Wages Growth

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<div>Wages grew by just +0.48 per cent in the September 2017 quarter, to be +2.01 per cent higher over the year.</div>
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<div>Superficially this looks like a bit of an improvement, and at least it can be said that wages are growing a bit ahead of the rate of inflation. Just. </div>
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<div>And including bonuses the annual increase was a slightly more upbeat +0.7 per cent for the quarter, and +2.2 per cent for the year. </div>
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<div>However, the result this quarter was pumped up by the minimum wage increase, and you can see in the chart below that a number of industries (such as accommodation &amp; food) how this inflated the quarterly numbers. </div>
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<div>Over the year the industries with the most robust wage price growth included healthcare &amp; social assistance (+2.7 per cent), arts &amp; recreation services (+2.7 per cent), and education &amp; training (+2.4 per cent).</div>
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<div>On the other hand wages growth in the mining sector (+1.2 per cent) remains very low, as it does in professional, scientific, &amp; tech services (+1.5 per cent). </div>
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<div>Annual wage price growth in the private sector remains super-low at just +1.86 per cent, with wage price growth in the public sector some way higher at +2.37 per cent. </div>
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<div>The public sector index has outpaced the private sector since the peak of the resources construction boom. </div>
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<p><br><strong><span style="text-decoration: underline;">Resources states slow</span></strong></p>
<div><strong><span style="text-decoration: underline;"> </span></strong></div>
<div>At the state level Queensland, Victoria, and Tasmania each recorded wages growth of +2.2 per cent, while New South Wales (+2.1 per cent) also recorded reasonable growth. </div>
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<div>However, there were considerably weaker results in Western Australia (+1.3 per cent) and the Northern Territory (+1.4 per cent). </div>
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<div>Western Australia recorded the fastest pace of wages growth through the mining boom, but is now coming back to the pack. </div>
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<p><br><strong><span style="text-decoration: underline;">The wrap</span></strong><br><br></p>
<div>Overall, while it's positive to note annual wages growth moving a bit higher and ahead of the rate inflation, in reality this was a very soft result which missed expectations, having been puffed up by the minimum wage increase.<br><br>Not much in the way of pre-Xmas cheer to be found here! </div>
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pwargent-M4siyDbqQY

Wages growth at snail's pace: Pete Wargent

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<p>EXPERT OBSERVER<a href="http://petewargent.blogspot.com/2019/02/vic-closes-in-on-full-employment" style="font-family: Helvetica, Arial, sans-serif; font-size: 13px;"> </a></p>
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<div><strong><span style="text-decoration: underline;">Wages tick along</span></strong></div>
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<div><span>More wages weakness reported in the December 2018 quarter, though I doubt it'll be enough to move the needle for the Reserve Bank's view too much. </span></div>
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<div><span>Wages growth was +0.6 per cent for the private sector, and +0.6 per cent for the public sector, seasonally adjusted, decimal point quibbles aside. </span></div>
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<div><span>Annual growth in private sector wages of +2.29 per cent was still plenty slower than in the public sector at +2.53 per cent.</span></div>
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<div><span>However, this was the 'fastest' annual pace of growth in private sector - if you can justifiably use the word fast in this context - in the four years since December 2014.</span></div>
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<div><span>And it's also well ahead of headline inflation, which could feasibly sink to just 1½ per cent next quarter on lower fuel prices. </span></div>
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<br><div>As noted here previously (h/t Justin Smirk, Westpac) Victoria has been creating a thunderous volume of job openings and is nipping along nicely towards full employment, so wages will almost certainly pick up here. </div>
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<br><div>Indeed, at the state level for all sectors Victoria (+2.7 per cent) and New South Wales (+2.4 per cent) have accounted for most of the improvement since the nadir, while sprightly Tasmania (+2.6 per cent) is resurgent from a low base. </div>
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<br><div>Not much joy here in Western Australia, though we should acknowledge that WA has seen by some margin the greatest increase in wages over the past two decades, so a bit of post-boom payback was perhaps due. </div>
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<br><div>At the industry level the strongest wages growth was seen in healthcare and social assistance (+2.8 per cent), and electricity, gas, water, and waste (+2.8 per cent), while the weakest growth was in IT &amp; Telcos (+1.6 per cent). </div>
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<div><strong><span style="text-decoration: underline;"><span>The wrap</span></span></strong></div>
<div><span> </span></div>
<div>
<span>Still pretty sluggish overall, but skilled job vacancies came in at a near </span><span>7-</span><span>year high today, so there's still probably just enough evidence that the jobs market might pull through, provided credit flows a bit more freely in 2019. </span>
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<em>PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>.</em> </div>
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More wage weakness but VIC close in on full employment

jrobinson-rf4aSBido9

Strong employment not leading to improved unemployment or wage growth: RBA's Guy Debelle

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<p>Declining union membership is unlikely to be responsible for low wage growth, a research discussion paper from the Reserve Bank of Australia (RBA) has suggested.</p>
<p>The report, entitled<em> Is Declining Union Membership Contributing to Low Wages Growth?,</em> was authored by RBA economists James Bishop and Iris Chan looked at micro data, covering all enterprise agreements federally registered between 1991 and 2017.</p>
<p>It set out to test whether the hypothesis that the decline in union membership since the 1950s caused a fall in the bargaining power of workers, which in turn has contributed to low wages growth in recent years.</p>
<p>However, the report found that is unlikely that recent low wages growth is a result of changing unionisation patterns.</p>
<p>“First, there has been no decline in the share of employees covered by enterprise agreements negotiated with union involvement even as union membership has declined,” the report stated.</p>
<p>“Second, the ‘union wage growth premium’ in the private sector has been stable over time.</p>
<p>“Third, spillover effects from union involvement in enterprise agreement negotiations onto wage outcomes in other enterprise agreements exist, but have not changed materially over time.”</p>
<p>The full report is available to read <a href="https://www.rba.gov.au/publications/rdp/2019/pdf/rdp2019-02.pdf">here</a>.</p>
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j.ballantyne1990-6AQqhLzZaK

Declining union membership not the cause of low wages growth: RBA

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<p>GUEST OBSERVATION</p>
<p>Labor is promising a “living wage” rather than a “minimum wage” if elected.</p>
<p>It will ask the Fair Work Commission to first determine what wage would offer a “<a href="https://brendanoconnor.com.au/news/latest-news/labor-will-make-sure-the-minimum-wage-is-a-living-wage/" target="_blank">decent standard of living for families</a>”, and then to determine the time frame over which it should be phased in, taking into account the capacity of businesses to pay, and the potential impact on employment, inflation and the broader economy.</p>
<p>It is selling the idea of what would be a very big increase on the present minimum wage as “good for workers and good for the economy”.</p>
<p>“Consumer spending makes up 60% of the Australian economy,” its employment spokesperson Brendan O'Connor said. “When low-paid workers get a pay rise, they spend it in the local shops and help small businesses. It’s good for everyone.”</p>
<p>The idea harks back to the 1907 <a href="http://worksite.actu.org.au/the-harvester-judgement-and-australias-minimum-wage/" target="_blank">Harvester judgement</a>, in which an arbitration court judge decreed that wages at a Melbourne factory should be based on the cost of living “for a worker and his family”.</p>
<p>To get there from the current bare minimum wage of A$18.93 per hour would almost certainly require increases bigger than the sum of productivity growth and inflation, which are running at a combined annual rate of around 3%.</p>
<p>Unacknowledged by Labor in spruiking the policy this week was the fallacy of its consumer spending argument, the cost of the proposal to jobs, and the likelihood that it won’t much help many of the people who need it.</p>
<p><strong>The false increased spending argument</strong></p>
<p>One of the claimed benefits of a living wage is that employees will spend most of their extra income, resulting in large increases in national spending, national income, and even the tax take.</p>
<p>An implicit assumption is that the extra money comes “as manna from heaven” with no second-round effects.</p>
<p>But given that other labour costs won’t come down (it is hard to see executive pay being cut), the labour cost for each affected business will climb, pushing down returns to the providers of capital, including the returns to shareholders and small business owners.</p>
<p>With lower returns, less capital will be put up to invest.</p>
<p>Where businesses can, they will pass on the increased costs not matched by increased productivity by increasing prices.</p>
<p>They will get away with it unless they face competition from imports or other exporters.</p>
<p>Where import competitors and exporters face international competition, they will reduce output. In turn, the greater amount of money sent out of the country will eventually push down the Australian dollar, pushing up the Australian dollar price of import and export products.</p>
<p>In the short term, the increases in prices of goods and services will cut the purchasing power of the wage increase. In the longer term, it might create a vicious cycle of wage and price hikes, with adverse economic consequences.</p>
<p><strong>The bad news on jobs</strong></p>
<p>It is well established that wage increases above the rate of productivity growth plus inflation lead to less employment than there would otherwise be, in both the number of employees and the hours worked per employee.</p>
<p>Labour costs are a major expense for most businesses.</p>
<p>In response to higher labour costs, many employers will choose less labour-intensive ways of making their products. The large and rapid wage increases in the mid-1970s and early 1980s resulted in sharp reductions in employment. In contrast, the recent low rates of labour cost increases have helped drive significant increases in employment and a fall in unemployment.</p>
<p>With the Australian economy facing a likely slowdown over the next year or two, a large increase in wages might be particularly poorly timed.</p>
<p><strong>The false hope for those most in need</strong></p>
<p>Universal education and health care, and the redistribution of income via social security payments funded by a progressive income tax, are the most direct and effective ways to fight household poverty.</p>
<p>The world today is very different to the world of the Harvester case in 1907. Then, most workers were in full-time employment and needed a living wage to support a family. Now, about a third are employed part-time. Redistribution via the tax and payments system is how we support families who need it.</p>
<p>A higher minimum or “living wage” would provide minimal assistance to some on low incomes, and would lift the incomes of many others not generally considered in need of support.</p>
<p>Many of those below the poverty line who are only employed part-time or not at all would not be lifted out of poverty. A higher living wage would provide more to those already in full-time jobs than it would to part-time workers.</p>
<p>And it would provide more to low-wage employees who are members of high-income families, who probably shouldn’t be our first concern.</p>
<p>We can do more more directly to alleviate poverty by reforming the income tax and social security systems. They are specifically designed to redistribute income according to need.</p>
<p>We should start by reducing income tax on low earnings, automatically indexing tax brackets, and increasing Newstart.<img src="https://counter.theconversation.com/content/114359/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><em><strong>John Freebairn</strong>, Professor, Department of Economics, University of Melbourne</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-false-hope-offered-by-talk-of-a-living-wage-114359" target="_blank">original article</a>.</em></p>
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The false hope offered by talk of a living wage: John Freebairn

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<p>GUEST OBSERVATION</p>
<p>For the past half-decade Australian wages have barely moved after adjusting for inflation.</p>
<p>In the United States the picture is far bleaker — the real wages of average workers have changed little <a href="http://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/" target="_blank">in 40 years</a>.</p>
<p>Not so for US chief executives.</p>
<p>In 1965 the heads of America’s 350 biggest companies earned 20 times what the average worker did. By 2017 they earned <a href="https://www.epi.org/files/pdf/152123.pdf" target="_blank">312 times as much</a>.</p>
<p>As is often the case, things aren’t quite as extreme in Australia, but the pattern is similar. In 2017 the heads of the 100 biggest ASX-listed companies earned an average of <a href="https://www.acsi.org.au/images/stories/ACSIDocuments/generalresearchpublic/CEO-Pay-in-ASX200-Companies-2017.Jul18.pdf" target="_blank">A$4.75 million</a> – roughly 78 times as much as the average worker.</p>
<p>They get the bulk of their income not from their salaries, but from stock options or payments tied to the share price of the companies they run.</p>
<p>It at least raises the possibility than one way to get pay to rise for average workers is to structure their pay a little more like that of chief executives.</p>
<p><strong>There are upsides to paying workers in shares…</strong></p>
<p>Paying workers in the stock of the company would not affect the day-to-day profitability of the company. It would just mean the shareholders owned a bit less of the company.</p>
<p>That might not sound like an important distinction, but the everyday costs —- of which wages and salaries can be a big part -— help determine how competitive a firm is compared to its rivals. Paying workers in stock could give firms a strategic advantage.</p>
<p>It could also better align their interests with those of senior management and shareholders. It could reduce intra-firm conflict about wages, benefits and employment terms.</p>
<p>One manifestation occurs when executives receive large payouts from stock options while “ordinary workers” are facing redundancies or pay cuts.</p>
<p>Giving workers a slice of the same type —- if not the same level -— of compensation could help reduce this conflict.</p>
<p><strong>…and downsides</strong></p>
<p>If the idea was perfect, we would go to the extreme and pay workers exclusively in stock.</p>
<p>We wouldn’t, in part because equity-based compensation imposes risk on workers, as workers employed by firms whose share price is falling know well.</p>
<p>A basic principle of contract theory – the field that gave rise to the 2016 Nobel Prize in Economic Sciences for its creators Oliver Hart and Bengt Holmstrom – is that if a compensation contract imposes more risk on an employee than wages, it’ll need to be larger than wages on average to make up for the additional risk. It would cost the firm more.</p>
<p>And it would encourage workers to put most of their investment eggs in one basket (the same basket that employs them), which is always a bad idea.</p>
<p>Despite appearances, for many or even most, it woudln’t link their efforts to their compensation. Stock price movements often have little to do with the efforts of paper-shufflers or cleaners. Another key principle of contract theory is that it is suboptimal to reward workers for luck.</p>
<p><strong>Shadow equity might be better</strong></p>
<p>New developments in blockchain technology offer a way to link the efforts of employees to an equity-like security —- or what one might call “shadow equity”.</p>
<p><a href="https://bitcoin.com.au/understanding-token-sales-initial-coin-offerings-part-1/" target="_blank">Initial Coin Offerings</a> are used in the US as an alternative to venture capital. They involve creating a digital currency that is linked to performance but not to share price.</p>
<p>They can be used to invest in or bet on specific components of a company. Take the pharmaceutical giant Pfizer. It has a whole portfolio of drugs. Buying stock in Pfizer is a bet on its entire portfolio. But suppose Pfizer issues, say, 1 million Xtandi tokens to help it develop the colon cancer drug Xtandi. Suppose it also agrees that all future purchases of Xtandi will have to be done with those tokens. That would link the aggregate value of those tokens to the value of revenue from the drug.</p>
<p>An investor who bought those tokens would be betting on a specific part of Pfizer’s portfolio.</p>
<p>The idea could be extended to traded securities tied to a granular level of performance within an organisation. It wouldn’t mean it was possible to have securities in the impact of single worker (expect perhaps for superstars such as actors or recording artists) – but it would be conceivable to have such securities for divisions of companies, or even teams within divisions.</p>
<p><strong>How could it work?</strong></p>
<p>It will take time for these technological developments to play out, but there are steps we could take to hasten it. One would be increased tax deductibility for equity-based compensation.</p>
<p>We are not suggesting workers’ pay be cut to allow equity-based compensation, or that it not rise to keep up with the cost of living. But as extra pay rises happen from time to time, they could be offered in the form of shadow equity.</p>
<p>It would mean workers would be paid (at least in part) the same way as executives. And it might start to reverse the trend of rising executive to worker pay ratios.</p>
<hr>
<p><em>The <a href="https://www.assa.edu.au" target="_blank">Academy of the Social Sciences in Australia</a> is one of Australia’s four learned academies. The ASSA coordinates the promotion of research, teaching and advice in the social sciences, promotes scholarly cooperation across disciplines, comments on national needs and priorities in the social sciences, and provides advice to government on issues of national importance.</em><img src="https://counter.theconversation.com/content/113362/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;"></p>
<p><em><strong>Rosalind Dixon</strong>, Professor of Law, UNSW</em></p>
<p><em><strong>Richard Holden</strong>, Professor of Economics, UNSW</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/introducing-shadow-equity-a-fresh-idea-to-escape-the-low-wage-trap-113362" target="_blank">original article</a>.</em></p>
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Introducing shadow equity: a fresh idea to escape the low wage trap

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<p>GUEST OBSERVATION</p>
<p>The long debate over the causes of wage stagnation took an unexpected turn last week, when Finance Minister Matthias Cormann described (downward) flexibility in the rate of wage growth as “<a href="https://www.magic1059.com.au/news/national-news/88452-low-wage-growth-not-all-bad-minister" target="_blank">a deliberate design feature of our economic architecture</a>”.</p>
<p>It was a position that was endorsed in a flurry of confusion <a href="https://www.news.com.au/finance/economy/australian-economy/sixteensecond-backflip-turns-interview-into-trainwreck/news-story/fe62507c8e961d6381f510133cd68563" target="_blank">16 seconds after it had been rejected</a> by Defence Industry Minister Linda Reynolds.</p>
<p>Cormann had said policies aimed at pushing wages up could cause “massive spikes in unemployment”.</p>
<p>The ease with which Reynolds was trapped into at first rejecting and then accepting what her ministerial colleague had said flowed from the fact that Cormann had broken one of the standing conventions of politics in Australia, and for that matter, the English-speaking world.</p>
<p>For more than forty years, both the architecture of labour market regulation and the discretionary choices of governments have been designed with the precise objective of holding wages down.</p>
<p>These policies have been quite successful, as can be seen from the graph.</p>
<p>However, at least until recently, there has been bipartisan agreement on at least one aspect of them – that no one should mention their role in holding back wages.</p>
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<p><a href="https://images.theconversation.com/files/264070/original/file-20190315-28499-eksq75.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/264070/original/file-20190315-28499-eksq75.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a></p>
<p><em><a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0" target="_blank">ABS Australian Accounts, seasonally adjusted</a></em></p>
<hr>
<p>Instead, the decline in the wage share of national income has been variously blamed on:</p>
<ul>
<li>technology</li>
<li>immigration</li>
<li>imports from China and, more recently,</li>
<li>the end of the mining boom.</li>
</ul>
<p>None of these explanations stand up to scrutiny.</p>
<p>The idea that technology is driving the wage share down is perhaps the most popular.</p>
<p>But technological change has been continuous, if uneven, since the beginning of the Industrial Revolution in the 18th century. Most of the time, workers have shared in the resulting productivity gains.</p>
<p>There have however, been a number of exceptional periods in which workers have been harmed.</p>
<p>They have been times when the balance of power had favoured employers. At those unusual times, any kind of disruption, whether caused by new technology or not, has had the potential to enable employers to break working conditions and cut wages.</p>
<p>Right now, for example, there is no necessary reason for the ability to do business over the Internet to harm workers. In many ways it empowers workers by reducing the information advantages of big employers.</p>
<p>But in an environment where unions are weak and working conditions are vulnerable to erosion, the outcome is firms like Airtasker, where workers bid against each other to perform outsourced tasks, <a href="https://theconversation.com/all-care-and-no-responsibility-why-airtasker-cant-guarantee-a-minimum-wage-76943" target="_blank">often for less than the minimum wage</a>.</p>
<p>There is nothing new about this kind of working arrangement.</p>
<p>It could be seen outside the wharves on Sydney’s “<a href="https://theconversation.com/all-care-and-no-responsibility-why-airtasker-cant-guarantee-a-minimum-wage-76943" target="_blank">Hungry Mile</a>” in the 1930s, where workers went from wharf to wharf each day hoping for work, or today on street corners in the United States, where (often undocumented) construction workers gather in the mornings hoping to be picked for work.</p>
<p>But if technology isn’t to blame, what is?</p>
<p><strong>The overlong shadow of the overhang</strong></p>
<p>The real story begins in the early 1970s, when there was an upsurge in inflation associated with the breakdown of the post-war <a href="https://en.wikipedia.org/wiki/Bretton_Woods_system" target="_blank">Bretton Woods</a> system of fixed exchange rates , and soaring prices in commodity markets including that for oil. The result was a “wage-price spiral” as both wages and prices rose at unexpected annual rates of more than 10%.</p>
<p>In a nation with a history of strong trade unions, decades of full employment, and the boundless faith in the future forged by the 1960s, wages grew faster than prices as both spiralled upwards.</p>
<p>By the time rising unemployment began to bite, and inflation slowed down, the wage share of national income had risen to an unprecedented 62%.</p>
<p>Reining in this “<a href="https://www.rba.gov.au/publications/rdp/1988/pdf/rdp8806.pdf" target="_blank">real wage overhang</a>” became the central preoccupation of macroeconomic policy throughout the 1970s and 1980s.</p>
<p>This made sense at the time. But, as in other fields, ideas formed in the 1970s and 1980s continued to dominate the thinking of policymakers long after they had either been proven to be failures or rendered obsolete by changing circumstances, as was the case with policies designed to hold back wages.</p>
<p>The policies had several elements. There were a series of changes in industrial relations law, most of which have attacked unions and weakened the bargaining power of labour.</p>
<p>The Fraser government introduced Sections 45D and 45E of the Trade Practices Act <a href="https://www.legislation.gov.au/Details/C2004A02274" target="_blank">banning secondary boycotts</a>, that is, action in solidarity with other workers. Fraser also created the Industrial Relations Bureau, the first of a series of industrial “police forces”.</p>
<p>On its election in 1996, the Howard government introduced the <a href="https://www.legislation.gov.au/Details/C2006C00104" target="_blank">Workplace Relations Act 1996</a> which extended scope for non-union agreements. After winning a Senate majority in 2004, Howard introduced <a href="https://en.wikipedia.org/wiki/WorkChoices">WorkChoices</a> which limited the scope of collective bargaining, and wound back protections against dismissal.</p>
<p>The Industrial Relations Bureau maintained at least a pretence of impartiality. By contrast, the organisations created by the Abbott and Turnbull governments (the Registered Organisations Commission and Australian Building and Construction Commission) have been so nakedly anti-union that they have repeatedly <a href="https://www.afr.com/news/politics/police-wanted-to-prosecute-over-awu-raids-leak-senate-estimates-hears-20190218-h1bdmu">broken the law</a> <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-09-13/abcc-nigel-hadgkiss-resigns-over-breach-labor-pressures-cash/8942558" target="_blank">they are supposed to uphold</a>.</p>
<p>Labor governments have wound back some of the most extreme measures, but have not changed the general direction of policy.</p>
<p>Even measures that appeared superficially favourable to workers turned out differently. For example, in 1993 the Keating government introduced the concept of “protected industrial action”.</p>
<p>It was some time before it became apparent that the result was <a href="https://www.theguardian.com/business/grogonomics/2015/mar/16/industrial-action-is-at-near-record-lows-but-businesses-will-still-blame-unions" target="_blank">to abolish any general right to strike</a>, something that exists in almost every other democratic government.</p>
<p>As Minister for Workplace Relations, Bill Shorten introduced measures that were pitched as protecting penalty rates through a review process undertaken by the Fair Work Commission. A few years later, in a highly politicised process, the Commission <a href="https://www.liberal.org.au/latest-news/2017/02/23/fair-work-commission-review-penalty-rates" target="_blank">used the process to cut penalty rates</a>.</p>
<p>Coalition governments have also used the power of the state directly against unions. Notable examples include the string of <a href="https://www.royalcommission.gov.au/royal-commission-trade-union-governance-and-corruption" target="_blank">royal commissions</a> created by the Abbott government and the use, in 1998, of ex-military strikebreakers to break the Maritime Union of Australia. Their training and deployment was facilitated by a government consultant who <a href="https://www.theage.com.au/technology/battle-on-the-waterfront-20070512-ge4vby" target="_blank">worked with the major waterfront employer, Patricks</a>.</p>
<p>orchestrating the offshore training of the replacement workforce through the actions of consultant Stephen Webster and other shadowy ex-military figures.</p>
<p>Finally, macroeconomic management has operated on the basis that any increase in wages is a danger signal requiring a tightening of fiscal and monetary policy. A notable example, was the warning by then Employment Minister Eric Abetz in January 2014 months after taking office that Australia faced a “<a href="https://ministers.jobs.gov.au/abetz/industrial-relations-after-thirty-years-war-address-sydney-institute" target="_blank">wages explosion</a>”.</p>
<hr>
<p><a href="https://images.theconversation.com/files/264082/original/file-20190315-28483-4y15qz.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/264082/original/file-20190315-28483-4y15qz.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a></p>
<p><em> <a href="https://www.propertyobserver.com.au/http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0" target="_blank">ABS Wage Price Index</a></em></p>
<hr>
<p>Far from “exploding”, wage growth slid and hasn’t recovered.</p>
<p>More striking than his failed prediction, was Abetz’ assumption, taken for granted in policy debate, that any substantial increase in wages would be disastrous.</p>
<p>It is only in the last few years that this assumption, inherited from last century, have been challenged.</p>
<p>The Reserve Bank in particular has become an advocate for higher wage growth.</p>
<p>Yet as Cormann’s incautious outbreak of truthtelling has shown, the view has yet to percolate through to Australia’s elites.</p>
<hr>
<p><em><strong>John Quiggin</strong>, Professor, School of Economics, The University of Queensland</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/ultra-low-wage-growth-isnt-accidental-it-is-the-intended-outcome-of-government-policies-113357" target="_blank">original article</a>.</em></p>
<p><em>The <a href="https://www.assa.edu.au" target="_blank">Academy of the Social Sciences in Australia</a> is one of Australia’s four learned academies. The ASSA coordinates the promotion of research, teaching and advice in the social sciences, promotes scholarly cooperation across disciplines, comments on national needs and priorities in the social sciences, and provides advice to government on issues of national importance.<img src="https://counter.theconversation.com/content/113357/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1"></em></p>
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Ultra low wage growth isn’t accidental - it is the intended outcome of government policies

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<p>EXPERT OBSERVATION</p>
<p>The good news is that wages growth has continued to lift from its 2016 low point of 1.9% year on year. However, the lift in wages growth largely owes to a faster increase in the minimum wage for 2017-18 of 3.3% which was up from 2.4% for the previous year and now to a rise of 3.5% for this financial year. Were it not for the acceleration in minimum wage increases, wages growth would still be running at around 2%, so there is still little evidence of significant pick up in underlying wages growth.</p>
<p>Fortunately at least the uptick in wages growth to 2.3% when inflation is just 1.9% means that real wages growth is at least positive. That said at 0.4% year on year real wage growth is still very small and won’t provide much of a boost to consumer spending.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2018/11/15/wages.jpg" target="_blank">Click here</a> to enlarge</em></p>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/11/15/wages.jpg" alt=""></p>
<p><em>Source: ABS, AMP Capital</em></p>
<p>Falling unemployment should help contribute to a pick-up in wages growth but with the level of unemployment and underemployment remaining very high at 13.3% it’s still hard to see a significant acceleration in wages growth. To get wages growth up to a more reasonable 4% probably requires labour market underutilisation to fall to around 10% at least.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2018/11/15/underemployment.jpg" target="_blank">Click here</a> to enlarge</em></p>
<p><span> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/11/15/underemployment.jpg" alt=""></span></p>
<p>Source: ABS, AMP Capital</p>
<p>In other data released today, consumer confidence for November rose 2.8%, with news of lower unemployment and falling petrol prices possibly offsetting news of falling home prices. It’s still stuck in the same range it’s been in all year though. Against this the NAB business survey showed a slight fall in business confidence in October, with both consumer and business confidence running around similar levels which are around or a bit above long term averages.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2018/11/15/consumer%20confidence.jpg" target="_blank">Click here</a> to enlarge</em></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/11/15/consumer%20confidence.jpg" alt=""> </p>
<p><em>Source: NAB, Westpac/MI, AMP Capital</em></p>
<p><strong>Implications</strong></p>
<p>While it’s good to see wages growth up from its lows two years ago, beyond an acceleration in the minimum wage, which affects about 20% of the workforce, we are yet to see a meaningful pick up in underlying wages growth. This is a drag for consumer spending and will help keep inflation stuck around the low end of the 2-3% inflation target.</p>
<p>As result we remain of the view that the RBA won’t start raising interest rates until 2020 at the earliest and given the housing related downturn there is a significant chance that the next move could turn out to be a rate cut – although this would be unlikely before second half next year as it will take a while to change the RBA’s relatively upbeat thinking on the economy and rates.</p>
<p>With the Fed hiking and the RBA on hold (or maybe even cutting at some point) the Australian dollar still has more downside.</p>
<p><strong><em>SHANE OLIVER</em></strong><em> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.</em></p>
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soliver-smf6LQXgW9

Consumer confidence up but business confidence down: Shane Oliver

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<p>EXPERT OBSERVER</p>
<p>Households are feeling the pinch from frozen wages feeds into slower economic growth, and policymakers need to find a solution. </p>
<p><a href="https://www.smh.com.au/business/the-economy/rbas-philip-lowe-says-australians-fear-foreigners-and-robots-20170619-gwtr20" target="_blank">The crisis really is in real wage growth.</a> – Reserve Bank Governor Philip Lowe, 2017</p>
<p>Increased inequality and low wage growth are constraining economic growth. But why is wage growth so low? And how should policymakers respond?</p>
<p><a href="https://wir2018.wid.world/" target="_blank">Income inequality has increased significantly</a> in most advanced economies since the early 1980s. In particular, very low rates of wage increase are widely blamed for the weak growth in aggregate demand this century and <a href="http://larrysummers.com/2016/02/17/the-age-of-secular-stagnation/" target="_blank">secular stagnation</a> since the Global Financial Crisis. The GFC was itself brought on by the rise in consumer debt that was used at first to support demand in an attempt to offset the impact of weak wage growth.</p>
<p>Fairfax columnist Ross Gittins recently <a href="https://www.smh.com.au/business/the-economy/with-wage-growth-on-the-blink-it-s-time-to-restore-union-bargaining-power-20180727-p4ztym" target="_blank">noted</a> that “many economists were disappointed by this week’s news … that consumer prices rose only 2.1%”. That was because low inflation is “usually a symptom of weak growth in economic activity and, in particular, of weak growth in wages”.</p>
<p><iframe style="border: none;" src="https://datawrapper.dwcdn.net/tJ5vC/2/" frameborder="0" width="100%" height="500"></iframe></p>
<p>Thus, today it is widely agreed that wages need to increase faster. The <a href="http://www.oecd.org/social/in-it-together-why-less-inequality-benefits-all-9789264235120-en.htm" target="_blank">OECD</a>, the <a href="http://www.imf.org/external/pubs/ft/weo/2015/02/" target="_blank">IMF</a>, leading US scholars, former US Treasury Secretary <a href="https://www.foreignaffairs.com/articles/united-states/2016-02-15/age-secular-stagnation" target="_blank">Larry Summers</a>, Nobel prize winner <a href="http://evonomics.com/joseph-stiglitz-inequality-unearned-income/" target="_blank">Joseph Stiglitz</a> and most recently Stephen Bell and I in our book, <a href="https://www.mup.com.au/books/9780522872279-fair-share" target="_blank">Fair Share</a>, have all argued that increasing inequality is bad for economic growth.</p>
<p>To solve this problem, the critical issue for policymakers is what is causing this rising inequality and weak wage growth? Unless we better understand the causes, we are unlikely to achieve an effective policy solution.</p>
<p>First, we can quickly dismiss the <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/radio/programs/am/treasurer-says-tax-cuts-for-big-business-will-boost-wages/9399324" target="_blank">explanation offered</a> by federal Treasurer Scott Morrison, whose so-called “economic plan” assumes present low wage growth will respond positively to higher company profits. According to Morrison, a company tax cut will lead to more investment and thus more jobs, so eventually the benefits will trickle down and increase wages.</p>
<p>Unfortunately, this logic is the reverse of reality. It ignores the evidence that slow wage growth across all the developed economies has been a problem over a couple of decades now.</p>
<p><a href="https://images.theconversation.com/files/232195/original/file-20180816-2924-1yqkxof.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/232195/original/file-20180816-2924-1yqkxof.png?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a></p>
<p><span class="caption">Slow wage growth is a continuing long-term problem in the developed economies.</span><span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/"><br></a></span></p>
<p>In fact, the evidence strongly suggests higher profits will not drive higher wages. The benefits of a company tax cut will largely be returned to shareholders, while the only wages that increase will be those of senior management.</p>
<p>Instead, higher investment will require increased consumer demand. And that in turn depends on stronger wage growth. In short, aggregate demand in a flat economy, like ours, is wages-led. Wages drive investment, not the other way around.</p>
<p>Broadly speaking, there are two serious schools of thought about what is causing weak wage growth and rising inequality.</p>
<p>One explanation puts most of the blame on a weakening of trade-union power.</p>
<p>The other explanation emphasises the impacts of technological change and, to a lesser extent, globalisation on the labour market. Together technology and globalisation are said to have changed job structures and demands for skills. They have reduced the share of middle-level jobs, which has directly increased income inequality, and they can depress the demand for labour more generally and thus wages in developed countries, but especially for less skilled labour.</p>
<p>These two explanations are not mutually exclusive – both may have played a role. However, I want to consider their relative significance as the basis for arguing which policy responses should be given priority.</p>
<p><strong>Trade union power in Australia and its impact</strong></p>
<p>A very distinguished professor of labour economics and former Industrial Relations Commission deputy president, Joe Isaac, <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8462.12270" target="_blank">recently argued</a> persuasively that an important explanation of slow wage growth is “to be found in the change in the balance of power in favour of employers and against workers and unions”.</p>
<p>Isaac starts by noting that union membership in Australia has fallen from about 50% of all employees in the 1970s to the present 15%. This is one of the lowest rates in the OECD.</p>
<p><iframe style="border: none;" src="https://datawrapper.dwcdn.net/YF9vA/1/" frameborder="0" width="100%" height="400"></iframe></p>
<p>Isaac also finds some correlation between income inequality (measured by the Gini coefficient) and trade union density for 11 OECD countries. More relevant, though, would be the change in inequality relative to the change in union membership, especially as Australia has always had a relatively high Gini coefficient.</p>
<p>Isaac argues that this loss of membership and the reduced authority of the Fair Work Commission has weakened the bargaining power of organised labour in Australia. Employers are now able “to determine no wage increase or an increase less than their profits would warrant, with less resistance from workers and unions”. Although Isaac admits that “this conclusion is based on the association over time of union power decline and slow wages growth”, he concludes that “it seems reasonable to claim, at least prima facie, a causal connection between them”.</p>
<p>I am more sceptical. While I wouldn’t rule out any impact on wages and employee conditions from a decline in trade union membership and the possibly associated changes in the power of the Fair Work Commission, I question Isaac’s analysis for the following reasons.</p>
<p>First, it is uncertain how much trade union power has declined as a result of loss of membership. Another test of trade union power is the proportion of wages determined by awards and collective agreements – as Isaac shows, this proportion has largely remained the same in Australia. Indeed, in some countries, such as France, trade union membership has always been very low, but they have a highly centralised system of wage determination, which allows the unions a lot of influence.</p>
<p>Second, other countries have also experienced increases in inequality – much greater than in Australia in most cases – but don’t seem to have experienced any notable loss of union power. For example, some of the biggest increases in inequality over the last 30 years, as measured by the Gini coefficient for final disposable income, have <a href="https://data.oecd.org/inequality/income-inequality.htm" target="_blank">occurred in countries like Sweden, Finland and Germany</a>, which are not associated with any loss of trade union power.</p>
<p>Third, Isaac’s analysis of wage inequality focuses entirely on a decline in the wage share of total <a href="https://www.investopedia.com/terms/f/factor-income.asp" target="_blank">factor income</a>. This ignores changes within the distribution of earnings. These latter changes are more important in many countries, and certainly for Australia.</p>
<p><iframe style="border: none;" src="https://datawrapper.dwcdn.net/zkOUG/2/" frameborder="0" width="100%" height="450"></iframe></p>
<p>While the wage share in Australia has declined since the 1970s and early 1980s, this was at least partly a result of deliberate policy under the Hawke/Keating governments’ Accord with the trade unions, when it was accepted that the wage share had been too high. Even today the <a href="http://ace2017.org.au/wp-content/uploads/2017/07/Declan-Trott-Full-Paper.pdf" target="_blank">wage share is still higher than in 1960</a>, when the economy was generally considered to be performing exceptionally well.</p>
<p>Fourth, the changes in the distribution of earnings largely reflect changes in the structure of occupations rather than changes in relative wage rates. But trade unions seek to influence wage rates, and it is difficult to see how they can exert much direct influence over the structure of jobs.</p>
<p>For these various reasons, I don’t think the loss, if any, of trade union power can explain much of the increase in inequality in most countries over the last 30 years. It is necessary to look elsewhere for the explanation, and the main driver seems to have been the impact of technological change.</p>
<p><strong>Impacts of technology and globalisation</strong></p>
<p>In <a href="https://www.mup.com.au/books/9780522872279-fair-share" target="_blank">Fair Share</a>, Stephen Bell and I examine the causes of increased inequality over the last 30 years in most of the advanced economies. A critical starting point is to distinguish between changes in the job structure and changes in relative wage rates. As we <a href="https://books.google.com.au/books?id=CwtNDwAAQBAJ&amp;pg=PT135&amp;dq=%22no+change+in+relative+wage+rates,+but+employment+increased+faster%22&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwjo7u3o7evcAhUI7bwKHTz_AO4Q6AEIJzAA#v=onepage&amp;q=%22no%20change%20in%20relative%20wage%20rates%2C%20but%20employment%20increased%20faster%22&amp;f=false" target="_blank">note</a>:</p>
<p>Even if there were no change in relative wage rates, but employment increased faster for both high-paid and low-paid jobs, the earnings distribution would show up as more unequal. What would have happened is that the composition of the top and lowest deciles of earnings would have altered, which would increase the median income of the top decile and reduce the median income of the lowest decile, which would in turn be reported as an increase in the inequality of earnings.</p>
<p>The consensus in the studies we reviewed is that increased inequality of earnings largely reflects the impact of technological change. Globalisation and increased participation in global value chains may also have played a role, but less so in Australia, which we attribute to Australia having a more flexible labour market than, say, America.</p>
<p>We also surmise that <a href="https://theconversation.com/finance-drives-everything-including-your-insecurity-at-work-101107" target="_blank">increased financialisation</a> and the capture of rents generated by technological change may help explain the very large increase in remuneration for the top 1%.</p>
<p>Interestingly, the OECD specifically rejected the hypothesis that regulatory changes have helped drive any significant increase in inequality. It <a href="http://www.oecd.org/els/soc/dividedwestandwhyinequalitykeepsrising.htm" target="_blank">found</a> that “the net effect of regulatory reforms on trends in ‘overall earnings inequality’ remains indeterminant in most cases”.</p>
<p>The principal impact of technological change, and globalisation to a lesser extent, has been to reduce the share of middle-level jobs. In particular, new <a href="https://www.propertyobserver.com.au/https://www.oxfordmartin.ox.ac.uk/publications/view/1314" target="_blank">information</a> and <a href="http://ceda.com.au/Research-and-policy/All-CEDA-research/Research-catalogue/Australia-s-future-workforce" target="_blank">communications technology</a> has had its <a href="http://www.urbanvillageworld.com/resource_center/Offshoring%20Article%20-%20Foreign%20Affairs1.pdf" target="_blank">greatest impact</a> on <a href="http://www.imf.org/en/Publications/WEO/Issues/2017/04/04/world-economic-outlook-april-2017" target="_blank">relatively routine tasks</a> <a href="https://www.propertyobserver.com.au/https://ideas.repec.org/p/mlb/wpaper/1192" target="_blank">involving middle-level jobs</a>, such as clerical occupations and the operation of basic machinery.</p>
<p>Technological change has also driven the fall in the relative price of capital goods. This has led to some substitution of capital for labour. Again, this is “particularly pronounced in industries with a high predominance of routine tasks”, as the <a href="http://www.oecd.org/els/oecd-employment-outlook-19991266.htm" target="_blank">OECD notes</a>.</p>
<p>These changes in job structure and the relative decline in the middle-level jobs have been the most important cause of increasing inequality in many countries, including Australia. Technological progress has also led to an increase in the demand for skills. In some countries that has increased the premium paid for skilled labour, but the extent of this depends upon the policy response affecting the supply of skills.</p>
<p>In Australia’s case, Bell and I <a href="https://www.mup.com.au/books/9780522872279-fair-share">find</a> that the premium for skills, and consequently relative wage rates, did not change much because of the increase in education and training effort. Accordingly, much of the increase in earnings inequality in Australia reflects changes in the job structure rather than changes in relative wage rates (see also <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-8462.2003.00296.x" target="_blank">Keating</a> and <a href="https://www.propertyobserver.com.au/https://ideas.repec.org/p/mlb/wpaper/1192" target="_blank">Coelli &amp; Borland</a>).</p>
<p><iframe style="border: none;" src="https://datawrapper.dwcdn.net/ivRs4/1/" frameborder="0" width="100%" height="550"></iframe></p>
<p><strong>So what does this mean for policy?</strong></p>
<p>Consistent with his view that a weakening of trade union power has driven the increase in inequality, Isaac <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1467-8462.12270">recommends</a> changing the Fair Work Act to rectify “the unbalanced industrial power in the labour market”. I can support most of Isaac’s recommended changes, and especially greater rights of union entry, which should help better police adherence to awards and wage agreements.</p>
<p>I also agree that Isaac’s recommended legislative changes are unlikely to result in unions abusing their increased power. This is because, as he puts it, “there are now prevailing forces, such as global competition and structural changes, which will continue to keep union power in check”.</p>
<p>However, these “prevailing forces” are what really caused most of the increase in inequality, as discussed above. I therefore doubt that these legislative changes will do much to reverse the increase in earnings inequality.</p>
<p>Instead, the best way to respond to the impact of technological change on the job structure and possible associated changes in wage premiums is to improve education and training. Enhanced education, training and labour market policies will help workers adjust to the challenges posed by new technologies and will also spur the adoption of those technologies.</p>
<p>In addition, if the supply of skills thereby increases in line with the increase in their demand, there should not need to be any change in relative wage rates. Although these types of reforms take time, in the end they can boost both aggregate demand and potential output, with benefits all round.</p>
<p>In short, as Thomas Piketty, in his <a href="http://www.hup.harvard.edu/catalog.php?isbn=9780674430006" target="_blank">major study on inequality</a>, <a href="https://books.google.com.au/books?id=T8zuAgAAQBAJ&amp;pg=PA313&amp;dq=%22the+best+way+to+increase+wages+and+reduce+wage+inequalities%22&amp;hl=en&amp;sa=X&amp;ved=0ahUKEwiepIuH--vcAhVEVLwKHa5_D6EQ6AEIJzAA#v=onepage&amp;q=%22the%20best%20way%20to%20increase%20wages%20and%20reduce%20wage%20inequalities%22&amp;f=false" target="_blank">concluded</a>:</p>
<p>To sum up: the best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills.</p>
<p><em><strong>Michael Keating<a href="https://theconversation.com/profiles/michael-keating-528224"></a></strong>, Visiting Fellow, College of Business &amp; Economics,</em> <em>Australian National University</em></p>
<p><em>This article was originally published on</em> The Conversation. </p>
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