Source : THE AGE NEWS
The craziest thing about this election is that we’re into the last week of the campaign without anyone much bothering to mention the word “wages”. Really? We’re too obsessed by the cost-of-living crisis to have any interest is what has happened, and will happen, to our wages?
Is it possible our voters could be so detached from reality that they don’t see the link between prices and wages? It reminds me of the person who voted for Trump because “prices went up, and they’ve never come back down”.
That’s right, sir, the general level of consumer prices goes up and rarely falls back. That’s why it’s nice to see your wage rising in line with the rise in prices, or even a bit faster than prices. If that’s what happens, you don’t have a lot to complain about.
Anthony Albanese (left) and Peter Dutton.Credit: Fairfax Media
Is it possible some people think the government can do something about rising prices but has nothing to do with wages?
Actually, the proportion of workers who are members of a union has fallen so far – to 13 per cent – that many workers may feel they have no say in what happens to their wage, and neither does the government. The boss increases your pay occasionally if she feels like it.
The fact is that the cost of living is always high on ordinary people’s list of complaints. But it became a particular concern in 2022 because of the huge surge in prices caused by the pandemic. The annual rate of increase in prices got to about 8 per cent, but is now back down to the 2 to 3 per cent range we’ve become used to.
Trouble is, wages didn’t rise as much as prices did and, to make matters worse, in its efforts to get the inflation rate down, the Reserve Bank caused interest rates on home loans to rise by more than 4 percentage points. As well, “bracket creep” took an extra bite out of workers’ after-tax pay.
That’s what explains the voters’ obsession with the cost of living. But the surge in prices was set in train before the Albanese government won the last election in May 2022. So the real questions are: what has this government done about it, and would a change of government improve the prospects for the cost of living?
We can learn a lot from a new research paper by one of the nation’s top labour-market economists, Professor David Peetz, of Griffith University and the Australia Institute’s Centre for Future Work.
Peetz finds that, despite a fall in “real” wages (that is, after allowing for price rises) during the COVID pandemic and the subsequent surge in prices, by December 2024, real wages had recovered to be equal to what they were at the end of 2011.
Whether voters know it or not, the federal government does influence the size of wage rises via its regulation of the wage-fixing rules.
Two things to note. First, this is wages before taking account of income tax. Real after-tax wages would not have recovered to their level 13 years earlier, because of the bracket creep made greater by the price surge.
Second, over those 13 years, the productivity of labour improved by 15 per cent. So none of the benefit of that improvement was shared with workers – contrary to the assurances of businesspeople, politicians and economists that, by some magic process, productivity automatically increases real wages.
Sorry, there’s nothing automatic about it. If workers don’t have the bargaining power to insist on their fair share of the spoils, employers don’t pass it on.
What labour-market economists understand, but most economists (including Reserve Bank boffins) keep forgetting, is that wage rates are determined not simply by the balance of supply and demand for labour, but also by the employees’ bargaining power relative to the employers’ bargaining power.
Peetz’s examination of 16 factors that influence or indicate power in the jobs market shows that “almost all economic and labour market trends in the past half century have reduced workers’ power”.
To be precise, he finds that 14 of the 16 factors indicate reduced workers’ bargaining power.
Here’s a list of the 14 – reduced union membership, a reduced proportion of workers whose wages are bargained collectively by unions, fewer days lost through strikes, the advent of the gig economy, businesses’ increased use of labour-hire companies, increased casual employment, fewer workers changing jobs, increased outsourcing of work, industries dominated by fewer firms, more issuing of temporary visas to foreign workers, use of non-compete clauses in employment contracts, increased franchising of businesses, increased importance of share-market capital, and increased competition from low-wage imports.
The two factors indicating increased workers’ power are the gradual decline in the gender pay gap and the fall in the rate of unemployment since 2010, although it’s been creeping up since 2023.
Peetz sees the influence of this overall decline in workers’ bargaining power in figures for the average annualised wage increases under new enterprise agreements. They gradually declined from about 3.5 per cent in 2014 to 2.5 per cent by 2022.
But in the two years since then, the average reached a peak of 4.8 per cent, and was higher in every quarter than it was in any quarter between December 2014 and December 2022.
Why the improvement? Peetz argues it’s because of the change in government industrial relations policy since the election of the Albanese government in mid-2022.
Whether voters know it or not, the federal government does influence the size of wage rises via its regulation of the wage-fixing rules. It can shift the balance of bargaining power between employees and employers. Under the Howard and subsequent Coalition governments it was shifted in favour of employers; under the Albanese Labor government it’s been shifted back in favour of employees and their unions.
And whether voters know it or not, the many hundreds of minimum wage rates set out in industrial awards – covering about the bottom quarter of workers – are increased on July 1 every year by an amount determined by the Fair Work Commission.
The federal government can influence these decisions by urging the commission to be generous or stingy. I’ll leave it to you to guess which side of politics likes to see bigger increases, and which prefers smaller.
Ross Gittins is the Economics Editor of The Sydney Morning Herald.
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