The economy’s prospects are threatened by various risks from overseas – about which we can do little – and by continuing weakness in wage growth – about which the two sides contesting the May federal election have little desire to talk.
In his major economic speech last week, Scott Morrison gave wages only a passing mention: “by focusing on delivering a strong economy we create the right environment for wages growth, which we are now beginning to see, and more will follow”.
Actually, you need a microscope to see any improvement. The microscope shows that most of it is explained by the Fair Work Commission’s hefty 3.5 per cent increase in minimum wage rates last June.
(And why was it so generous? To offset the effect on pay packets of its earlier decision to phase down Sunday penalty rates.)
Not, however, that Bill Shorten has had a lot more than Morrison to say about the causes and cure of weak wage growth. Presumably, Shorten fears that anything he says about changes to wage fixing will be used to feed yet another scare campaign about him being a patsy for a union takeover.
Two or three years ago, I was happy to entertain the view still publicly espoused by the Reserve Bank (and still happily hidden behind by Morrison) that the wage problem was simply cyclical: wages are taking longer than expected to recover from the ups and downs of the resources boom but, be patient, they’ll come good soon enough.
Sorry, that possible explanation gets harder to believe as each quarter passes without any sign of nominal wage growth moving ahead of weak inflation, so as to give employees their rightful share of the improvement we’ve achieved in the productivity of their labour.
(And thus – ScoMo please note - giving the boost to real household disposable income, then consumer spending and then business investment spending, that has always been the greatest single contributor to “delivering a strong economy”.)
No, as years pass without the cycle restoring real wage growth, it becomes easier to believe the problem arises from some deeper issue with the structure of the economy.
The most popular structural explanation – best espoused by Professor Joe Isaac, an eminent labour economist – is that the “reform” of wage fixing went too far in shifting the balance of industrial bargaining power in favour of employers.
Isaac’s various proposals for reforming the reform – including restoring unions’ right of entry to the workplace, reducing the rigmarole before workers can strike, and restoring permission for industry-wide bargaining – would no doubt have crossed Labor’s mind for serious consideration should it win the election.
But another noted labour economist, former top econocrat Dr Mike Keating, has his doubts. He says he has no great objection to Isaac’s wage-fixing reforms, but doubts they’ll get wages moving because the structural problem is much deeper.
As argued in detail in his book with Professor Stephen Bell, Fair Share, and many articles and blogs, Keating sees our wages problem in the much broader context of the malaise of “secular stagnation” that’s been gripping the US and other advanced economies for at least a decade.
Keating reminds us that wage growth has been weak in most of the advanced economies for several decades, accompanied by rising inequality.
The distribution of earnings (that is, wages, rather than income from all sources) has become more unequal, Keating argues, mainly because of technological change and, to a lesser extent, globalisation.
Technological change has been “skill-biased”, with strong growth in high-skilled employment, and reasonable growth in unskilled jobs, but a decline in middle-level jobs, where routine jobs are being done by computers.
The result is a change in the structure of employment, one which increases earnings inequality. If so, it’s not a problem that could be fixed by higher wage-rates.
Keating says we’ve been slow in Australia to see what’s increasingly been realised overseas and by the international economic agencies: income inequality is bad for economic growth (mainly because the high-paid save rather than spend a higher proportion of their incomes).
But Keating’s more fundamental policy response to the problem of technology-driven weak wage growth and increased inequality is enhanced education and training, to help workers adjust to the challenges posed by new technologies, as well as spur the adoption of those technologies.
He’d give priority to early childhood learning and life-long learning through the TAFE system. He's happy to note this would require us to pay more tax rather than less – another thought the pollies don’t want us thinking about right now.
