Thursday, December 14, 2017

Low wage rises have become routine. Here's why

An entire year without a pay rise? Prepare for another one, next year.

Wage rises used to be an annual phenomenon. The Bureau of Statistics says on average we got one every year. But since 2012 the length of time between them has almost doubled. The average has become once every 1.75 years. For every person that gets a wage rise more often than that, there will be someone who gets one less often.

And when the increases are delivered, they are smaller. If you get one after waiting almost two years, it is more likely to be 2 per cent than the average of 3.6 per cent that prevailed when they were handed out annually.

Back then three in 10 wage rises exceeded 4 per cent. Now it's less than one in 10. And the wage rises that are over 4 per cent are smaller: typically 5.75 per cent, down from 7.5 per cent.

It's an understatement to say it's caught the experts unawares. The employment minister has an entire department to proffer advice. Within months of taking office in as Tony Abbott's employment minister, Eric Abetz warned of a wages explosion. In Abbott's first budget and his next, and in Turnbull's first budget and his next, the Treasury forecast a wages takeoff. Not only did wage growth not climb as forecast, it fell further in each of those four years despite repeated predictions to the contrary.

And it did something remarkable. It's not unusual for the budget to forecast one thing and for reality to deliver another. A lot can happen over two years. But it is highly unusual for the budget to forecast the present and get it wrong.

The budget is delivered each May. The budget forecasts are finalised a few weeks earlier. The forecasts for the wage growth cover the year ahead to the next June quarter, and the year to the June quarter after that. As a point of reference, they also include a forecast of growth in the year to the present June quarter, the one the budget is in. In other words, they forecast the present.

Extraordinarily, in three of past five years the budget has got the present wrong. Wage growth was lower than the printed forecast, even while the forecast was being printed.

So concerned has been Treasurer Scott Morrison that he ordered a special report from the Treasury, one released only this month after Labor submitted a freedom of information request. It says while wage growth has dived in the mining industry (as would be expected, after the boom) it has also plunged everywhere else, as well as overseas. The dive can't be explained by lower productivity growth. It's been pretty stable at about its long-term average for the past five years meaning employers are getting as much extra out of workers as they used to.

Nor can it be fully explained by low inflation. There's scarcely any so-called "real" growth, above inflation.

And it certainly can't be explained by a low demand for workers.

Employers took on an astonishing 355,700 extra workers in the year to October, close to an all-time record. In the past three years they've taken on 766,000.

But the kind of jobs they are offering is changing. Bricklayers, machinery operators and retail workers typically perform "routine" tasks, no matter how skilled. In contrast, much of the work of nurses, engineers, managers and security guards is non-routine. They have to respond to emergencies.

The Treasury says automation and competition from overseas is eating away at routine jobs, both blue collar and white collar, especially those enjoyed by middle-income workers. It's the non-routine ones that are growing.

Some are highly paid. Others, such as security work and child care, are very poorly paid.

And we've produced so many university graduates that they are no longer protected. Until 2010, graduates got bigger wage rises than school leavers. Since 2010 their wage rises have been lower. And they are doing work below what used to be their station, in jobs that are increasingly just as under threat as other jobs.

It helps to work for a company whose workers are highly productive (which usually means a company that doesn't employ many workers or is growing rapidly). But don't expect to share in much of what it makes. The Treasury found that although workers in Australia's most productive companies typically produced 7.1 times as much as other workers, they were typically paid only 1.6 times as much.

Some of it is due to the fading power of trade unions. As recently as 1980, half of all Australian workers were in unions. By the time John Howard took office in 1996, it was 31 per cent. After years of measures aimed at promoting individual rather than collective bargaining (remember WorkChoices) it has slipped to 15 per cent. Not that it's all Howard's doing. Much of it is due to the rise in non-routine jobs. They've always been less unionised.

What can you hope for next year? One Monday the Treasury will release its mid year budget update. It's likely to forecast a pickup, like it usually does.

In The Age and Sydney Morning Herald