Reserve Bank Governor Philip Lowe.
Reserve Bank Governor Philip Lowe.

Reserve Bank of Australia Governor Philip Lowe

Workers need to get over their timidity and demand bigger pay rises, says the head of the Reserve Bank, Philip Lowe, who hopes tighter labour markets will “re-energise” workers to “get more of the labour share.” Yesterday, he observed:

“At some point, one imagines that’s going to lead to workers being prepared to ask for larger wage rises. If that were to happen it would be a good thing.”

For those of us were around in the 1970s and 1980s, this was a jaw-dropping statement from the most senior economic official in the country. For more than a generation, Australia’s workers have been lectured, harangued and derided as lazy, militant and overpaid. Australia is a high-cost place to do business, we were constantly told. Real wages needed to fall. As recently as 2014 a government minister was warning about wages explosions.

Now, suddenly, we need to be demanding bigger pay rises.

Lowe won’t have much luck with the government itself. It’s still trying to inflict real wage cuts on public servants and refusing to acknowledge that many departments have had wage freezes for two and three years now. Nor will he have much luck with the Fair Work Commission, which is engaged in a process of inflicting nominal — not just real — wage cuts on Australia’s lowest-paid workers via its penalty rate decision. He won’t have much luck with economists who insist the recent increase in the minimum wage will inevitably cost jobs (a position the Productivity Commission was unable to find evidence for). And he certainly won’t have much luck with Australian business. Employer groups and multinational lobbyists like the Business Council continue to insist our industrial relations system is broken and “inflexible”; James Pearson of ACCI last year even compared our current industrial relations system unfavourably to that of the 1980s.

[Nuance won’t cut it on penalty rates onslaught]

Lowe’s approach also reflects an optimism that it hard to reconcile with the facts about wages stagnation in Australia. For a start, it’s part of a trend across the developed world. While wages growth has been strong in recent years in developing countries, it’s been much weaker in developed countries. Last year, the OECD compared wages growth from 2000-07 with growth from 2008-15 and found a dramatic deceleration in growth in a number of European countries, with wages in 2015 in some countries 25% below were they would have been if previous rates of growth had been maintained. And to demonstrate that it isn’t just about the impact of financial crisis, wages growth has been especially poor in the United Kingdom (despite lower company tax rates, which we’re told would stimulate wages growth here) — wages grew by less than 2% annually for most of the period 2010-17, and growth still remains below 2.5%. In the United States, real wages growth was around the 2% mark for most of the period 2011-15, and it only picked up over 2% at the end of 2015 and neared 3% at the end of last year.

Much earlier than that, real wages growth also “decoupled” from productivity from around 1999, at the OECD level and, according to ACTU data, in Australia as well. This betrays one of the central arguments of the neoliberal approach to industrial relations, that wages should only increase in line with productivity; in fact, since the turn of the century business has benefited from higher productivity without rewarding workers to match that growth.

[The dirty secret of penalty rate opponents: business is booming]

And while Lowe may think it’s just a matter of plucking up the courage to ask for a higher raise, governments, at the urging of business, have curbed the powers of unions to effectively represent workers and constantly demonised them as corrupt, semi-organised crime gangs. To be a union boss in Australia is to be a figure of loathing and revulsion for the right and its media cheerleaders. To seek a significant pay rise is to be reckless, and unrealistic — even as the labour share of national income in Australia has plunged from 75% in the 1970s to just 53% in 2016.

Wage stagnation isn’t some historical accident or confluence of socio-economic and technological trends, it’s a core goal of neoliberalism as pursued by the corporate sector and their parliamentary representatives. It’s the result of a generational campaign to reduce the capacity of workers to share in the prosperity they themselves help create, to benefit companies and investors. I hope Lowe is correct that it can be solved by workers being a bit more demanding. But on the face of it, he might be better off directing his comments at corporate Australia and the Coalition.