Opinion

Richard Denniss
The truth about Australia’s wages

Like the dog that caught the car, Australian conservatives have succeeded in a decades-long quest to crush the bargaining power of unions and workers. And, in turn, they have succeeded in crushing average wage growth. But now they seem to have no idea what to do with their trophy. Indeed, the record-low wage growth “delivered” by the Coalition was a major cause of Australia’s anaemic economic growth heading into the Covid-19 crisis, according to the Reserve Bank governor, Philip Lowe, and the federal Treasury secretary, Dr Steven Kennedy. Needless to say, the pandemic has only made things worse.

Now, after 30 years of changes to Australia’s industrial relations system, we are being told, yet again, that what the economy really needs is another good dose of industrial relations reform. It’s vital, the government says, to make it even easier for employers to lower wages and erode working conditions. What could go wrong?

Low wage growth is the key to Australia’s macroeconomic troubles. When wage growth is low for years, as it has been, it’s no surprise that consumer spending growth is low as well. It’s not complicated.

But what passes for economic debate in Australia is dominated by simple stories that are simply wrong. Everyone has heard the story about the “mum and dad” business that can’t afford to pay higher wages because business has been bad for years. But the government and the business community refuse to tell the more important story. And that is the story of the workers who couldn’t get a pay rise, so they had to spend less and less at the shops owned by the “mums and dads”.

Wages aren’t like other business costs. While they are an expense for businesses, they are also the major income source for Australians. And, as the Reserve Bank governor, the Treasury secretary and virtually every economist who doesn’t work for an employer lobby group has observed, if Australia can’t find a way to boost wages, there is no way we are going to find a way to boost the amount of money being spent in the shops owned by the mums, the dads or the Gerry Harveys.

But the Covid-19 pandemic hasn’t merely exposed the economic cost of Australia’s broken wage-bargaining system. It has also highlighted the personal and social costs of Australian employers’ determination to employ workers on short-term casual contracts.

When the Covid-19 crisis first hit Australia, it was casual workers who were on the front lines. Hundreds of thousands of casuals – the majority of whom were women – lost shifts or jobs. But casualisation doesn’t just amplify inequality, it also helps to accelerate the spread of infectious disease.

Time and again, Australians have heard stories of how cleaners, security guards and workers in other highly casualised occupations have inadvertently spread the virus because they had to work in multiple venues to earn a living wage. And, despite the enormous economic and human costs of outbreaks and lockdowns, there is still no national acceptance – even a year into this crisis – that all workers in quarantine hotels should be offered enough work that they do not need to take a second job.

Letting sick people stay home isn’t just the right thing to do, it’s the best way to stop millions of colleagues and customers from getting sick as well. Every year at flu season, the lack of protections for casual workers spreads illness and affects productivity.

Despite the overwhelming evidence that wage stagnation and casualisation are harmful to our economy and our health, the Morrison government has recently introduced new legislation that will make it easier for employers to cut wages and conditions. Even the bitter taste of hot muffler hasn’t diminished the Coalition’s desire to keep chasing cars.

The prime minister is betting most Australians will pay little attention to debates about industrial relations. Most Australians aren’t members of unions, have never been on strike and, while there isn’t much data on this, have likely never negotiated a wage rise directly with their boss.

Nearly 20 years ago, back when we were obsessed with how different Generation X was, and before we started to obsess about millennials, I sat down with hundreds of young people to talk about their work. I was intrigued by a lot of the commentary at the time, which suggested young people entering the labour market in the early 2000s were so confident, ambitious and independent that they didn’t need unions or anyone else to help them negotiate with their bosses. As someone who’d always found it hard to knock on my boss’s door and ask for more money, I thought that was a fascinating cultural shift. But it turned out there was a simpler explanation: it was all crap.

Among the more than 200 young people I spoke to – who the newspapers had told me were the most confident generation ever – only one said they had ever actually asked for a wage rise. It turned out that person worked for their dad.

When I asked all those people how and where their pay rises came from, the majority confessed to having no idea. When I suggested perhaps it was up to them to seek a pay rise, the most common response was, “That’s not how it works.”

So, where do wage rises come from? Why will some workers get no wage rise this year and others will get a 4 per cent increase? And why should people who have never been in a union or been involved in an industrial dispute care about the changes to Australia’s industrial relations being proposed by the Morrison government?

Wage rises don’t fall from the sky. They aren’t a gift from benevolent employers and, as a quick look at the Australian data shows, they are far from inevitable. While many chief executives have had a bumper year during the Covid-19 crisis, many of their employees are doing it tough. It certainly seems to be easier for most CEOs to negotiate pay with their boards than it is for most workers to negotiate with those same CEOs.

Just as the price of a house or a car is determined by a combination of market forces and negotiating power, so are wages. Some people are willing to negotiate hard, which sometimes means they get a good price and sometimes means they miss out. Others try to negotiate the price of everything, which can sometimes save them $100 on a new TV and often earn them looks when they try it on in a cafe or restaurant. Then there is the cohort – probably most people – who find negotiating very, very difficult. And this group is exactly why labour unions have evolved in every democracy in the world.

The new laws proposed by the Morrison government will remove what is called the better-off-overall test, which is currently employed by the Fair Work Commission when it is looking at new enterprise agreements. The BOOT test, as it’s known, is specifically designed to ensure that any new agreements, as the name suggests, make workers better off, relative to the minimum wage and conditions guaranteed by the modern awards. The only reason to remove this obligation is if you plan to draw up new agreements that make employees worse off.

The laws are also designed to overturn the results of two recent Federal Court cases, which found that employers who were employing full-time workers for years at a time, and calling them “casuals” to avoid providing industry-standard wages and conditions, were responsible for back pay due to underpayment. Think about that: Australia has been suffering from outbreaks of low wages and casualised work for years. Yet when the Federal Court rules that some employers have been gaming the system, the Morrison government wants to change the laws to allow the behaviour to continue.

Low wage growth and casualisation are not unintended consequences; they have been the goal of the Coalition and the business community for decades. For 30 years we have been told that such goals, if achieved, would deliver benefits that would trickle down to all Australians. But it didn’t work then, and there is no reason to think it ever will.

This article was first published in the print edition of The Saturday Paper on Feb 13, 2021 as "The truth about Australia’s wages".

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Richard Denniss is The Australia Institute’s chief economist.