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Monday, August 07, 2017

We've got the low wage growth we sought

It's better sometimes when we don't get to touch our dreams.

The incoming Coalition government wanted low wage growth, badly.

Within weeks of taking office in 2013 employment minister Eric Abetz upbraided "weak-kneed employers" whom he said were unable to "just say no".

They were all for the carrot, but saw no role for the stick.

He led by example, abolishing the Commonwealth guidelines for cleaners employed in places such as Parliament House. It meant that when their contracts expired the workers who cleaned his office would get just $17.49 an hour (the minimum wage) instead of the $22.02 they had previously been guaranteed; an absolute pay cut of 20 per cent.

He offered defence force staff just 1.5 per cent a year, less than inflation and the least in living memory. He said he expected other public servants to get the same or less. He offered staff in his own department just 0.5 per cent, along with cuts in conditions. Several agencies offered nothing – pay rises of zero per cent – with government endorsement.

The worst thing about his call to arms was the timing. Wage growth was in free-fall. A year earlier it had been 4.3 per cent. When he spoke, it was below inflation at 2.5 per cent, it's now below inflation at 1.9 per cent.

The previous Coalition government, led by John Howard, had done much of the work for him. Its WorkChoices legislation made it harder for unions to win pay rises. With employees in many workplaces forced to negotiate individually, employers with the power to hire and fire had the upper hand.

It didn't matter much while the economy was booming. Employers desperate to find staff willingly bid up rates. But when things turned down, the upper hand became decisive.

By then much of the WorkChoices infrastructure had been stripped away, but so too had much of the union infrastructure. Membership fell further. In 1996, when Howard took office, 31 per cent of the Australian workforce was represented by a union. The latest figure is 15 per cent.

Another of his changes made it hard for unions to exercise power even when they found a seat at the table. Shortly after becoming prime minister he introduced the Temporary Work Skilled Subclass 457 visa, otherwise known as the 457.

Employers facing shortages could take in an unlimited number of skilled workers from overseas. They'd have to be paid Australian wages, but the ability of employers to get them in rather than bid up Australian wages left unions with little to bargain with.

Even without 457s, Australians were facing competition from overseas.

The boom in Chinese manufacturing which took off under Howard made Australian prices uncompetitive. The higher dollar, pushed up by China's demand for Australian raw materials, made Australian manufacturers even less competitive.

White-collar work, including answering phones and providing legal and accountancy advice, can be done more cheaply overseas. Technology is also making traditional workers expendable. Uber drivers do what taxi drivers did for half the price. Self-driving taxis and trucks will do it for even less.

It isn't all bad. Low wage growth appears to have helped Australian businesses keep workers on during the global financial crisis. It has meant the government has spent less than it expected on wages and wage-linked pensions, as well as getting less than it expected from bracket creep.

But it gives the people on those slowly-growing wages a sense that they need to be careful. We are saving far more than we used to, and switching jobs less often. We're battening down the hatches, hanging on, in the hope that something picks up.

In The Age and Sydney Morning Herald