Where do the RBA and economists now stand on wages growth?
The Jobs Summit will be very different beast to one which would have happened a year ago, writes Alan Kohler. Photo: TND/Getty
It’s a pity the Jobs and Skills Summit didn’t happen a year ago.
At least then the Reserve Bank and most economists would have been on board with reforming the bargaining system and restraining immigration to get wages up.
Now the economic classes are, at best, torn between wanting to lift wages for fairness and consumption, and wanting to keep wages down to control inflation.
At the summit in two weeks, they’ll be all “on the one hand and on the other hand” because controlling inflation is now number one priority, in which case Treasurer Jim Chalmers and Employment Minister Tony Burke will have nowhere to go.
A Labor government could defy business and side with unions if the RBA and economists were onside, but it will be harder to go against the boffins as well as business: If the enterprise bargaining system is broken, as the unions claim, it will stay broken.
What a difference a year makes
A year ago, it may have been three to one against business, with the central bank on the side of the unions.
After the August RBA board meeting, governor Philip Lowe said they wanted to get inflation UP to 2-3 per cent and added that “meeting this condition will require … wages growth that is materially higher than it is currently”.
RBA governor Philip Lowe changed his tune on wages growth. Photo: AAP
That form of words about needing materially higher wages growth was repeated after every RBA board meeting in 2021.
In February this year it was dropped and replaced by the observation that it’s “likely to be some time” before wages growth is at a rate consistent with inflation being sustainably at target. Same in March and April.
And then in May, while announcing the first interest rate hike, Dr Lowe cited the RBA’s “business liaison” as evidence that wages growth was picking up, and he has done that every month since, while hiking the cash rate by 0.5 per cent at a time.
But businesses are either telling the RBA’s business liaison unit one thing while doing something else, or there is a serious lag at work in the ABS statistics.
In the December quarter 2021 wage price index, released in February, the ABS reported wage growth of 0.7 per cent; in the March quarter, 0.7 per cent; and in the June quarter 0.7 per cent. No pick up.
Meanwhile the consumer price index increased 1.3 per cent in the December quarter, 2.1 per cent in the March quarter and 1.8 per cent in the June quarter.
So in the 12 months to the end of June, wages increased 2.4 per cent while prices went up 6.1 per cent – the steepest drop in real wages on record.
After that data came out, there was a flurry of press releases from the ACTU, declaring that the migration, skills and wages systems are all “broken”, and that “wage growth must be the number one priority for the jobs summit”.
Meanwhile Innes Willox, CEO of the Australian Industry Group, is trying to steer the discussion more towards productivity growth, which he says is “lower than it could and should be”.
“Largely as a result,” he continued, “real incomes growth has been commensurately lower.”
Most economists, meanwhile, are calling for steep increases in interest rates to get unemployment up to restrain (non-existent) real wages growth and inflation.
No Accord in 2022
The Albanese government is trying to replicate the blazing success of Bob Hawke’s National Economic Summit in 1983, but this time is different.
Hawke’s summit was held from April 11-14, exactly a month after his Cabinet was sworn in, but the first Prices and Incomes Accord was signed by the Labor Party and the ACTU in February, a month before the 1983 election.
Business was not included in that, and grumbled for years about the way the Accord brought unions into the government tent.
There is no Accord in 2022 and this Labor government is very keen to ensure that it’s not seen as being in some kind of partnership with unions – just as it won’t be cancelling the Phase 3 tax cuts.
The rise of neoliberalism and 18 years of Coalition government since 1996 shifted Australian politics to the right, while union membership has declined from 50 per cent of the workforce in 1983 to 15 per cent today.
Bringing the ACTU into the tent of government in 2022 would be both absurd and politically destructive for the ALP.
Multi-employer collective bargaining and the level of immigration are likely to be on the agenda at the summit.
So what can be achieved at the Albanese Jobs and Skills Summit? Well, everyone will no doubt agree that jobs and skills are very good things.
Jim Chalmers has provided an issues paper in which he says there will be five broad themes:
- maintaining full employment and growing productivity
- boosting job security and wages
- lifting participation and reducing barriers to employment
- delivering a high-quality labour force through skills, training and migration
- maximising opportunities in the industries of the future.
Nothing in those will produce anything but furious agreement, you would think, but as for actual reforms … well that will probably be a matter for actual decisions, by Cabinet.
The Greens want to put tax on the agenda, but they can forget about that. Phase 3 tax cuts will not be dropped, or even discussed.
Topics for discussion
Most likely the summit will come down to a negotiation about two things: The extent to which multi-employer collective bargaining is opened up, and the level of immigration.
The Federal Labor Party’s 2021 policy platform includes this statement: “Labor will improve access to collective bargaining, including where appropriate through multi-employer collective bargaining”.
The unions believe single enterprise bargaining no longer works, largely because of contracting out and the gig economy; businesses, meanwhile, are perfectly happy the way things were left by the Coalition, thanks very much.
As for migration, it’s going to be a simple horse-trade over numbers: will it be the pre-2006 level of 100,000 a year, or John Howard’s post-2006 level of 200,000, designed specifically to suppress wages. Unions want the former, to lift wages; businesses want the latter, to deal with staff shortages.
I’m guessing they’ll split the difference and settle on 150,000.
Alan Kohler writes twice a week for The New Daily. He is also editor in chief of Eureka Report and finance presenter on ABC news.