‘This isn’t going to fix itself’: Economists demand end to slow wages growth

Hospitality accounted for the largest chunk of unpaid wages, followed by retail.

Hospitality accounted for the largest chunk of unpaid wages, followed by retail. Photo: Getty

Wages in Australia are at their lowest point since official records began in the late 1950s, as a percentage of economic activity.

The revelation comes as part of an unprecedented public demand by a large group of economists and employment experts to overhaul policies to boost wages.

More than 120 economists, lawyers and labour market analysts have signed an open letter, published in The Australian Financial Review, demanding action to address Australia’s stagnant wage growth, citing an “unprecedented slowdown” despite Australia enjoying employment growth and a modest unemployment rate, the letter states.

open letter on wage growth

A sample of the open letter as it appeared in newspapers on Tuesday.

As the public debate about slow wage growth heats up, and wages loom as a key battleground in this year’s federal election, the letter is being seen as another key moment in an ideological battle on industrial relations.

Nominal wages have been growing about 2 per cent a year since 2015, or “barely half the traditional pace of growth experienced over the preceding 50 years”, the group wrote.

Economist and director of the Centre for Future Work Dr Jim Stanford, who co-authored the letter, said Australian Bureau of Statistics data show that wages as a percentage of gross domestic product are at their lowest since quarterly records began about 1959.

open letter on wage stagnation

Source: Australian Bureau of Statistics

The labour share of total GDP peaked in the mid-1970s about 58 per cent and been falling since, figures show.

Dr Stanford said in 2017 and in 2018, it fell below 47 per cent, on an average annual basis.

“That means real wages have been totally flat: In fact, by some measures they have declined over the past five years,” he said.

“Yet labour productivity [the amount that workers produce, on average, with each hour of work] has continued to grow.

“Workers are producing more, but their real wages are flat or falling. The share that goes to workers in wages and superannuation has basically been declining for three decades. This is not going to fix itself.”

While the letter was couched in reasonable terms, Dr Stanford told The New Daily Australia was clearly in the grips of a “wages crisis” and urgent action was needed to address the problem.

The letter said reversing the trend could be achieved through various measures, including raising the minimum wage, strengthening collective wage bargaining, relaxing caps on the public sector and limiting businesses’ ability to outsource.

“You can point to a whole set of market-worshipping policies that started in the ’80s and carried on ever since,” Dr Stanford said.

“Free-trade agreements, deregulation, restructuring of the whole system – for decades it was accepted across the political spectrum that the market medicine was the best way to manage things. Clearly it isn’t.”

Business groups such as the Australian Chamber of Commerce and Industry and the Australian Industry Group have been warning that any policy changes that boost workers’ wages and bargaining power will lead to job losses.

open letter by economists about wage growth

Josh Frydenberg and Scott Morrison continue a narrative of wage growth leading to job losses. Photo: AAP

The office of Treasurer Josh Frydenberg chose not to directly address the open letter, instead pointing The New Daily to an opinion piece by the Treasurer published on Monday.

Mr Frydenberg said while it was “true that wages growth in Australia has (sic) been more gradual than many experts have expected”, that was not confined to Australia, and said wage growth would inevitably cost jobs in the Australian economy.

“The government strongly supports the independence of the Fair Work Commission as the body that sets the minimum wage,” he wrote.

“As the government’s submission lodged yesterday [March 17] with the Fair Work Commission makes clear, ‘Wages, like all business costs, are likely to have an impact on employers’ workforce decisions’ and ‘an increase to wages may price marginally productive workers out of the labour market’.”

But Dr Stanford argues that rather than sparking job losses and “economic chaos”, higher wages and more bargaining control by workers would boost weak consumer spending, increase tax revenue and lead to greater workplace equity.

Stay informed, daily
A FREE subscription to The New Daily arrives every morning and evening.
The New Daily is a trusted source of national news and information and is provided free for all Australians. Read our editorial charter
Copyright © 2024 The New Daily.
All rights reserved.