A spending-led economic recovery will soon rely on robust wage growth

In his genial and occasionally subversive manner, finance journalist Alan Kohler recently shared a graph on social media that compared two periods of sharemarket gains. The graph showed that in the 30 years to 1988, 92 per cent of gains were derived from economic growth. But in the decades since then, the majority of sharemarket growth was produced by a “transfer from wages”. In simple terms, businesses have been making money by taking more of the economic pie from their workers rather than growing it.

The coronavirus pandemic has, if anything, exacerbated the trend with company profits jumping while workers’ total share of income has continued its steep decline.

The process of suppressing wage growth in Australia began 40 years ago at a unique time in our history. In 1982, for example, wages for full-time employees grew by 14.2 per cent. Inflation and unemployment also spiralled into double figures. Attempts to moderate wage growth and inflation failed until the election of the Hawke government in 1983. The new government recognised that the key to suppressing wage growth was reducing employee bargaining power by changing workplace laws and obtaining the agreement of the trade unions to reduce wage demands. The Accord and new workplace laws enshrining enterprise bargaining were born.

Illustration: Dionne GainCredit:

In the decades since, numerous waves of “IR reform” have continued along the same trajectory; allowing businesses to escape bargaining with their employees and weakening unions. In most private-sector workplaces, bargaining has been eliminated and replaced by managerial decree, usually in the form of a take-it-or-leave-it employment contract. The imbalance in power is now so entrenched that wages have stagnated for the last eight years and the RBA forecasts more wage stagnation in years to come.

Union membership has collapsed under the weight of some of the most repressive laws in the OECD. The repression means that unions are raided by police searching for the minutes of their meetings and union officials are prosecuted for having a cup of tea. Australia is the only country in the world in which unions are forced by law to give away the services that they provide, in the form of better wages and conditions, to employees who don’t belong to them. The laws that have diminished the unions brazenly violate international legal standards. The International Labour Organisation has repeatedly found that Australia’s anti-union laws breach its international legal obligations and has requested the federal government amended them to bring them into line. Those requests have been ignored.

Suppression of wage growth began with the election of the Hawke Government in 1983.Credit: Peter Morris

Generating shareholder dividends by labour cost-cutting has developed into a key business strategy. When I studied Global Business Economics at Melbourne Business School with a cast of budding CEOs several years ago, it was called “labour arbitrage”. The relatively easy money garnered by this form of redistribution from the pockets of workers helps explain why companies have stopped investing in capital as well as research and development.

The transition away from full-time secure employment is accelerating. Employers continue to “fissure” their workforce; a process whereby direct employees are sacked and replaced with workers indirectly sourced through labour-hire companies and other intermediaries. Qantas has recently seized the opportunity presented by the coronavirus crisis to outsource its ground handling workers to third-party providers. More than 2000 secure jobs are to be replaced by splintering the workers into smaller, precarious structures. Qantas will no longer need to bargain with the workers who perform ground handling work. Instead it can unilaterally set the price for their labour with the intermediaries that employ them.

Mathias Cormann publicly admitted that downward wage pressure was a deliberate part of policy.Credit: Alex Ellinghausen

Similar patterns are evident in the UK and US. Former Bank of England chief economist Andy Haldane has observed that profound changes in workplaces have produced an era of "divide and conquer" that left workers less able to bargain for higher wages. "There is power in numbers. A workforce that is more easily divided than in the past may find itself more easily conquered. In other words, a world of divisible work may reduce workers' wage-bargaining power," he said.

In December, Christian Porter unveiled the federal government’s new vision for Australian workplaces. More wage suppression. The IR omnibus bill seeks to: eliminate billions in back-pay owed to employees falsely classed as casual employees; allow non-union agreements that make workers worse off; encourage 8-year agreements on new projects without the need for employee approval and cut part-time workers’ overtime pay.

The core of the neoliberal project – the transfer of wealth away from workers in favour of business – has become an addiction. Regardless of the economic conditions – economic growth, boom or recession – the answer is wage suppression. Former finance minister, Mathias Cormann, is virtually the only politician to publicly admit that downward pressure on wages is a “deliberate design feature” of Morrison government policy.

But companies supporting more wage suppression are at risk of cannibalising their businesses. Wage cuts and suppression can’t continue indefinitely. Prior to the pandemic, wage stagnation had curtailed spending for goods and services, slowing economic growth to a crawl. Immigration was the only reason Australia avoided a recession.

Now, the fastest way out of the coronavirus recession is to stimulate spending. The federal government’s massive stimulus effort has started the process of recovery but its impact will soon start to taper off. And when that occurs, it will look to consumers to take up the slack. The day cannot be too far off that the federal government and its big business supporters will be forced to acknowledge that a healthy economy needs healthy wage growth. Healthy wage growth will require a radically different approach to labour market reform.

Josh Bornstein is a lawyer and writer. Twitter @joshbbornstein

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