Don’t believe anyone – not even a governor of the Reserve Bank – trying to tell you the Fair Work Commission’s decision to increase minimum award wages by 5.75 per cent is anything other than good news for the lowest-paid quarter of wage earners.
Because they are so low-paid, and mainly part-time, these people account for only about 11 per cent of the nation’s total wage bill. So, as the commission says, the pay rise ‘‘will make only a modest contribution to total wages growth in 2023-24 and will consequently not cause or contribute to any wage-spiral’’.
But that’s not the impression you’d get from all the wailing and gnashing of teeth by the main employer group, the Australian Chamber of Commerce and Industry. It claims ‘‘an arbitrary increase of this magnitude consigns Australia to high inflation, mounting interest rates and fewer jobs’’.
These are the sort of dramatics we get from the Canberra-based employers’ lobby before and after every annual wage review. They lay it on so thick I doubt anyone much believes them.
But it’s worse than that. In the age-old struggle between labour and capital – wages and profits – most economists have decided long ago whose side they’re on, and long ago lost sight of how one-eyed they’ve become.
For a start, many of the talking heads you see on telly work for big businesses. They’re never going to be caught saying nice things about pay rises.
Econocrats working for conservative governments have to watch what they say. And parts of the media have business plans that say: pick a lucrative market segment, then tell ’em what they want to hear.
In my experience, there’s never any shortage of experts willing to fly to the defence of the rich and powerful, in the hope that some of the money comes their way.
But I confess to being shocked in recent times by the way the present Reserve Bank governor, Dr Philip Lowe, has been so willing to take sides. The way he preaches restraint to ordinary workers struggling to cope with the cost of living, but never urges businesses to show restraint in the enthusiasm with which they’ve been whacking up their prices.
It’s true that Lowe has a board that’s been stacked with business people, but that’s been true for all his predecessors, and they were never so openly partisan.
When businesses take advantage of the excessively strong demand that Lowe himself helped to create, that’s just business doing what comes naturally, and must never be questioned, even in an economy characterised by so much oligopoly – big companies with the power to influence the prices they charge.
But when employees unite to demand pay rises at least sufficient to cover the rising cost of living, this is quite illegitimate and to be condemned. The more so when a government agency such as the Fair Work Commission acts to protect the incomes of the poorest workers.
On Friday, the commission set out what has long been the rule for fair and efficient division of the spoils of the market system between labour and capital: ‘‘in the medium to long term, it is desirable that modern award minimum wages maintain their real value and increase in line with the trend rate of national productivity growth’’.
In other words, wage rises don’t add to inflation unless their growth exceeding inflation exceeds the nationwide (not the particular business’) trend (that is, over a run of years, not just the last couple) rate of growth in the productivity of labour (production per hour worked).
But last week, in his appearance before a Senate committee, Lowe was twisting the rule to suit his case, setting nominal (before taking account of inflation) unit labour costs (labour costs adjusted for productivity improvement) not real unit labour costs as the appropriate measure.
He told the senators that growth in labour costs per unit of 3 or 4 per cent a year was adding to inflation because the past few years had seen no growth in the productivity of labour (which, of course, is the fault of the government, not the businesses doing the production).
This is dishonest. What he was implying was that wage growth should not bear any relationship to what’s happening to prices at the time. Wage growth should be capped at 2.5 per cent a year every year, come hell or high water.
Without any productivity improvement, any wage growth exceeding 2.5 per cent was inflationary. Should the nation’s businesses choose to raise their prices by more than 2.5 per cent, what was best for the economy was for the workers’ wages to fall in real terms.
Now, Lowe is a very smart man, and I’m sure he doesn’t actually believe anything so silly. Like the employer groups, he’s cooked up a convenient argument to help him achieve his KPIs. He sees the inflation rate as his key performance indicator.
He’s got to get it down to the 2 to 3 per cent target range, and get it down quick. He ain’t too worried what shortcuts he takes or who gets hurt in the process.
When he claims that, absent productivity improvement, wage rises far lower than the rate of inflation are themselves inflationary, what he really means is that they make it harder for him to achieve his KPIs.
Clearly, the wage rise that would help him get the inflation rate down fastest is a wage rise of zero. It would plunge the economy into recession, and businesses would have a lot more trouble finding customers, but who cares about that?
It’s not true that sub-inflation rate pay rises add to inflation. What is true is that the bigger the sub-inflation rise, the longer it takes to get inflation down. But he doesn’t like to say that.
Why’s he in such a hurry he’s happy for ordinary workers to suffer? Because he lies awake at night worrying that, if it takes too long to get inflation down, inflation expectations will rise and a wage-price spiral will become entrenched.
Does Treasury secretary Dr Steven Kennedy also lie awake? Doesn’t seem to. He told the senators last week that ‘‘there are no signs of a wage-price spiral developing and medium-term inflation expectations remain well anchored’’.
If ever there was a general fighting the last war, it’s Lowe.
Meanwhile, please don’t say business profits seem to be going fine. It may be true, but please don’t say it. Business doesn’t like you saying such offensive things, and business’ media cheer squad goes ape.
Economics Editor, Sydney Morning Herald.
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