford

    Commonwealth Treasurer Jim Chalmers delivered his 2024-25 budget to Parliament. While it booked a surplus for 2023-24 (the second consecutive surplus), it increased total spending for future years, and forecasts continued small deficits. In the wake of the economic slowdown resulting from RBA interest rate hikes, this new spending is needed and appropriate.

    Targeted cost of living measures will directly reduce inflation in some areas (like energy and rents), while helping working Australians deal with higher prices in others (including reworked State 3 tax cuts, and support for higher wages for ECEC and aged care workers). Unlike previous years, the budget is projecting real wage gains in coming years that are actually likely to materialise — however, the damage from recent real wage cuts will take several years to repair, and further support for strong wage growth will be required, from both fiscal policy and industrial laws. The budget also spelled out initial steps in the government’s Future Made in Australia strategy to build renewable energy and related manufacturing industries; these steps are welcome but need to be expanded, and accompanied by strong and consistent measures to accelerate the phase-out of fossil fuels.

    Our team of researchers at the Centre for Future Work has parsed the budget, focusing on its impacts on work, wages, and labour markets. Please read our full briefing report.



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  • Submission to the Fair Work Commission Modern Award Review 2023-2024, Work and Care

    Gender at Work, Insecure & Precarious Work, Labour Standards & Workers’ Rights, Wages & Entitlements

    Submission to the Fair Work Commission Modern Award Review 2023-2024, Work and Care

    by Fiona Macdonald

    Author

    Fiona Macdonald

    Acting Director, Centre for Future Work

    The Fair Work Commission’s Review of Modern Awards 2023-24 is considering the impact of workplace relations settings on work and care. This submission argues for good quality, secure part-time jobs to achieve more gender-equitable sharing of care and to support women’s full economic participation.



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  • Submission to the Senate Education and Employment Legislation Committee Inquiry into the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023

    Gig Economy, Labour Standards & Workers’ Rights, Unions & Collective Bargaining, Wages & Entitlements

    Submission to the Senate Education and Employment Legislation Committee Inquiry into the Fair Work Legislation Amendment (Closing Loopholes) Bill 2023

    Reforms Would Improve Stability, Wages for Workers in Insecure Jobs
    by Fiona Macdonald, David Peetz and Jim Stanford

    Authors

    Fiona Macdonald

    Acting Director, Centre for Future Work

    David Peetz

    Laurie Carmichael Distinguished Research Fellow

    Jim Stanford

    Experts from the Centre for Future Work recently made a submission to the Senate committee studying the “Closing Loopholes” bill, which would make several reforms to the Fair Work Act.

    The submission was prepared by our Policy Director Dr Fiona Macdonald, Carmichael Distinguished Research Fellow Prof Em David Peetz, and Economist and Director Dr Jim Stanford.

    Their submission emphasises:
    • The importance of limiting insecure employment practices (such as casual employment, labour hire, and platform or ‘gig’ work), and providing full protections to workers in those arrangements.
    • The importance of strong and well-resourced mechanisms to ensure the enforcement of these rules, and timely and effective recompense in cases when they are not.
    • The importance of empowering trade unions and their delegates to play their full potential role in enforcing labour standards and ensuring fair compensation and treatment of workers.



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    Factsheet
    Paying for Collective Bargaining

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  • Profit-Price Inflation: Theory, International Evidence, and Policy Implications

    Macroeconomics, Unions & Collective Bargaining, Wages & Entitlements

    Profit-Price Inflation: Theory, International Evidence, and Policy Implications

    Profits need to come down to reduce inflation and allow real wages to recover
    by Jim Stanford, Richard Denniss, Matt Grudnoff, Greg Jericho, David Richardson and Matt Saunders

    Authors

    Jim Stanford

    Richard Denniss

    co-Chief Executive Officer

    Matt Grudnoff

    Senior Economist

    Greg Jericho

    Chief Economist

    David Richardson

    Senior Research Fellow

    Matt Saunders

    Senior Economist

    Media release



    Corporate Profits Must Take Hit to Save Workers

    New research confirms that corporate profits in Australia, despite recent moderation, remain well above historic norms, and must fall further in order to allow a rebuilding of real wages in Australia that have been badly damaged by recent inflation.

    The report, compiled by Dr Jim Stanford (Economist and Director of the Centre for Future Work), with contributions from several other economists at the Centre and the Australia Institute, confirms that higher corporate profits still account for most of the rise in economy-wide unit prices in Australia since the pandemic struck.

    The good news is that corporate profits have begun to moderate, as global supply chains are repaired, shortages of strategic commodities dissipate, and consumer purchasing patterns adjust after the pandemic. This has occurred alongside a reduction in inflation of over half since early 2022 (falling from a peak of 8.9% annualised in early 2022 to 3.4% by June 2023). This further confirms the close correlation between corporate profits and inflation — but both profits and inflation need to fall further.

    The report also reviews the methodology and findings of over 35 international studies confirming the existence of profit-led inflation across many industrial countries (including Australia). The methodology and findings of these studies are very similar to that utilised by the Australian Institute and the Centre for Future Work in previous research on profit-led inflation.

    The international research includes reports from numerous established institutions (including the OECD, the IMF, the Bank for International Settlements, many central banks, and the European Commission). Using similar methodology, these institutions came to similar conclusions: namely, that historically high corporate profits were the dominant factor in the initial surge of global inflation after COVID.

    The report was submitted on 21 September as evidence to the ACTU’s Price-Gouging Inquiry, headed by Prof Allan Fels. This Inquiry is gathering documentary evidence on how Australian workers and consumers have faced exploitive and unfair pricing practices by Australian corporations, which have added to recent inflation and undermined real wages. The new report provides macroeconomic evidence confirming the relevance of the Inquiry’s terms of reference.

    Policy-makers in other countries (including Europe and the U.S.) agree that corporate profit margins need to fall further in order to continue reducing inflation, while allowing real wages to recover to pre-pandemic levels. The new report shows this is also true in Australia. Average real wages are presently 6% lower than in mid-2021 (when post-pandemic inflation broke out, led by higher prices and corresponding super-profits in strategic industries like energy, manufacturing, and transportation).

    Wages will thus have to grow significantly faster than inflation for a sustained period of time to recoup those losses. That can occur while still reducing inflation if historically high profit margins are reduced to traditional levels.



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    Factsheet
    Chalmers is right, the RBA has smashed the economy




    Factsheet
    Would you like a recession with that? New Zealand shows the danger of high interest rates

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  • Profits and Inflation in Mining and Non-Mining Sectors

    Macroeconomics, Wages & Entitlements

    Profits and Inflation in Mining and Non-Mining Sectors

    More detail on the causes and consequences of the profit-price spiral
    by Greg Jericho and Jim Stanford

    Authors

    Greg Jericho

    Chief Economist

    Jim Stanford

    New research from the Centre for Future Work at the Australia Institute has shed further light on the role of higher corporate profits in driving higher prices in Australia since the COVID pandemic.

    A previous report from the Centre showed that 69% of excess inflation (above the Reserve Bank’s 2.5% target) since end-2019 arose from higher unit corporate profit margins, while only 18% was due to labour costs. The new research provides detail on the distribution of those excess profits across different sectors in the Australian economy.

    By far the biggest profits were recorded in the mining sector, where corporate operating profits surged 89% since the onset of the pandemic. Those profits resulted from sky-high prices for fossil fuel energy (including petroleum products, gas, and coal). Thanks to those price hikes, the mining sector now captures over half of all corporate profits in the entire Australian economy.

    Less spectacular but significant increases in corporate profits are visible in several other sectors of the economy, too – not just mining. Profits swelled rapidly in wholesale trade, manufacturing, transportation, and other strategic sectors.

    In these strategic industries, businesses could exploit supply chain disruptions, consumer desperation, and oligopolistic market power to increase prices well beyond production costs.

    In other sectors (including arts & recreation, hospitality, and telecommunications) profits have been flat or falling since the pandemic.

    Early signs in 2023 that inflation (and corporate profits) had peaked, and were returning to normal, have been thrown into question by a renewed threat of profit-price inflation: the OPEC+ cartel decided earlier this month to curtail oil production to boost world prices.

    Policy-makers need to acknowledge the role of record profits in driving recent inflation – and develop alternative policy responses (such as price caps in strategic markets, excess profit taxes, and targeted fiscal support for working and low-income households) to manage current inflation in a fairer and more effective way.



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  • The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    Public Sector, Procurement & Privatisation, Wages & Entitlements

    The Cumulative Costs of Wage Caps for Essential Service Workers in NSW

    by Jim Stanford

    Author

    Jim Stanford

    Since 2012 the NSW government has arbitrarily suppressed pay gains for workers in state-funded public services (including health care, education, public administration, emergency services, and more). At first those pay caps were justified as a deficit-reduction measure, and then later as being supposedly tied to inflation trends. But both those arguments have been discarded, given state surpluses in most years since the cap was introduced, and now the dramatic acceleration in inflation (now running more than twice as fast as allowed compensation gains).

    In this new report, Centre for Future Work Economist and Director Jim Stanford adds up the enormous and growing cost of this decade-long wage suppression for nurses, midwives, and other public sector workers in NSW.

    In any given year, the state’s wage cap reduces compensation below what would have been determined under normal free collective bargaining processes. When sustained over many years, however, the wage caps have an exponential effect in suppressing compensation levels. That’s because each year’s continued wage cap is applied against a lower starting wage base. Over time, the gap between capped and negotiated pay widens dramatically.

    The report estimates that compared to long-run pre-cap compensation trends, experienced nurses and midwives made $335 less per week in 2021-22 (or $17,500 less for the year) compared to pre-cap trends. On a cumulative basis, they have already lost $80,000 in compensation since the caps were introduced.

    But that pay suppression will continue to get worse if the caps are maintained. By 2023-24, on the basis of the government’s stated plan to suppress compensation growth to 3% and 3.5% (and restrain wages even lower, after adjusting for superannuation), the loss in wages will grow to $390 per week (or over $20,000 for the year), and the cumulative loss for someone who has worked throughout the wage cap period will reach $120,000.

    Worse yet, for three consecutive years, the NSW pay caps have reduced wage growth well below inflation, resulting in a significant erosion of real wages for nurses, midwives and other public sector workers. Public sector workers will see real purchasing power decline by 7.5% by end 2023-24 (on the basis of RBA inflation forecasts and the NSW government’s stated cap). That is equivalent to a loss of $6750 for a full-time experienced nurse or midwife.

    The economic pain experienced by public sector workers will not even stop when they retire. Because superannuation contributions are tied automatically to wages, nurses, midwives, and other public sector workers have lost thousands of dollars in superannuation contributions from their employers — and thousands more in foregone investment income on those contributions. That will translate into reduced superannuation balances and pension income after retirement. Already, an experienced nurse or midwife has had their pension income reduced by $1000 per year, and those losses will get larger the longer the pay caps are maintained. And because of the sustained suppression of their wages (and hence their superannuation savings), the goal of a decent stable retirement is increasingly out of reach for many NSW workers — especially for women, and especially for those who do not own their home. The report indicates that under existing capped wages, a nurse or midwife who is single, female, and rents their accommodation will accumulate less than half of the superannuation savings required for them to meet the ASFA comfortable retirement income threshold.

    In summary, the NSW’s ongoing suppression of pay for public sector workers, whose commitment has been essential to helping NSW residents through the pandemic, is arbitrary, anti-democratic, and economically damaging. The report recommends that the government abandon this policy, and instead engage in normal pay negotiations with public sector workers and their unions, on the basis of normal wage determinants.



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  • Robbed at Sea

    Industry & Sector Policies, Wages & Entitlements

    Robbed at Sea

    Endemic Wage Theft from Seafarers in Australian Waters
    by Rod Pickette, Lily Raynes and Jim Stanford

    Authors

    Rod Pickette

    Lily Raynes

    Anne Kantor Fellow

    Jim Stanford

    Media release



    International Seafarers Suffer $65 Million in Wage Theft Annually in Australian Waters

    Seafarers perform difficult, often dangerous work that is essential to the operation of global supply chains, delivering all the merchandise we take for granted in modern life. Yet because of the legal vacuum governing international marine traffic, a lack of resources and attention for enforcement by national regulators, and the corporate strategies of shipping companies and their customers, seafarers are subject to some of the worst exploitation and abuse of any occupation in the world economy.

    As a developed, high-income economy that participates heavily in international freight trade, Australia has a special responsibility to protect and lift labour standards in this vital industry. Australia’s current approach is sadly inadequate in that regard. Our laws tolerate the blatant use of legal loopholes to evade the application of domestic standards, and our regulatory agencies have not made adequate commitments to oversee, inspection, enforcement, and remediation.

    The policy recommendations made in this report would constitute initial and long overdue steps in addressing both the economic and the moral dimensions of wage theft and other forms of exploitation in freight shipping.



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  • An Economy That Works for People

    Macroeconomics, Wages & Entitlements

    An Economy That Works for People

    by Jim Stanford

    Author

    Jim Stanford

    Selected media impact

    The new Commonwealth government is hosting a major Jobs Summit in September 2022, bring together representatives from a range of stakeholder groups to discuss the challenges facing Australia’s labour market, and how to achieve strong employment, job quality and security, and better skills and training opportunities.

    In preparation for the Summit, the Australian Council of Trade Unions is publishing a series of discussion papers to spark dialogue over key issues that will be discussed at the event. The first of these papers, on the failures of past macroeconomic policy and the need for better approaches, was prepared with input from Jim Stanford, Director of the Centre for Future Work.

    The 23-page report, titled An Economy That Works for People, first reviews the legacy of the last decade of one-sided macroeconomic and labour market policies from former Coalition governments. Boosted by government actions to reduce taxes, labour costs, and regulations, corporate profits have swelled to the highest share of GDP (almost 30%) in history. But that profit has not translated into investment or innovation: at present just 37 cents of each dollar in profit is reinvested in new projects. Meanwhile, the share of GDP going to workers has never been lower since records have been kept: falling to just 45% in 2022. This redistribution of income from workers to businesses is not just a moral failure. The impact of swelling profit margins on inflation, and the drain in spending power arising from uninvested profits, are holding back Australia’s economy considerably.

    An Economy That Works for People

    The paper discusses the causes and consequences of the current surge in inflation in detail, providing conclusive evidence the problem did not arise in the labour market. To the contrary, labour costs have servedto reduce inflation: nominal unit labour costs grew only 2.1% over the last 12 months (below the RBA inflation target), while unit profit margins surged (by over 14%).

    The paper also reviews statistical evidence on Australia’s productivity growth, and in particular on the failure of productivity growth to be reflected in rising real wages. Real put per hour of work has increased 13% over the past decade: not outstanding, but still positive and steady. Real wages, in contrast, have gone nowhere — and are now falling rapidly in the face of accelerating inflation. Rather than risking an economy-wide recession with rapid interest rate hikes (which impose the worst burden on workers and indebted households), the paper calls for a more multi-dimensional and targeted approach by government (supplementing actions by the RBA) to gradually bring inflation down without causing mass unemployment.

    The paper makes 6 specific recommendations for macroeconomic reforms to ensure working Australians share fairly in the benefits of future growth. The first is to elevate full employment in decent jobs as the central goal of macroeconomic policy, and to ensure that all policy interventions (including from the RBA, the Commonwealth government, and other regulatory agencies) are consistent with that top goal.

    Release of the paper generated extensive media coverage and public debate (which was its goal!): including stories in The Guardian, the ABC, The Sydney Morning Herald, The Australian Financial Review, and The Australian. In this feature interview with 2CC Radio host Leon Delaney, Dr Stanford discusses the main recommendations of the report, and whether it is really such a ‘radical’ idea to make full employment the top goal of economic policy:



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