Labour costs have played an insignificant role in the recent increase in inflation, accounting for just 15 percent of economy wide price increases while profits have played an overwhelming role, accounting for about 60 percent of recent inflation.
Exit Poll: Overwhelming Majority of Australians Want Wage Growth in Line with Cost of Living
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.
Wages Will Continue to Lag Without Targeted Wage-Boosting Measures: New Report
A comprehensive review of Australian wage trends indicates that wage growth is likely to remain stuck at historically weak levels despite the dramatic disruptions experienced by the Australian labour market through the COVID-19 pandemic. The report finds that targeted policies to deliberately lift wages are needed to break free of the low-wage trajectory that has become locked in over the past nine years.
The report, The Wages Crisis: Revisited, authored by three of Australia’s leading labour policy experts: Professor Andrew Stewart from Adelaide Law School, Dr Jim Stanford from the Centre for Future Work, and Associate Professor Tess Hardy from Melbourne Law School, updates analysis and recommendations from their 2018 edited book, The Wages Crisis in Australia.
The report shows that annual nominal wage growth recovered after initial lockdowns during the pandemic – but rebounded only to the same slow pace (just above 2% per year) recorded for several years prior to COVID. Unprecedented fluctuations in employment and labour supply, including a significant decline in the official unemployment rate, do not seem to have altered wage growth, which is still tracking at the slowest sustained pace in post-war history.
The research found little correlation between the lasting slowdown in wage growth after 2013, and changes in supply-and-demand balances in the labour market. Traditional market forces did not cause the wages crisis, and market forces are unlikely to be able to fix it – even with a relatively low unemployment rate.
Instead, the authors identified nine policy and institutional factors which were more important in explaining the deceleration of wages, including: the erosion of collective bargaining coverage; inadequate minimum wages; pay restraint imposed on public sector workers; and widespread wage theft.
The problem of restrained compensation in public and human services reaches further than just the pay caps imposed directly on public servants. Wages in publicly funded services (like aged care, the NDIS, and early child education) are also held back by inadequate funding and weak labour standards in those programs. The report makes special mention of the need to improve wages in aged care, in the wake of the recent Royal Commission’s finding that wages in the sector must be improved as a top priority in improving care standards and attracting the new workers the sector needs.
The authors suggest that nominal wages should grow faster than 4% per year in coming years, to restore healthy relationships with productivity growth, inflation, and national income distribution. But a resuscitation of wage growth will not occur without proactive wage-boosting policies.
The authors list five broad measures to quickly support wage growth. One is a proposal for a new statutory definition of employment. This would prevent businesses from drafting contracts that present workers as being self-employed, even if in reality they have no business of their own. The authors predict that such arrangements will become far more widespread, including in the growing gig economy, in the wake of two recent decisions by the High Court.
Victorian Rate Cap Policy Costs Economy Over 7,000 jobs and $890 million to GDP
The Victorian Government’s policy of capping of local government rates revenue in Victoria is a regressive move on economic, social and democratic grounds. By arbitrarily tying the growth in total rates revenue in each local government area to price indexes, the state government restricts the ability of local governments to respond to the COVID-19 crisis with expanded, secure employment and service offerings.
Rates on property are the largest single source of revenue to local governments in Victoria. Of total Victorian local government revenue in 2019-20 ($11.7 billion), rates accounted for $5.6 billion or almost half. Since 2016-17, the Victorian state government has capped the amounts local governments can collect from their ratepayers.
New research by the Centre for Future Work, commissioned by the Australian Services Union, finds that the imposition of rate caps has cost up to 7425 jobs in 2021-22, counting both direct local government employment and indirect private sector jobs. They have also reduced GDP by up to $890 million in 2021-22. The costs of suppressed local government revenues, and corresponding austerity in the delivery of local government services, will continue to grow with each passing year if the policy is maintained.
The rate cap policy becomes more restrictive as the overall economy slows, since the rate cap is tied to inflation indexes which tend to slow when the economy is weak.
The local government sector in Victoria employs about 50,000 people in a wide range of services and occupations, including road planning and maintenance, home and aged care, waste disposal, libraries, childcare, school crossing supervision, maternal and child health, the State Emergency Service, and environmental management.
The rate caps act as a brake on recovery and growth by embedding a dynamic of self-fulfilling fiscal restraint and austerity. Additionally, there has been a shift to other forms of local government revenue-raising that are less progressive and socially equitable, such as fees and fines.
Rates bills are calculated based on relative property valuations – so even if local governments are collecting less from rates overall than they would in the absence of the cap, growth in a particular ratepayer’s payments may well exceed the overall cap.
The rate cap policy inhibits a normal trend of expanding and improving local government services in line with population growth, rising living standards, and economic expansion – as well as interfering with the democratically-expressed preferences of local government voters.
COVID-19 containment measures have suspended large sections of the economy. Governments have committed over $220 billion in income supports to workers and firms. The $130 billion JobKeeper wage subsidy scheme is the most extensive “shock absorber” (with worrying exclusions of many casual and migrant workers). With the scheme now in place, assessment of the government’s COVID-19 measures is now shifting to implementation. This includes effects on the laws and regulations governing wages and how businesses and employees (and their unions) interact to determine the terms and conditions of employment.
Despite enduring a heightened anti-union agenda, unions (headed up by ACTU) liaised early with government to secure the JobKeeper wage subsidy to prevent mass layoffs. Unions have negotiated with industry to adapt Awards and enterprise agreements (EAs) to new business conditions. The Coalition government has proceeded with significant changes to the Fair Work Act that could hamper efforts to drive an inclusive economic and labour market recovery. What’s more, the Morrison government has indicated it will continue its pre-COVID agenda to further weaken representation rights and minimum labour laws.
To inform assessment of the impacts of COVID-19 on jobs, wages, and workplace protections, we have summarised major developments within the industrial relations system since March 2020. The log traces revisions to Awards, enterprise agreement-making rules, new instruments formed between unions and industry, major decisions by the Fair Work Commission, and ongoing lobbying efforts by business to weaken minimum labour laws. Links to relevant research from Centre for Future Work released during the crisis, or prior to, are provided. All log entries are reported in the industrial relations publication Workplace Express. Links to other media outlets are provided where relevant.
If there are any major IR developments that we have not reported here please get in touch at futurework@tai.org.au.
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The Commonwealth government’s proposed JobKeeper wage subsidy scheme represents an important and promising response to the COVID-19 shutdown of several key sectors of Australia’s economy. The scheme would support an estimated $130 billion worth of wage payments over the coming 6 months, keeping millions of Australians in jobs even if their employers experience major revenue losses from the restrictions that have been imposed on activity, mobility, and work during the pandemic.
However, the program as originally proposed contains several design flaws that will seriously undermine the effectiveness of the program if they are not fixed.
These include, most prominently, the arbitrary exclusion of over 1 million casual workers (those who have not been continuously employed by their current workplace for at least 12 months), over 1 million foreign visa workers (other than New Zealanders on special 444 visas), and many thousands of temp and day-hire workers in industries such as arts, film, and construction (whose employers technically no longer exist).
Our partners at the Australia Institute recently conducted polling of Australians regarding these exclusions in the JobKeeper program. An overwhelming majority of respondents, from all political persuasions, support making the program available to all casual workers regardless of their tenure with their existing employer. 81% of respondents support extending the wage subsidy to all casual workers.
For a full breakdown of the polling results, please see the Australia Institute’s full report below.
Other concerns with the government’s proposal include the possibility that employers could compel workers to draw down paid annual leave even while their wages are being largely or fully covered by government, and the risk that employers would use the program’s $1500 per fortnight benefit level to push down wages or unilaterally alter hours of work.
These concerns in the proposed program design can and should be corrected by government, in order to maximise the potential positive effects of the scheme in preserving employment and income levels.
See our summary table of the ‘pros and cons’ of the JobKeeper program as initially proposed by government:
The Centre for Future Work has made a submission to the 2020 annual wage review conducted by the Fair Work Commission. The submission compiles evidence showing that the annual minimum wage adjustments (which flow through into wages specified in the Modern Awards, as well as some enterprise agreements and individual contracts) have played a more important role in recent years in supporting the overall level of wage growth in Australia’s labour market. Without relatively strong minimum wage increases since 2017 (of 3% or higher for three consecutive years), Australian wage growth would still be languishing at all-time record lows of under 2% per year.
In this context, the Centre argued it is vital the Commission proceed with a normal, healthy minimum wage increase for 1 July, 2020, with full flow-through into Award wages. Otherwise wage growth will slump significantly (to an estimated 0.7%, or even lower), heightening the risk of economy-wide deflation.
The submission also provided new analysis on the seasonal pattern of wage growth in Australia’s labour market. In recent years, quarterly wage growth has been twice as strong in the quarter that contains the annual wage award, as in the rest of the year. That attests to the growing structural importance of the annual award in supporting wages, and preventing wage growth from falling even lower.
The Centre’s submission was reported in the Australian Financial Review, and other media.
Public Sector Pay Freezes Could Push Economy From Recession to Depression
New research from the Australia Institute’s Centre for Future Work reveals the consequences of freezing public service pay, both for public sector workers and for the broader economy.
Governments are devoting unprecedented resources to protecting Australians against the health and economic effects of the pandemic, but a contradictory push to adopt fiscal austerity measures is also becoming apparent. Leaders of governments at all levels — federal, state and local council — have already announced plans to freeze wages and cancel previously agreed pay raises for public servants.
New research from the Centre for Future Work has dramatised the lasting consequences for workers’ lifetime incomes – even after they retire – of wage freezes.
A wage freeze is often described as a “temporary sacrifice,” that supposedly ends once normal annual wage increments are restored. However, this report confirms that the legacy of even a temporary pay freeze is a permanent reduction in lifetime incomes and superannuation, which can easily ultimately result in hundreds of thousands of dollars of lost income. These long-term effects are illustrated with reference to a real-world example: an 18-month pay freeze imposed on workers at Jetstar in 2014-2016.
Many Australian employers have frozen the pay of their workers in recent years, typically justified on grounds of temporary financial duress. However, those pay freezes have a lasting negative impact on the long-run trajectory of wages. As a result, workers lose tens of thousands of dollars of income through the rest of their careers. To cap the losses, employers must implement special one-time catch-up pay increases to restore the pre-freeze trajectory of wages.
To illustrate the lasting, cumulative impact of pay freezes on workers’ lifetime incomes, a new Briefing Paper from the Centre for Future Work considers the case of an 18-month wage freeze implemented in 2014-16 by Jetstar. The pay freeze was implemented amidst financial losses at the airline. However, since then the airline (and its parent firm, Qantas) have returned to strong profitability, and executive compensation has soared. Normal 3% wage increases were restored beginning March 2016, and a one-time bonus payment was made at that time as “compensation” for the sacrifice of Jetstar workers. But the current incomes of Jetstar workers are still thousands of dollars per year lower than if the pay freeze had not been imposed.
The report considers three distinct categories of losses resulting from a pay freeze:
The report quantifies these cumulating costs for the case of the pay freeze at Jetstar. Jetstar workers could lose $150,000 or more in cumulative earnings by the time they retire, despite the restoration of annual wage increments after 2016 and the one-time bonus. Moreover, workers’ superannuation accounts will also be suppressed accordingly: because of lower employer contributions (resulting from lower earnings) and lost investment income. On the basis of typical investment performance, the report estimates potential superannuation losses of $40,000 or more by the time Jetstar workers retire. Some workers could lose over $200,000 in lifetime incomes and superannuation because of the “temporary” wage freeze.
The only way to stop these ongoing losses from getting bigger (let alone to compensate workers for losses already incurred) is to implement additional catch-up wage increases that bring wages back to their pre-freeze trajectory. In the case of the Jetstar wage freeze, that would require a one-time increase of 6.1%.
The Jetstar case is just one of many instances of wage freezes being imposed on Australian workers in recent years, in both the private and public sector. The legacy of those wage freezes contributes to the ongoing stagnation of real wages in the Australian labour market, and to the historic shift in income distribution away from workers and toward businesses and investors. While it may seem as if a wage freeze is a “temporary” sacrifice, without offsetting catch-up adjustments it nevertheless continues to impose ongoing economic harm on affected workers.
The latest economic statistics have confirmed that Australia’s economy is barely limping along – with quarterly GDP growth of just 0.4%. One of the weakest spots in the report was consumer spending, which recorded its weakest performance since December 2008 (amidst the worst days of the Global Financial Crisis). This was despite the supposed benefit of recent Commonwealth government tax cuts in boosting disposable income and stimulating more spending.
Analysis from Dr. Jim Stanford shows that the tax cut is in fact completely invisible in the macroeconomic data.
Among the major findings of the report:
