STEPHEN LONG. Reserve Bank boss Philip Lowe urges workers to push for pay rises

Jul 3, 2017

It wasn’t quite Karl Marx, but, for a central bank boss, it was heady stuff: The Reserve Bank governor, no less, exhorting workers to demand higher pay rises. 

For decades, calling on the workers to demand wage justice was the last thing you were likely to hear from the boffins who walk the hallowed halls of 65 Martin Place.

On the contrary, workers and unions were admonished for demanding pay rises; blamed for threatening to fuel inflation, undermine the profit share of national income, and ruin the economy.

How times have changed. Today, the wage-price spiral is dead and gone. The economy is facing what the Reserve Bank governor calls “a crisis of low pay”.

The wage price index, the most reliable indicator of labour costs, is at a record low. The profit share of national income is soaring, while the share going to workers is equal to the lowest level since the second world war.

Low pay is dragging on economic growth and the stagnation of wages sits uneasily with record household debt levels, creating concerns about what might happen when interest rates begin to rise.

Although the Reserve Bank has denied that wages stagnation threatens financial stability, some experts believe it is a concern.

“I think the reason why this comes out of the central bank particularly under this governor is that there is growing concern about default risk in Australian households,” says emeritus professor Dick Bryan, a political economist, who for years has been writing about the shifting of financial risk onto workers and household balance sheets.

“From the head of the finance industry in Australia, you would say there are alarm bells. People just don’t have enough discretionary income.

“Will they default on their mortgages, or their telephone bills or their electricity bills? But people are in a position where they going to start defaulting on bills if they don’t get more income.”

“This governor has been talking risk in households and a housing price bubble in a way that previous governors haven’t. His comments [on low pay] are acknowledging a vulnerability that was hitherto unacknowledged.

But what’s the remedy?

The Reserve Bank governor seems to assume that workers have more bargaining power than they realise.

In his recent comments, he argued that workers were not demanding pay rises because they feared job displacement by foreign workers and robots – fears he implied were overblown.

But it may well be that he is underestimating how profoundly structural changes in the world of work, and 30 years of legal changes designed to curb workers’ collective power, have undermined the capacity of working people to secure decent pay and conditions.

“Obviously, there is a handful of people at the top of the labour market, senior executives and managers and a few professionals who are able to do really well under a deregulated system,” says Professor Andrew Stewart of Adelaide University, one of Australia’s foremost labour law academics.

“But for most workers, weaker unions, tighter government controls on government spending and outsourced government services are all combining to make it really, really hard for workers to get wage increases

Governments might have achieved cost-savings and efficiencies from competition reforms that exposed government services to the discipline of the market, competitively tendering work and contracting out services to the lowest bidder, but the gains have often come at the expense of workers’ pay and conditions.

Curiously, Phil Lowe downplayed the impact of the decline in secure full-time jobs and the rise of precarious employment as a cause of pay stagnation.

But it’s plain that casual workers, workers on short-term contracts and labour hire workers who don’t have the security of permanent hire often aren’t in a strong position to bargain for better pay.

Just as critically, the risk, or threat, of work being outsourced to casuals and labour hire workers helps to keep permanent staff in line.

There’s a giant army of precarious workers.

According to the ABS, in a workforce of 11 million, nearly 2.5 million employees have no paid leave entitlements and about a million workers – one in nine – are self-employed contractors, though a share of that group is likely in sham contract arrangements – employees denied the rights and benefits that come with employmen

The change in the workforce that’s over the past quarter century is profound.

Some 40 per cent of the workforce was unionised in 1992; now fewer than 15 per cent of workers belong to a union and unionisation rates in the private sector will soon hit single figures.

These trends aren’t unique to Australia and neither is pay stagnation.

Britain, the United States, and other countries are all suffering the problem, with declining union density, globalisation putting pressure on wages, and the rise of precarious employment in the so-called “gig economy” playing a role.

So dire is the situation in Britain that the chief economist at the Bank of England has likened the situation to the days before the Industrial Revolution when there were no trade unions and self-employment was rife.

It was widely viewed as self-evident until recently that there was a fundamental inequality between the bargaining power of individual workers and employers, and a need for strong collective bargaining rights.

Now, most workers are on their own.

Yet few countries have gone as far as Australia in deny basic bargaining rights to workers.

“Our laws on industrial action are some of the most restrictive, if not the most restrictive, in the developed world,” says law professor Andrew Stewart from Adelaide University.

Employees’ rights to protect their employment in the negotiation process are also highly circumscribed, with restrictions on the ability of workers and unions to seek clauses limiting the use of casual workers or outsourcing work to labour hire firms.

The 7-Eleven scandal

and numerous other instances that have emerged since show, wage theft – the deliberate and systematic underpayment of wages – is rife.

The ability of unions to police wages theft has been undermined by tough legislative restrictions on unions’ rights of entry, so the task has fallen to the office of the Fair Work Ombudsman which has a fraction of the resources it needs to undertake the daunting task.

Recently, we’ve seen the Fair Work Commission accept employers’ arguments that workers should be pushed back onto basic award conditions as the floor for negotiating new pay deals

It’s a 180-degree turnaround from times not so long gone, when wages in Australia were set by quasi-judicial officers on an industrial tribunal through centralised wage fixing, and the pay gains won by strong unions in the field were flowed on to the weak through the award system.

“The whole terms of debate have shifted from that 30-year ago problem that workers would cause inflation and union strength would see wages pushed up and the profit share pushed down and the economy would grind to a halt,” says Professor Bryan.

“We’ve now flipped over to exactly the opposite problem.”

No one is seriously suggesting there be a return to centralised wage fixing.

But there’s a strong argument to say that at least part of the reason for the “crisis of low pay” is that the law is too skewed too far against working peoples’ rights to collectively bargain.

“It’s great to have that ambition of workers being able to demand wage increases,” says Professor Andrew Stewart, “but you’ve got 30 years of policy working against that.”

“We have an industrial environment that was designed to disempower workers and disempower unions,” says Dick Bryan.

“We are now seeing that it has shifted the power balance way too much in favour of employers and workers aren’t getting the share that is needed for economic stability.”

The Reserve Bank backed laws designed to undermine labour power in response to concerns – legitimate at the time – about wage inflation.

Is it now willing to consider that the pendulum has swung too far?


Stephen Long is an investigative reporter with the ABC, covering economics and finance.This article was first posted in ABC News on 29 June 2017


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