Record low wage growth gives lie to Abbott’s IR obsession

The ridiculousness of the Abbott Government’s industrial relations obsession has been thrown into stark relief by figures showing wages are growing at their slowest rate since at least 1997.

The Wage Price Index measured by the Australian Bureau of Statistics rose by 0.7 per cent in the December quarter, taking annual growth to 2.6 per cent – the lowest rate in the 16-year history of the series.

The result gives a lie to the inflated rhetoric about out-of-control wage claims blasted out by the Government in recent weeks as it has tried to pin the blame for a succession of high-profile factory closures such as SPC, Holden, Toyota and Alcoa on workers.

It is hard to have much confidence in the economic grasp of the Government while they carry on with their IR sideshow.

Sure, wages are part of Australia’s relatively high (by international comparison) cost base, but so are energy and other utility charges, transport costs, regulatory fees and so on.

Relatively high wages, by themselves, should not be automatically seen or portrayed as something bad and undesirable, as many IR obsessives try to make out. Just ask any merchant banker.

They become a concern where they are not supported by similarly high productivity, and that can be due to a combination of factors that include (but are not limited to) work practices, such as management and investment.

The recent mining investment boom provided a prime example. Resource companies, rushing to cash in on sky-high global commodity prices, threw enormous resources of labour and capital at the task of boosting production. Price was virtually no object. This had the effect of pushing up the cost of labour (wages) and the prices of goods and services.

In the short term, this helped push up labour casts and killed productivity. But as labour-intensive construction has ended and expanded mines and upgraded ports, roads and rail links have come into operation, export volumes have boomed.

In productivity terms, the amount of value produced by each worker left in the mining sector after the building crews have moved out has surged.

Across the economy, there is a need to lift productivity, but the tired old thinking of many in Government and business who automatically equate this with screwing down on wages and conditions needs to end.

Obviously, business models built solely on competing directly with low-cost manufacturers internationally are becoming increasingly unsustainable.

But the answer isn’t to attack wages and conditions.

By many measures, Australia has a highly skilled, flexible and productive workforce.

Employers in both the public and private sectors get an enormous, they rarely acknowledged, subsidy from employees who regularly work many more hours than they are paid for.

Crude calculations using ABS employment and aggregate hours worked figures show that each employee worked an average of 35.5 hours a week in January. Take into account that around a third of these workers were part-time, and that January is traditionally a holiday period, and it suggests that a substantial proportion of the workforce work longer than the ‘standard’ 37.5 hour week, and many are likely to do so without paid overtime.

Another measure is time lost to industrial disputes. Official figures show that in the 12 months to the September 2013 quarter, an average of just 3 working days were lost to industrial disputes for every 1000 workers. These are not the numbers you would expect to see from a habitually disruptive workforce.

As was discussed in an earlier blog, Time to curb outrageous salaries – or lift investment?, labour is losing out to capital in grabbing a share of earnings. The Economist 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.

Yes, the nation has a productivity challenge. And yes, workers have a role to play in lifting productivity.

But maybe employers and managers should cast a critical eye over their own remuneration and ways of operating, rather than simply pencilling in cuts to the pay and conditions of their employees.