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Wage rise blowout a figment of Coalition’s imagination Wage rise blowout a figment of Coalition’s imagination
(25 days later)
It says something about this election campaign that the only time the Liberal party’s industrial relations spokesman, Senator Eric Abetz, has put his head above the parapet it was to announce policy measures that were quickly denied by others in the party.It says something about this election campaign that the only time the Liberal party’s industrial relations spokesman, Senator Eric Abetz, has put his head above the parapet it was to announce policy measures that were quickly denied by others in the party.
In an extraordinary change of policy, Senator Abetz told the Australian last week that the Liberal party was going to introduce more regulation into the IR sector.In an extraordinary change of policy, Senator Abetz told the Australian last week that the Liberal party was going to introduce more regulation into the IR sector.
He was concerned about pay rises that were negotiated and agreed to by workers and employers. He told the paper:He was concerned about pay rises that were negotiated and agreed to by workers and employers. He told the paper:
“Unions pursuing agreements allowing for annual pay rises of, for instance, 5%, should be required to show to the Fair Work Commission that they had ‘genuinely discussed’ productivity with their employer before the deal is approved.”“Unions pursuing agreements allowing for annual pay rises of, for instance, 5%, should be required to show to the Fair Work Commission that they had ‘genuinely discussed’ productivity with their employer before the deal is approved.”
Why did he think this was needed? Well, because Australia’s businesses were weak and lazy. He said that the Liberal party wanted to bring in this arrangement to ensure “that lazy companies don’t just give wage increases because it’s the easiest thing to do, and the path to least resistance”.Why did he think this was needed? Well, because Australia’s businesses were weak and lazy. He said that the Liberal party wanted to bring in this arrangement to ensure “that lazy companies don’t just give wage increases because it’s the easiest thing to do, and the path to least resistance”.
It must be heartening to the CEOs around Australia to know that the Liberal party thinks so highly of them that it believes they would agree to pay rises that are not sustainable.It must be heartening to the CEOs around Australia to know that the Liberal party thinks so highly of them that it believes they would agree to pay rises that are not sustainable.
As economist Sinclair Davidson wrote on the Libertarian blog Catallaxy Files:As economist Sinclair Davidson wrote on the Libertarian blog Catallaxy Files:
“We already have a perfectly good mechanism for dealing with those firms that give their employees productivity-free pay increases – it is called bankruptcy.”“We already have a perfectly good mechanism for dealing with those firms that give their employees productivity-free pay increases – it is called bankruptcy.”
The next day, Fairfax papers revealed that Abetz was talking out of turn and had been told to go back to where he had till then been hiding himself this campaign.The next day, Fairfax papers revealed that Abetz was talking out of turn and had been told to go back to where he had till then been hiding himself this campaign.
But Abetz’s thought bubble (or inadvertent revelation of future plans) reveals a common complaint about the industrial relations system that has existed even before the Fair Work Act came into effect – namely, that it will provoke a union-led wages blowout.But Abetz’s thought bubble (or inadvertent revelation of future plans) reveals a common complaint about the industrial relations system that has existed even before the Fair Work Act came into effect – namely, that it will provoke a union-led wages blowout.
But two weeks’ ago the latest Wage Price Index was released by the Australian Bureau of Statistics; it showed that the annual increase in wages is a mere 3% – the lowest such increase, outside the period of the global financial crisis, for the past 10 years.But two weeks’ ago the latest Wage Price Index was released by the Australian Bureau of Statistics; it showed that the annual increase in wages is a mere 3% – the lowest such increase, outside the period of the global financial crisis, for the past 10 years.
In fact, since the introduction of the Fair Work Act in July 2009, other than for a short period in the first half of 2011, the annual increase has been well below the 10-year average.In fact, since the introduction of the Fair Work Act in July 2009, other than for a short period in the first half of 2011, the annual increase has been well below the 10-year average.
Inflation has been low during the past 18 months so it is worth looking at the spread of the wage price index to the consumer price index to get a sense of real wage growth. This measure is not the best one to use – using average wage earnings is better, but in the past six months the ABS has changed how it calculates those earnings, which makes comparing them over previous years rather difficult, so we’ll use this as a pretty good substitute:Inflation has been low during the past 18 months so it is worth looking at the spread of the wage price index to the consumer price index to get a sense of real wage growth. This measure is not the best one to use – using average wage earnings is better, but in the past six months the ABS has changed how it calculates those earnings, which makes comparing them over previous years rather difficult, so we’ll use this as a pretty good substitute:
The plunge to negative growth was due to the increase in inflation in 2007-09, not so much the increase in wages.The plunge to negative growth was due to the increase in inflation in 2007-09, not so much the increase in wages.
After the GFC, and the introduction of the Fair Work Act, real wages recovered to the pre-GFC average growth of about 1%. But, as you can see, they have now fallen to 0.4% annual growth.After the GFC, and the introduction of the Fair Work Act, real wages recovered to the pre-GFC average growth of about 1%. But, as you can see, they have now fallen to 0.4% annual growth.
If the data does not convince, then let us turn to the Reserve Bank. The bank explicitly examined wages in its latest Statement on Monetary Policy. It noted: “Business surveys and liaison suggest that wage growth remained subdued in the June quarter and firms have tended to report that they expect a moderation in wage growth over the period ahead.”If the data does not convince, then let us turn to the Reserve Bank. The bank explicitly examined wages in its latest Statement on Monetary Policy. It noted: “Business surveys and liaison suggest that wage growth remained subdued in the June quarter and firms have tended to report that they expect a moderation in wage growth over the period ahead.”
But Abetz was worried about wages growth over productivity. Thankfully, he can rest easy. The RBA also looked at that link and noted, “Unit labour costs ... declined over the year, with the sharp slowing in the growth of average earnings more than offsetting an easing in labour productivity growth from its recent fast pace.”But Abetz was worried about wages growth over productivity. Thankfully, he can rest easy. The RBA also looked at that link and noted, “Unit labour costs ... declined over the year, with the sharp slowing in the growth of average earnings more than offsetting an easing in labour productivity growth from its recent fast pace.”
For the past six years there has been a lot of hoo-hah said and written about industrial relations. As soon as the ALP moved to change IR legislation, warnings came from the Liberal party and conservative commentators of a wages boom. They also warned that the Fair Work Act would destroy productivity.For the past six years there has been a lot of hoo-hah said and written about industrial relations. As soon as the ALP moved to change IR legislation, warnings came from the Liberal party and conservative commentators of a wages boom. They also warned that the Fair Work Act would destroy productivity.
It didn’t.It didn’t.
In his campaign launch speech on Sunday, Tony Abbott talked of returning IR to the “sensible centre”. It’s a claim based on the view that unions now have too much power. If that is true, there is scant evidence they have used it to gain excess wage rises which have decoupled earnings from productivity.In his campaign launch speech on Sunday, Tony Abbott talked of returning IR to the “sensible centre”. It’s a claim based on the view that unions now have too much power. If that is true, there is scant evidence they have used it to gain excess wage rises which have decoupled earnings from productivity.
When the Liberal party does finally announce its changes to IR after the election, it would be nice if they could keep themselves to fixing problems that actually exist, and not ones that occur only in their imagination.When the Liberal party does finally announce its changes to IR after the election, it would be nice if they could keep themselves to fixing problems that actually exist, and not ones that occur only in their imagination.
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