Andrew Leigh

US LESSON IN WHY WORKERS NEED A BOOST IN REAL WAGES

The Australian, 16 March 2022

They call them “deaths of despair”. In the US, deaths from drug overdoses, suicide and alcoholic liver disease have been rising in the past decade. Well before the pandemic, American life expectancy was going backwards.

There are many causes of this American malaise, but a big one is the fact the economy simply hasn’t been delivering for working people. In the past 50 years, real wages for the typical American man have barely risen. Real incomes for the poorest households have gone backwards.

Stagnant wages have struck at the heart of the American dream. When people see no increase in living standards for more than a generation, it makes it difficult to believe life is improving. It’s like living Groundhog Day rather than The Blind Side. Little wonder that one in six Americans believes the QAnon conspiracy theory, an idea so wacky it makes The Da Vinci Code look like a documentary.

The American experience is why we should be so concerned that the latest Australian wages figures show real earnings have fallen. And it’s not a new problem.

Since the Coalition came to office in 2013, real private sector wages have grown just 1.4 per cent above inflation. Yes, you read that right – 1.4 per cent in nearly a decade. Not annual, total.

And that’s before we get to the fact federal taxes as a share of gross domestic product have been substantially higher under the Abbott-Turnbull-Morrison government (22.1 per cent) than they were under the former Labor government (20.9 per cent). Take inflation and taxes into account, and many Australian workers are probably no better off than when the Coalition took office.

By contrast, private sector wage growth during Labor’s previous six years in office was 4.2 per cent above inflation – nearly three times more wage growth in two-thirds of the time. The McKell Institute estimates that if the wage growth achieved under Labor between 2007 and 2013 had been sustained through 2014 to 2021, average Australian earnings would be $16,000 higher than they are today.

It isn’t an accident that the Coalition has delivered stagnant earnings. Former Coalition finance minister Mathias Cormann once described lousy wage growth as “a deliberate design feature of our economic architecture”. What his simplistic analysis missed is that decent wages perpetuate a vicious cycle.

Naive businesses want high-paid consumers and low-paid workers. Smart firms know well-paid workers drive consumer spending. Even the notoriously anti-union Henry Ford wanted his workers to earn enough so they could afford to buy the cars they made.

There’s no single measure that will solve Australia’s wages crisis. Boosting wages requires what basketballers call a full-court press. A Labor government would stem the abuse of labour hire firms to undercut wages by requiring that if you’re doing the same job you get the same pay. We would provide rights for gig economy workers through the Fair Work Commission. Labor would put an explicit job security requirement into the Fair Work Act. In the public sector, we’d end the use of inappropriate temporary contracts. To help close the gender pay gap we would prohibit pay secrecy clauses. Labor would criminalise wage theft.

In the long run, productivity is at the heart of wage growth. Improving the National Broadband Network, building roads based on economics rather than politics, and encouraging the upgrade of our transport infrastructure are all vital for business. Reducing power prices by encouraging renewables investment makes companies more efficient and workers more productive. And offering thousands of free TAFE places and additional university spots will ensure more Australians are able to work with machines rather than be replaced by them.

From leading-edge technology to cinematic storytelling, there is much to admire about the US. But the despair that has hit American hospitals and the anger that prompted the Capitol riots are things Australia must avoid. Wage growth isn’t just an economic issue, it’s a moral one. Since Scott Morrison became Prime Minister, Australia’s billionaires collectively have doubled their wealth while battlers’ real wages have gone backwards.

It’s time to change course before the fair go is gone.

ENDS

Authorised by Paul Erickson, ALP, Canberra.