Scott Morrison

For reasons that aren’t at all clear, possibly because he didn’t realise he was doing it, Treasurer Scott Morrison yesterday overturned more than a decade of Coalition industrial relation policy.

Quizzed about Reserve Bank governor Phillip Lowe’s statement that we need higher pay rises for workers, Morrison said “wage increases should follow the profits that companies are making”. “Wages growth in any enterprise will come from a company that’s growing and that’s why we want to ensure companies do grow.”

But this turns the Coalition’s whole approach to wages growth on its head. For years, it’s been the Coalition’s claim — backed by business and economic orthodoxy — that increases in productivity, not the size of firms, is what matters for wages increases.

That’s why back in 2004 in its industrial relations policy — that’s the one that John Howard refused to reveal WorkChoices in — the Liberals said, in support of individual contracts, “the link between workplace bargaining, higher wages, productivity growth, increased job security and low interest rates is widely documented.” “Higher productivity ensures increasing real wages,” the Liberals insisted. “Higher productivity growth has delivered increasing real wages, low inflation and low interest rates … The inevitable result of wages which are not linked to productivity gains, is rising inflation and higher interest rates.”

Now, there are some hilarious claims in this document — “rising productivity also allows workers to achieve a better balance between work and family responsibilities”. And it ignores that labour productivity growth was much higher under centralised wage fixing in the 1960s and 1970s than under the Howard government’s industrial relation system. But linking wage rises and productivity growth is unexceptionable to economists. “Broadly speaking, if output per hour rises, then workers can expect wages to rise,” the Productivity Commission said last November.

Unsurprisingly, the Business Council has long argued the same. “Without productivity increases, businesses cannot compete successfully, sustain real wage increases or create new jobs,” the BCA said back in 2008. And yesterday, in response to Lowe’s comments, current BCA chair Grant King said “business would be delighted to be able to see growth in income, provided we can see productivity growth … what we’ve got to do is make sure that rather than rely on terms of trade, we rely on productivity growth and innovation to create the basis for higher incomes.”

So, everyone used to be on the same page about real wage increases, until Morrison decided to change the entire rationale for wage increases. Why might he have done that? Would it have anything to do with the fact that labour productivity has grown in recent years while real wages have stagnated? That’s why real non-farm unit labour costs have fallen 5% in the last five years.

At least the productivity growth = wage rises argument, however it might be ignored by business in practice, makes a kind of sense: work harder (or smarter, etc, <insert management speak here>), get paid more. Morrison’s rationale is it doesn’t matter how hard/smart/yada yada workers work, they should only get pay rises if their firms are expanding, which will depend on factors beyond their control like markets and managerial competence. Should workers not get a pay rise because — as has happened in so many major Australians companies in recent years — executives trash billions in shareholder value due to bad decisions and dumb acquisitions?

And when it was pointed out to Morrison that company profits have grown substantially in recent quarters while wages have stagnated (ABS data shows profits rising 40% over the last year, while wages rose 0.9%) he explained that away by saying “we’ve had two quarters where profits have improved that was predominantly due to the movement in commodity prices.”

And, yes, Morrison is correct: mining company profits were a significant part of that economy-wide company profit increase — mining company profits rose more than 18% in the March quarter alone. So, Treasurer, that must mean by your logic mining employees enjoyed big pay rises reflecting the return to profitability of mining companies? Except, mining wages rose just 0.6% in the 12 months to March, according to the ABS. To quote the ABS:

“The through the year Private sector growth for Mining (0.6%), marks the first time in the history of the series an industry recorded annual growth of less than 1.0%.”

This isn’t merely a problem for workers and their families. Earlier this week, Lowe pointed to the impact low-income growth and high debt is having:

“Households are gradually coming to grips with slower growth in their real incomes. Growth in wages is unusually low, average hours worked have declined and the nature of employment is changing. So there is a recalibration of expectations going on. Many households are also coming to grips with higher debt levels and, in our largest cities, high housing prices. We need to watch these issues carefully … As things currently stand, it looks likely that average growth in per capita incomes over the next quarter of a century will be lower than over the past quarter of a century.”

Not merely does this pose a danger to the economy and households as Lowe noted, it also means lower than expected growth in revenues, profits and share prices — and lower retirement incomes for retirees. Morrison might need to think beyond sound bites about this challenge.