Why we’re still in denial about wages growth

Australia’s lack of wages growth is the biggest impediment to any kind of normalisation of monetary policy. That’s the view of the Reserve Bank, articulated by governor Philip Lowe speaking at the National Press Club this week, once again laying out the path to any lift in interest rates from their current minimum:

Before increasing the cash rate, the Board wants to see inflation sustainably within the 2-3% target range. Meeting this condition will require a tighter labour market and stronger wages growth than we are currently forecasting. It is difficult to determine exactly when this condition might be met but, based on the outlook I have discussed today, we do not expect it to be before 2024, and it is possible that it will be later than this.

Wages growth is also the key to a broader economic normalisation — to the extent that there will be any post-pandemic normal; to the extent that the Australian economy before the pandemic was “normal” rather than a stagnating, low-growth morass presided over by a smirking do-nothing leader in the Lodge. The government needs households to keep spending — 7% growth next year, it reckons, and households can’t keep digging into lockdown-acquired savings forever, especially when JobKeeper is shut down.

It’s not a surprising conclusion: wages growth has been abysmal since the Coalition was elected (remember Eric Abetz warning of wages explosions in 2014?) and the pandemic recession drove it down to nearly zero. Even a return to “normal” means wages growing at 2%, which is barely above inflation and — as Michael Pascoe has repeatedly pointed out — effectively a real wage fall after tax.

But Lowe’s repeated pleas for higher wages growth have fallen on deaf ears among both government and business. The government has used its one significant lever for wages growth — public sector wages — to actually reduce wages growth. Business — cheered on by the Financial Review, which has developed software to mechanically spit out variations on the theme of “Team Australia needs Economic Reform” for every second editorial — has continued to push for industrial relations reforms intended to undermine workers’ protections and bargaining power.

Now, as part of the government’s omnibus industrial relations bill, the Coalition proposes to enable employers to cut pay and conditions under the guise of being affected by COVID, and to increase casualisation.

A persistent bugbear for business, however, has been the closure of borders that has prevented the entry of a large workforce of easily-exploited workers: foreign students, working holidaymakers and temporary visa holders.

For years, these three groups made up the bulk of the victims of rampant wage theft. It’s to Australia’s enduring shame that so many young people came to Australia with hopes for education or relaxation and ended up being ripped off, abused and exploited by employers with little restraint by regulators. To this day, rapacious, gouging industries like horticulture continue to receive political and media cover for what they do to workers for whom English is a second language, or who don’t know their rights under Australian labour law.

The exploitation of hundreds of thousands of foreign temporary workers has helped push Australian wages growth down, especially in industries such as retail, tourism and agriculture. Only in heavily-regulated, unionised, government-controlled and funded sectors like healthcare has a reliance on temporary workers not coincided with poor wages outcomes.

Now, under pressure from employers, the government wants to prepare the ground for reopening borders to skilled migrant categories, firstly with a quick government-controlled joint committee inquiry.

That comes at the same time as the persistent threat of infection from incoming travellers has been made apparent in WA and Victoria (where, inexplicably, the lockdown-obsessed Daniel Andrews is allowing a major tennis tournament to proceed).

Those foreign students and temporary workers unable to leave Australia during the pandemic became the major collateral damage of the recession, with many losing jobs and accommodation and being unable to access welfare or healthcare, or otherwise facing abuse. They continue to be the primary victims of wage theft, featuring routinely in Fair Work Ombudsman reports.

Nor is the challenge of wage theft diminishing, with one Federal Court judge recently referring to the “scourge of the underpayment of low skilled employees, who are not paid very much even when paid correctly”.

The government has laudably proposed to criminalise wage theft in its omnibus bill. But otherwise, wage theft remains endemic in many sectors of the economy. A smart government would have taken the opportunity to put in place both the regulatory and enforcement resources to properly extirpate the phenomenon from the economy before considering reopening our borders to more migrants. Both for their sake and to help wages growth.

Is it time to reopen our borders to skill migrants? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication in Crikey’s Your Say section.