Wages at tipping point as inflation, employment rise

The warning of strike action by the Australian Manufacturing Workers Union in pursuit of 8 per cent wage rises has rekindled memories of the wage spirals of the 1970s and 1980s. Anthony Albanese and Jim Chalmers need to exert their influence to avoid such a destructive prospect as they prepare to create the conditions to improve productivity during their Jobs and Skills Summit on September 1-2. After the government raised expectations of a big wages catch-up when in opposition, it must now ensure unions behave responsibly and pay rises are proportionate, backed with productivity gains.

As RBA governor Philip Lowe said last month, “steady state wage increases in Australia should be around 3.5 per cent’’. If pay increases in the 4 to 5 per cent range become common, returning inflation to its target range of 2 to 3 per cent will become harder. “Then we’d be in a world where the economy would have to slow more and perhaps the unemployment rate would need to rise. Three and a half (per cent) is kind of the anchoring point. I know it’s difficult when inflation is higher than that.”

The dangers are already evident overseas. US inflation has breached 9 per cent for the first time since 1981, fuelling fears of a recession in the world’s biggest economy and speculation the Federal Reserve will lift interest rates even faster than it already had planned. In pursuit of his members’ case for an 8 per cent pay rise, AMWU national secretary Steve Murphy cited Germany, where inflation has recently been as high as 7.9 per cent. There, the influential metalworkers’ union is campaigning for pay rises of 8 per cent for millions of workers. The RBA and many Australian economists are forecasting inflation to hit almost 7 per cent by Christmas.

Mr Murphy said AMWU members across the country were angry that their wages were not keeping up with the cost of living. If inflation in Australia reached 7 per cent the union would consider pursuing 8 per cent claims. “If we can’t get better outcomes in bargaining, then we will need to consider a universal claim and then go out there and be militant about prosecuting that,’’ he said. Such a strategy could backfire for workers and the economy, however.

In its quarterly business outlook, Deloitte Access Economics says “pay rises with a three in front of them are very reasonable”, despite forecasting headline inflation to hit almost 7 per cent by the end of the year. Mirroring the 5.2 per cent jump in the minimum wage backed by the Prime Minister, Deloitte says, would prove “detrimental” to workers in the “longer term”.

As multi-year enterprise agreements expire and individual contracts are renegotiated, the risk is that the minimum wage decision will be regarded as a “yardstick’’, Deloitte said. But salary gains should come from increased productivity and business investment. Workers’ bargaining power has been bolstered, the report said, after the jobless rate hit a near 50-year low of 3.5 per cent. As a result, markets are forecasting another hefty rise in interest rates within weeks.

Wage rises above 3.5 per cent would put pressure on inflation, Australian Chamber of Commerce and Industry chief executive Andrew McKellar said. And if the RBA were forced to adopt more aggressive rate rises to counter excessive wage rises, the consequences would be serious at a time when businesses were tackling a labour shortage, an energy price spike and supply chain disruptions, which would be exacerbated by industrial action, Mr McKellar said: “Hitching unrestrained wage hikes to spiralling inflation would be a runaway train. What Australia needs now is for cooler heads to prevail until the global economic situation is clearer.”