Ben Eltham | The Myth Of The Wage Breakout

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Business lobbies love to warn about the threat of wage rises to the Australian economy, writes Ben Eltham. In fact, modest rises for ordinary Australians are good for the state of our books

First published in New Matilda here

All of a sudden, industrial relations is back in the news.

For three years after the global financial crisis began, tough economic conditions held wages down and kept most unions and workers concerned about keeping their jobs, not negotiating a wage rise.

Now that the economy is well into the next boom (this week’s negative GDP figures notwithstanding), industrial disputes are again starting to re-appear.

So far, the industrial unrest has been confined to the historically dispute-prone industries of airlines and the waterfront, with aircraft engineers and waterfront workers both signalling their intent to take “protected” strike action against Qantas and Patricks. The NSW Government has also picked a fight with public sector unions there over its plan to limit wage growth for NSW public servants to 2.5 per cent annually (in other words, below inflation).

Both the Patricks and Qantas actions will be tests of the Gillard Government’s new industrial relations law, the Fair Work Act, and its new bureaucracy, Fair Work Australia.

One of the key things that Fair Work Australia does is make decisions on the minimum wage rate, and this morning it handed down a new ruling giving Australia’s low paid workers (they are not technically the lowest paid — apprentices and many sub-contractors do worse) a modest wage rise of $19.40 a week.

This takes the minimum wage in this country to $15.51 an hour, or $589.30 a week, scarcely a princely sum in an era of high rents and rising utility bills.

But it may be that a different decision handed down this week by Fair Work Australia has more impact. This was the decision in JJ Richards & Sons Pty Ltd v Transport Workers’ Union of Australia, made on Wednesday, about the seemingly insignificant issue of whether a handful of employees represented by the Transport Workers Union were allowed to take strike action after their employer, JJ Richards, refused to enter negotiations.

Fair Work Australia decided that they could take a ballot for a strike, despite the fact that bargaining had not formally begun (JJ Richards refused to bargain). The decision effectively sets out the conditions under which unions are allowed to take legally protected strike action. According to law firm Freehills, “this decision means that where an employer refuses to bargain unions can effectively bypass specific mechanisms established by the Act and resort to the more blunt form of leverage — the taking of industrial action.”

But judging by the reaction from employer groups, the sky has fallen in.

“This opens the door on a return to industrial chaos in the workplace,” Australian Chamber of Commerce and Industry boss Peter Anderson claimed on Wednesday.

The Australian Mines and Metals Association’s Steve Knott argued that “the Full Bench decision exposes employers to costly and protracted industrial action at the drop of a hat and at the whim of the minority for refusing to bargain.”

Coalition MP Jamie Briggs went further, calling the law “a cancer within the economy”.

“Ultimately this stuff is the beginning of the wage breakout,” he told the media.

Chaos in the workplace? Cancer in the economy? Wage breakout?

It must be hard representing business interests in Australia in 2011. Every week brings a new threat of the end of the world as we know it, from mining royalties to carbon taxes to a rise in the minimum wage.

Despite the rhetoric, however, wages are not rising very rapidly, and the outlook for the economy remains strong. In the Reserve Bank’s May statement on monetary policy, Glenn Stevens and his economists saw little in the way of wage pressures, pointing out that “most firms are not reporting significant difficulties finding suitable labour, with the exception of a few skilled professions and occupations, typically linked to the mining sector” and that there were large variations in the wage data, “with quite large increases in specialised occupations in some industries and reasonably subdued growth for lower-skilled employees in other industries”.

In fact, the macro-economic picture tells us that Australian workers are arguably receiving less than their fair share of the nation’s economic wealth. Wages are falling as a share of national income, while profits are rising, a long-running trend that has only accelerated during times of record resource profits.

Nor can it be argued that Australian wages are generally high. Certainly in some professions, such as merchant banking or company directors, and for some individuals, such as the lucky few with personal ownership of large resources companies, there is a case to make that wages are too high.

But, funnily enough, you won’t hear many complaints from the Australian Chamber of Commerce and Industry about excessive levels of executive pay. No, business lobby groups seem to be more worried about pay for ordinary workers, who by any measure have been remarkably restrained in their efforts to secure raises over the last decade of economic growth.

In fact, it’s hard to take anything said by Australia’s business lobby groups too seriously just at the moment. These groups have consistently argued economically untenable positions in regards to carbon regulation — for instance the Business Council of Australia’s spurious arguments about carbon leakage. (Ross Garnaut has been withering this week in his criticism of the “pissant” nature of much of this doom-saying.) Last year, these same lobbyists also argued that the mere threat of the Resource Super Profits Tax would destroy the Australian minerals and resource sector, at the very time the industry was busy announcing hundreds of billions of dollars in new investment.

Why are businesses worried about rising wages? The simple answer is “profits”. Paying workers more means paying owners less, and few investors or board members want to make less profit.

The slightly more sophisticated version of this argument is that wage rises lead to inflation — the dreaded “wage breakout” of economics lore.

There’s no doubt that rapid wage increases can lead to inflation, and that too much inflation is a bad thing — especially for our society’s poorest, who can find the price of essential goods and services rapidly escaping their reach.

But, as the Reserve Bank and any other credible analysis confirms, we are not in any danger of a wage breakout, except in a few narrow sectors of the economy such as mining and construction. Indeed, for those workers unlucky enough to be employed by trade-exposed export businesses struggling with the high Aussie dollar, the issue is not whether they will get a raise, but the survival of their jobs.

Further, given the determination of policy makers like the Reserve Bank and Treasury to keep inflation in check, the risk of rising wages seems overstated. The federal government is right now in the process of one of the fastest draw-downs in federal spending in history, and the Australian economy actually contracted in the March quarter.

If anything, modest across-the-board wage rises would be a good thing for Australia’s economy. We need only to look at the United States, where rampant inequality has resulted in falling real wages for the middle and lower tiers of the workforce there, to see what economic ruin can be wreaked when impoverished consumers run out of leverage.

In other words, don’t listen to anyone warning of a wage breakout. The only thing breaking out is the paranoia of corporate interests.

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