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RUBY:

From Schwartz Media I’m Ruby Jones, this is 7am.

Wages aren’t rising fast enough to keep up with inflation, and that means that many workers are actually falling behind.
At the same time, the corporate profit share is going up – it's now at a record 31 per cent of Australia’s national income.

These are the stakes for next week’s national job summit, where businesses, unions and economic experts will sit down with the new government to make their case for changes to our jobs, workplaces and our pay.

Today, Executive Director of the Australia Institute, Richard Denniss on how Australian wages stagnated… and what the federal government could be doing to fix that.

It’s Thursday August 25.

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RUBY:

Richard, when you look at Australia's labour market right now, things are unusual, aren't they? We're in this position where we have low unemployment but also slow wage growth. Meanwhile, profits are also up. So how unique is the economic situation that we're finding ourselves in?

RICHARD:

We’re certainly in a unique situation and what we really need to realise is that everything we've been told for decades is clearly not the case. We've been told for a long time that we don't need policies to drive wages growth, we just need to get unemployment down low enough and if only we could get unemployment low enough, then wages would grow and then everyone would be happy. Well, that's not happening. It's clearly not happening.

There's only one way to increase wages, and it's for employers to offer higher wages to their staff, that’s it. And employers in Australia are freaked out at the thought that they might have to solve a skills shortage by paying higher wages to attract skilled workers to come and work at their place.

RUBY:

Hmm. Can we talk a bit about how it is that we got here because this trend of wages stagnating. This isn't something that's only just arrived. It's been in the works for a long time and it's to do with various policy levers. Can you talk me through where you think, you know, the roots of this lie.

RICHARD:

As is often the case in modern Australian history, the problem started with the election of the Abbott government in 2013.

Archival tape -- News Reporter 1:

“The Employment Minister, Eric Abetz has never been shy of criticising the union movement, both in Opposition and now in government. But in a speech to the Sydney Institute last night, Senator Abetz lamented not only the behaviour of unions but also that of some employers.”

RICHARD:

Tony Abbott's Employment Minister, Eric Abetz, one of the first things he said as Employment Minister was that there was this fear of a wage explosion.

Archival tape -- Eric Abetz:

“Instead of agitating for reform, to outlaw certain tactics. Why can't employers just say no?”

RICHARD:

And that we needed to change industrial relations in order to prevent this wage explosion.

Archival tape -- Eric Abetz:

“If this is not done, then we risk seeing something akin to the wages explosion of the pre accord era.”

RICHARD:

Well, credit where credit's due. Mission accomplished.

We've had record low wage growth ever since. Low wage growth was caused by federal government policy change to make it harder and harder and harder for workers to organise through unions to get decent wage rises.

That was the goal. That was the plan. That was the objective. They achieved it. So for the last ten years, we've seen record low wage growth. And then the last 12 months, we've actually seen real wages fall significantly.

RUBY:

Right so real wages are going down. But it's not the same story with profits, is it? We’ve seen profits go up, especially over the last couple of years, during the pandemic, that became obvious didn’t it?

RICHARD:

We've just seen something incredible happen. We went through the biggest crisis in modern economic history in Australia with COVID and profits soared like let's be clear, profits soared during the crisis because the Morrison government was so generous to employers, not so generous to university workers, not so generous to the entertainment sector, not so generous to the people that were here on temporary work visas, but incredibly generous to companies whose revenues were rising. But yeah, it's not enough.

Here we are watching the profit share of GDP rise, the wage share of GDP fall, and employers saying, oh, now's not the time for a wage rise. Well, boy, we've been hearing that for a while.

Archival tape -- News Reporter 2:

“Wages rose 0.7 percent in the 3 months to June, and 2.6 percent for the year.”

RICHARD:

So let's be clear. What's happening in Australia at the moment is real wages are falling, prices in many sectors are rising quite strongly.

Archival tape -- Jim Chalmers:

“So we’ve got wages growth picking up in welcome ways, but real wages falling because of the inflation challenge.”

Archival tape -- News Reporter 3:

“For workers across the nation struggling to get a proper pay rise, tough times are ahead as real wages continue to go backwards.”

RICHARD:

And inevitably that means that you're seeing strong profit growth.

This is just economics 101. If firms can increase their prices faster than their costs of production are rising. The difference is profit.

Research by the Australia Institute makes clear that for most firms, wages only account for around a third of their total costs. When we talk about wages going up, firms say we have no choice. If wages go up five percent we have no choice but to lift prices by five percent. Well, that's just not true.

If wages only account for a third of your costs and wages went up by five percent then you should only need to increase prices by one and a half percent to cover that, not five percent. So yeah, unfortunately the rhetorical debate around wages revolves in Australia around blaming workers for inflation, blaming workers for unemployment.

We never blame the fact that maybe the overt tilting of the balance of negotiation is all in favour of employers in Australia.

RUBY:

And to be clear, this problem isn't just an individual problem for people whose personal wages aren't going up. This is a problem for our entire economic system now. Because when people don’t earn money, they don’t spend it.

RICHARD:

Oh, absolutely. It's hard for many individuals to negotiate with their employer. That's a problem for them. But there's a big consequence across the entire economy of this, because consumer spending is driven by wages. And if we don't have strong wage growth, then we're not going to see consumer spending in the economy. Similarly, if wages are continuing to grow rapidly in some industries like finance and they're not growing in something like childcare, then in the short term, we're going to get lots of inequality.

And in the long term we're not going to attract good people to go and keep working in those really important sectors.
So that's why other countries do it radically different to us. And that's why the ratio between what a teacher earns and a lawyer earns is radically different in the Nordic countries, for example, than it is in Australia, because in those Nordic countries they don't want people leaving school to think you'd be mad to go into some sectors. They want to encourage people to go into important sectors like childcare and teaching and nursing, and they pay good wages to ensure that happens.

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Archival tape -- News Reporter 4:

“Our wages have risen slightly, but not nearly enough to match inflation, that’s according to new data…”

Archival tape -- News Reporter 5:

“Inflation will go higher, wages won’t grow substantially until the end of next year, and the US could be in recession…”

Archival tape -- News Reporter:

“As the government’s jobs and skills summit approaches, a key point of contention between unions and employers is whether businesses have been taking a greater share of the economic pie…”

RUBY:

Richard, next week the federal government is holding a jobs and skills summit –so it’s bringing together big employers, unions, experts to discuss a lot of things, one of them is this problem with wage growth. I wonder how significant you think this summit is and whether this is a forum in which we’re likely to see at the very least a conversation about the predicament you’re outlining?

RICHARD:

Oh, look, I think you have to go back to the eighties for a genuine national conversation about how we can all kind of lift our game and improve not just GDP growth, but the lives of ordinary Australians. And yeah, for the last 30 years governments, State and Federal Labor and Liberal have kind of believed that yeah, if we got unemployment low enough things would fix themselves. Or if we deregulated the labour market enough things would fix themselves.

Well, they haven't. And you know, as we said at the beginning, here we are with record low unemployment and record declines in real wages. So yeah, I think we need to admit that some things are really broken and that we really need to rethink the way the labour market and the economy works.

But I don't think the business community sitting on top of a pile of record profits are going to admit that now's the time to rethink things. I think they think things are going very well. High price growth, low wage growth, high profit growth sounds like a good time to be a capitalist in Australia.

RUBY:

Hmm. And just to be clear, as we head into this summit next week, what is it that businesses are likely to be pushing for? And what is it that unions are likely to be pushing for? What are the stakes here for both sides?

RICHARD:

Oh, I think employer groups will be pushing for more skilled migration so that they don't have to take on the task of training their existing workers. And so they don't have to pay higher wages to attract skilled staff to their firm or their industry.

I think the unions will be pushing for changes in industrial laws to make it easier for what's often called pattern bargaining or sector wide bargaining so that you can negotiate wage rises across a whole industry rather than one enterprise at a time.

I think they'll be pushing for a lot more investment, not just in skills but in changes, for example, to things like Australian government procurement policy so that more things are made here in Australia. And of course employer groups don't want to do that. They've loved cheap imports for decades. It's the unions that have spent decades saying it's going to be risky if we can't make anything here. Well, they were right about that, too.

RUBY:

Hmm. And so in your opinion, then, what does Labor need to do to absolutely take from this summit in order for there to be any real difference made to the current situation?

RICHARD:

There's a lot of things they need to do, and not all of them will come out of a summit. They're reviewing the Reserve Bank's approach to interest rate setting, which is good because the Reserve Bank has been very good at controlling inflation and very bad at boosting wage growth.

You know, we need to rethink our skills system and the role of domestic manufacturing in domestic production. And I think the government itself needs to collect more tax and pay significantly higher wages to the aged care workers, childcare workers, teachers, nurses. If we were collecting more tax and paying better wages to the 30% of the public, a bit less that work in the public sector, that would not just help the teachers and nurses, that would boost wage growth and demand in the economy quite significantly.

One way or another, we have to stop giving employer groups veto over wage setting policies in Australia because they've failed dismally.

RUBY:

Yeah, it's interesting you bring up tax because taxation reform would be one way to address that higher order problem that we've been talking about, the unfairness in the economy that's been turbocharged by the pandemic. But the current government doesn't seem to be prepared to really take on any sort of large scale taxation reform right now.

RICHARD:

No, that's right. And that's a real problem. And of course, a big part of the Hawke Keating wages and income accord was that workers settled for lower wage growth in exchange for a big increase in government spending on things like health and education.

So there are ways, like imagine the government introduced a windfall profits tax on the gas industry and imagine that they spent that money making childcare free, lowering the cost of medicine, lowering the cost of aged care that would lower the cost of living, that would boost real wages. And all we would have to do to do that is to tax some largely foreign owned gas companies, making enormous windfall profits at the moment.

To solve big problems you actually, sometimes you have to make them even bigger. You have to go up a level. You need to look at a grand bargain, not. Just a small compromise. And yeah, by not putting tax on the agenda, I think it makes it a lot harder for the government to solve these big problems.

RUBY:

Hmm. And Richard, I mean, summits are really only as good as the actions that flow from them, aren't they? So will this summit inform Labor's policy decisions in this area? Do we know? What are we likely to see actually come from this? How optimistic are you?

RICHARD:

Oh, yes. Well, I guess the question is, will this be Kevin Rudd's 2020 summit or will this be the Hawke Keating era accord?

Look, time will tell and that's that's not just about the political skill of the Prime Minister and the Treasurer, it's also about the willingness of the business community to actually get involved in developing solutions rather than just pushing its simple slogans to conceal the fact that they're making record profits off the back of other people's low wages.

So it's not all up to the government, but if the business community aren’t willing to budge, we might not see much come out of the summit. But that's okay because again, a majority of the parliament can do whatever it wants, regardless of what the business community thinks about that.

RUBY:

Richard, thank you so much for your time.

RICHARD:

Thank you.

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RUBY:

Also in the news today,

A legal battle is looming between independent media publisher Crikey and News Corp’s Lachlan Murdoch.

Murdoch has launched defamation proceedings in the Federal Court against the company which owns Crikey, relating to an article linking his family to the January 6 insurrection in the US.

The legal action comes after Crikey publicly challenged Mr Murdoch to sue, and published a series of legal letters sent to Crikey by the News Corp and Fox chairman's lawyers.

And…

The federal government has announced more than 45-thousand square kilometres of ocean will be made available for oil and gas exploration.

Areas released by Labor Resources Minister Madeleine King include basins off the coasts of the Northern Territory, Western Australia, and Victoria.

I’m Ruby Jones, this is 7am. See you tomorrow.

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