Whenever the chance to advocate for higher wages arises, the Morrison government declines
In a move that will shock no one, the government, which on Wednesday was crowing about the news that the IMF had upgraded its outlook for Australia, is also arguing against any substantial increase in the minimum wage.
As the Australia Institute’s Alison Pennington noted, contradiction is a standard position when the government talks about the economy.
So too is a desire to play the greatest hits of conservative governments – wages can’t grow too fast because we need employment to grow strongly; employment is growing strongly but we need to give employer’s more powers; companies need strong profits because that will flow through to wages, but wages can’t grow too fast ...
Round and round it goes even after a period where company profits have grown absolute gangbusters while total wages declined:
Graph not displaying? Click here
The big reason profits grew last year is that the government’s form of a wage subsidy, jobkeeper, was paid to the employers and counted as revenue.
This was despite many companies – especially in the retail sector – seeing a massive rise in profits. Harvey Norman for example recorded a $462m net profits, and also received $22m in jobkeeper payments.
Nice work if you can get it ...
And yet now the government, in its submission to the Fair Work Commission, argues that the commission should “take a cautious approach” to raising the minimum wage.
The government argues the commission needs to take “into account the importance of creating jobs” and be wary of affecting “the viability of the businesses, particularly small businesses.”
The problem is the evidence that rises in the minimum wage reduce both job creation and the viability of businesses is more fantasy than reality.
A paper published in the RBA’s September 2018 Bulletin noted that minimum wage increases “are almost fully passed on to wages in award-reliant jobs, and appear to have had little adverse effect on hours worked or job loss”.
It further noted that “these findings are consistent with the international evidence.”
No one argues that a massive increase in the minimum wage would not have an impact, but even the Australian Council of Trade Unions’ call for a 3.5% increase is hardly massive – indeed it is essentially what was once considered standard.
It is also the level that the Reserve Bank wants wages to grow.
But this is the problem – the government and business groups say they want stronger wage growth, but they never want to do anything that would actually see wages grow stronger.
In 2015 for example, the Financial Review reported that “business groups are demanding that any increase in the minimum wage be modest or deferred this year.”
In 2016, AiGroup argued that a “modest minimum wage increase is warranted”. In 2017, it proposed a “modest minimum wage increase”. In 2018, it proposed a “modest ...” well, you get the idea.
The problem is our economy is still
weak, but that weakness comes very much from a lack of demand – and that lack has been around for a decade now as households become used to weak wages growth and in turn weak household income growth.
The IMF, for all the good news it suggests about Australia’s growth this year, does not project anything but below average growth out to 2026:
Graph not displaying? Click here A large part is weak inflation growth. The IMF projects inflation to grow below 2% until 2024, which is essentially when the Reserve Bank hopes it will get there.
But inflation is driven by wages – if wages don’t grow above 3%, prices will not get back to Reserve Bank’s target rate of 2.5%.
And yet, whenever the opportunity arises to advocate for higher wages, the Morrison government declines.
The reality is Australia did once have a relatively high minimum wage.
At the start of the century, Australia’s minimum wage relative to the median full-time wage was near the top of the OECD; but by 2019 we were close to the middle of the pack:
Graph not displaying? Click here In fact, it has been a long-term trend since the early 1990s for the value of Australia’s minimum wage to fall compared to the median wage.
In that same period other nations in the OECD have gone the other way such that now we have a pretty standard level of minimum wage:
Graph not displaying? Click here That is not to say that is a good thing – indeed the minimum wage should be higher than it is now – there is absolutely no reason why it is not at least back to the 58% of the median wage that it was during the minimum boom years.
Not only would that level give those on the minimum wage something closer to a living wage it would also help generate growth in the economy – growth which remains clearly needed and which the Morrison government needs to start actually doing more than just saying it wants.