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Weak labour market means underpaid workers have nowhere else to go

A Treasury report has said a fall in job switching is partly to blame for low wages growth. Others aren't so sure.

A Treasury report has said a fall in job switching is partly to blame for low wages growth. Others aren't so sure. Photo: Getty

A lingering hangover from the global financial crisis and a rise in casual work are making it harder for workers to switch jobs.

And that’s bringing down wages for everyone.

Jim Stanford, an economist and director of the Centre for Future Work, told The New Daily that growing insecurity in the labour market was the main driver of the decline in people’s willingness to switch jobs.

The rise in casual work meant that workers were “hanging on for dear life”, he said.

“There’s no mystery why voluntary departures are increasingly rare in Australia,” Dr Stanford said.

“Workers feel incredibly insecure – and there aren’t many better job openings out there.”

Dr Stanford’s comments come after Treasury released research on Monday that linked sluggish wages growth to a decline in the national job switching rate, from 11 per cent in the early 2000s to 8 per cent today.

The research said a 1 per cent fall in job switching led to a 0.5 per cent drop in the growth of average wages. But Dr Stanford said blaming low wages growth on workers who weren’t switching jobs frequently enough was unfair and missed the point.

“What we’re seeing here is the consequences of a labour market that isn’t producing enough work, and isn’t producing quality jobs,” he said.

“As soon as decent work is available, workers will gladly leave for it.”

A one percentage point increase in the rate at which workers switch jobs is associated with a ½ percentage point increase in growth in average wages.
Treasury

Released in April, the OECD’s latest Employment Outlook found that Australia had one of the highest rates of casual workers among its 34 member countries, with one in four workers now considered casual, and more than half of those workers reporting that they had no guaranteed hours.

As a result, employers could “call the shots” when it came to wages, Dr Stanford said.

And a lack of economic direction, together with the government’s “addiction” to mining and weak business investment since the global financial crisis, meant wages wouldn’t improve anytime soon.

“We’ve had very weak business investment, we’ve seen government austerity, we’ve seen consumers who went into debt to spend – but that can only go on for so long – and we’ve got an economy that doesn’t have direction and doesn’t have an engine,” Dr Stanford said.

“What we’ve seen is an economy that’s operating well below capacity.”

The fall in equity-related wealth after the GFC was also discouraging workers to ask for pay rises and switch jobs, according to former ANZ chief economist and Treasury adviser Warren Hogan.

He told The New Daily that the country’s ageing population was compounding the problem, too, as people nearing retirement valued job security more than a modest increase in wages.

“People in their late 40s, right the way through their 50s, would much prefer to just see out their current job and earn a steady income than to move,” he said.

“The value for them is not trying to get an extra 2 or 3 per cent on wage increases, but to keep that job for another five or 10 years.”

Meanwhile, Meghan Quinn, deputy secretary at the Commonwealth Treasury’s Macroeconomic Group, told the Australian Conference of Economists in Melbourne on Monday that even if spare capacity in the labour market were reduced, wage growth was “unlikely to return to historical levels unless productivity growth and market dynamism improves”.

Ms Quinn said Treasury’s latest findings highlighted the need for policies that encourage workers to switch jobs, and policies that boost innovation across workers, firms and industries.

Changes to stamp duty would make it easier for workers to move from low-wage to high-wage areas, and greater investment in education and skills would help people tap into the benefits of technology.

“Policies that improve human capital will be essential to future wage growth, as knowledge-based work and artificial intelligence technologies become more important contributors to our economy,” Ms Quinn said.

“But there are signs that our skill development systems are not working as well as they could be.”

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