At this late stage in the electoral cycle the Coalition government still hasn’t figured out why voters are in such a sullen mood. Labor has. And that’s why Labor is heavily favoured to win the coming election.
While the government boasts daily about its record on job creation, its message doesn’t resonate with the working Australians who were already in jobs when it took office in 2013. For every unemployed person back then 17 were in work. It seems the government expects the already employed to be grateful they still have a job.
Indeed, according to the government, workers should be happy that GDP has grown under its stewardship, despite it having done so for each of the preceding 22 years. Can you just envisage Mum and Dad coming home from work? Mum asks Dad: “How was your day?” Dad says: “Great, darling. Did you see the national accounts today? GDP has grown.”
What has barely grown is what matters around the kitchen table – the family’s income. The national accounts released last week confirmed that real net national disposable income per capita – the relevant measure of material living standards – is barely above the level it reached more than seven years ago.
The failure of workers to get ahead has not been caused by an economic crisis at home or abroad. Rather, as confirmed last week by Finance Minister Mathias Cormann, weak wages growth “is a deliberate design feature of our economic architecture.”
The last time a Coalition government implemented policies whose economic architecture suppressed wages was in 2005 when the Howard government introduced WorkChoices. It led to one million Australians changing their votes to Labor at the 2007 election. Now the Coalition is at it again. Coalition MPs might have short memories but workers do not.
Of course, there is a relationship between wage levels and unemployment, but it is not the case that the lower the wage rate the better it is for job creation. If workers’ wages are suppressed, their spending will be constrained, which is exactly what’s happening in Australia right now.
On the back of a strong profit season, employers are insisting they cannot afford to give their workers a pay rise. In truth, shareholders do not reward CEOs for granting wage rises to workers. Wage rises are granted when workers demand them and the business is fearful of losing good workers. But workers aren’t demanding wage rises, anxious that their jobs will be contracted out – a genuine threat in the increasingly globalised and digitised labour market.
Just in the last few years, China and India have added tens of millions of workers, many of them skilled and semi-skilled, to the global labour market. In the digital age, many are in direct competition with Australian workers. And the Australian government has greatly expanded the number of foreigners in Australia on work visas – also a deliberate design feature of its economic architecture.
Some employer groups reacted with horror when Bill Shorten told the Financial Review’s business summit that, if elected, Labor would implement a living wage. Small business organisation, COSBOA, claims its constituents can’t afford to grant a wage rise to their staff, since margins are already tight. But there’s not much point in maintaining margins while customers stay away in droves for a lack of spending power.
Defending the weak national accounts last week, Treasurer Josh Frydenberg dismissed the notion of a per capita GDP recession, arguing instead that “a better indicator of living standards is real net national disposable income per capita which is above its 20 year average.” Frydenberg is right about the indicator, but the claim that living standards exceed their 20-year average, while true, is cold comfort for workers. What matters to Australian families is that living standards have barely improved under this government, not that they are higher than they were between 1999 and 2009.
Employers will tell you the only way of granting a pay rise is on the back of productivity improvements. But when productivity growth was strong the benefits were passed onto shareholders not workers.
Now productivity growth is sliding. It can be revived only through new investment embodying the latest technologies. Labor’s Investment Guarantee targets new investment. Supported by the Investment Guarantee a new productivity-wages deal could be struck if employers were interested.
In the meantime, get ready for the government to announce a new round of tax cuts for lower-income workers in lieu of supporting wage rises. If they are judged fair and affordable, Labor might simply match them.
Then it’s back to which party is seen to have the better approach to wages. On that crucial election issue, Labor recognises weak wages growth is dampening Australia’s economy while for the Coalition it is a design feature of its economic architecture.