People really have got Maurice Newman all wrong.
When the former ASX boss compared minimum wage rates across the Anglosphere and Europe, many assumed he was pushing for a pay cut for low paid workers.
In fact, in his roundabout way, he was making the case for the top-heavy wage structures of the major corporations to be heavily pruned.
He mightn’t have said so outright, but Newman was challenging company boards to rethink the way they set executive pay – instead of trying to match the highest rates on offer on the global market, he was urging them to go low-ball.
That, at least, seemed to be the logical extension of his argument.
In an incisive piece of analysis, uncluttered by arcane economic concepts such as purchasing power parity, Newman told the Committee for the Economic Development of Australia at a function on 11 November that a worker on the minimum wage in Australia working a 38-hour week earned $US33,355 a year, compared with $US22,776 a year for a worker on the Canadian minimum wage, and just $15,080 for an equivalent worker in the United States.
“We cannot hide the fact that Australian wage rates are very high by international standards,” he thundered, “and that our system is dogged by rigidities.”
His argument brought to mind an interesting piece of analysis in The Economist examining the labour share of national income. It cited figures from the Organisation of Economic Cooperation and Development showing that labour captured 62 per cent of all income in the 2000s, down from more than 66 per cent in the early 1990s.
The United States, which Maurice regards so enviously, has shared in the decline, though the pain is spread unevenly – there, the top 1 per cent of wage earners have seen their share of income increase while the remaining 99 per cent have suffered 4.5 percentage point decline.
As The Economist notes, this has meant that productivity gains are no longer translating into broad-based wage increases. Instead, the benefits are accruing to the owners of capital.
This is not just a northern hemisphere phenomenon.
Figures compiled by the Reserve Bank of Australia show that unit labour costs as a proportion of gross domestic product have shrunk since the early 1990s. And the latest Wage Price Index figures from the Australian Bureau of Statistics show that salaries are keeping just ahead of inflation – the index was up 0.5 per cent in the September quarter, taking annual wages growth to 2.65 per cent.
Interestingly, while some of this decline can be attributed to the effects of competition from cheaper imports, researchers at the University of Chicago have found that a substantial part of it is due to technology.
They found that the cost of capital goods, relative to consumer items, has plunged 25 per cent in the last 35 years, making it increasingly attractive to swap labour for technology.
If Maurice is really all about increased productivity, and isn’t just attempting to restart the class war from the top, he should drop his tired old wage cutting rhetoric and instead urge his business compadres to increase their capital investment.
Just a thought.
Outlier 