War on wages: Australians are working harder and going backwards

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 When Sahar Khalili started work as a casual pharmacist eight years ago, she was paid $35 an hour. Over the years that has fallen to as low as $30 while her rent has more than doubled.

The 30-year-old tried short bursts of locum work to try to balance the equation, but eight years after graduating her pay had not kept pace with inflation.

“At the end of the day it also makes you feel that you are not valued by the pharmacy owner,” she says.

Frustrated with the stagnating pay and increasing workload involving sales tasks unrelated to her pharmacy training and without any extra compensation, Khalili changed careers and now works in health IT. She still does pharmacy locum work on the side.

It is a tale that will resonate for many workers.

Most Australians have not had a pay rise in real terms in years in the face of an assault on wages which has policy makers, unions and business groups worried.

The typical Australian family takes home less today than it did in 2009, according to the latest Household Income and Labour Dynamics survey released this week.

Just on Friday the Reserve Bank cut its economic growth forecasts by half a percentage point for the rest of this year after confirming wages remain at their lowest share of total income in half a century.

Treasurer Scott Morrison has declared record low wage growth the “biggest challenge” facing the Australian economy.

Families are also wrestling with rising electricity prices, skyrocketing property prices and high demand for accommodation has also forced up rents.

There are many reasons given for the wage slump, some peculiar to Australia and others part of broader global trends.

GFC catching up

Having escaped the worst of the global financial crisis, Australian workers are now starting to share the pain of slow wages growth felt in the US since the 1990s and in Europe and Japan since the global financial crisis.

The mining boom and Rudd/Gillard government’s multi-billion-dollar stimulus spending may have helped shield the economy from the worst of the GFC.

But since 2012 and 2013, Australian workers have felt stuck in a holding pattern of slow wages growth. Wages for the whole economy increased by 1.9 per cent in the year to March just in line with inflation.

One unusual dynamic is that reasonably solid employment growth has not pushed up wages leading economists to suspect there is more slack in the labour market than the unemployment rate would suggest.

The rate of underemployment, which represents the number of people who have fewer hours of work than they want, remains high at 8.8 per cent and has not followed its normal trajectory in line with falls in the unemployment rate, which is at 5.9 per cent.

The Reserve Bank says it is not clear how much labour underutilisation – a combination of unemployment and underemployment, now at more than 14 per cent – is impacting on wage growth.

Then there are other trends upending the traditional workforce. Automation and technology has pitted humans against robots. An increase in contract work, off shoring of jobs and globalisation of trade, is undercutting prices and locally supplied goods and then dampening demand for workers.

The Reserve Bank has recognised that low wage growth may also reflect the erosion of workers’ bargaining power to achieve higher wages.

“With a greater premium on security, it’s plausible that workers are less inclined to take a risk by seeking larger wage increases,” Governor Philip Lowe says.

RBA governor Philip Lowe has encouraged workers to ask for a raise.

RBA governor Philip Lowe has encouraged workers to ask for a raise. Photo: Louie Douvis

More productive

Those comments have stirred up some economists including Jim Stanford, director of the Australia Institute’s Centre for Future Work who says Lowe correctly described wage stagnation but ignored the power imbalances between employees and workers who do not have the leverage to push for a pay rise.

That Australian workers are 60 per cent more productive than they were 30 years ago, suggests some capacity in the labour market for higher wages, but workers have less power to claim a fairer deal.

“For both the quantity and quality of work we need an active hand for government policy to be supporting job creation and workers,” Dr Stanford says.

Labor’s employment spokesman Brendan O’Connor told the Sydney Institute on Wednesday night he was in no doubt that the “dwindling bargaining power of workers and their representatives have played a central role in contributing to flat wage growth.

The shift in bargaining power away from workers to employers, and the undermining of their ability to be represented by their unions, he says have had a profound and damaging effect.

While the former Labor government succeeded in killing WorkChoices, he admits in hindsight, the ALP should have recognised that the labour market was changing “at a speed and in ways that would mean that simply restoring industrial relations laws would not be sufficient”.

Opposition spokesman for employment, Brendan O'Connor, said the figures did not show the full story of the labour market.

Opposition spokesman for employment, Brendan O’Connor, said the figures did not show the full story of the labour market. Photo: Alex Ellinghausen

“To be fair to the previous Labor Government, governments around the world are now confronting same or similar dilemma of how to address changes in the labour market,” he said.

But Professor John Buchanan, from the University of Sydney business school, says policies of both conservative and Labor governments over the past 30 years have resulted in depressed wages.

“None of this stuff is an accident,” says Buchanan. “We have had a 30-year attack on labour standards. Workers wages have only ever kept up with productivity when they have strong collective voices.”

Uncertainty a factor

From the employer side, profits have been hard won and former Reserve Bank board member Heather Ridout notes non-mining industries have been under competitive pressure to restrain costs especially wages. And while wages were flat, they were not going backwards in real terms .

“A lot of companies are making a reasonable profit but there is a lot of uncertainty,” says Ridout.

An increase in productivity, she says, means there is room to boost wages. This sets a challenge for the union movement and wage earners.

Australian Industry Group chief executive Innes Willox links low wages growth to structural change in the global economy and extra labour supply resulting from the urbanisation and industrialisation of China.

Ai Group chief executive Innes Willox says wage increase must be matched by productivity gains.

Ai Group chief executive Innes Willox says wage increase must be matched by productivity gains. Photo: Andrew Meares

The low growth, he says, is partly “a catch up” on competitiveness with other developed countries. A fall in income from exports has also impacted on domestic incomes.

“We are starting to see some signs of wages growth and there has been a 3.3 per cent rise in minimum wages,” he says.

AIG’s latest construction survey shows expectations of further growth next year. But for employers facing continuing tight margins and pressures from rising energy costs and a higher dollar, “there cannot be wages growth without productivity offsets”.

“That’s not negotiable,” he says.

Jeff Parker, managing director of Tyre Pitstop south of Sydney, is at the frontline of that battle. He has been cutting costs and investing in new plant to make his business more efficient and competitive.

02.08.17-Engadine. Jeff Parker, manager of Tyre Pitstop. Parker talks about the pressures on business to restrict wages growth for employees.

Jeff Parker, manager of Tyre Pitstop. Photo: John Veage

“There is a competitive challenge in our industry to make profits to cover wages because of Chinese imports of cheaper tyres into the market,” he says. “It is pushing the cost of locally supplied tyres down and manufacturers have to heavily compete and our margins drop.”

Even so, Mr Parker has ensured that salary increases for his staff have kept up with inflation.

Tax cuts debate

Economist Saul Eslake says it’s true that employers can more easily replace workers with computers, robots or workers in other countries. But he doesn’t think restricting off-shoring or restoring union rights are the answer.

“I don’t think it would be in the national interest or interests of individual workers for us to go back to the kind of industrial mayhem that Australia had in the 60s and 70s,” he says.

Eslake does not believe cuts to company tax will improve wages. Instead Improving standards of education is a longer term measure Eslake believes would help people compete.

Employment Minister Michaelia Cash disagrees and believes the best way to improve wage growth is to improve productivity and investment, through lower taxes and a balanced workplace relations system that encourages job creation.

“The best thing that can be done to improve wage growth is to strengthen the economy to encourage investment, boost confidence and improve productivity,” she says.

“In contrast, the latest Labor Party policy is not to encourage productivity but to simply give unions more power to enter and disrupt workplaces. This will not make a single workplace more productive, in fact it will do the exact opposite, which will only damage both job growth and wages growth.”

But not everyone has struggled to increase their income. The share of disposable income after tax accruing to the top 20 per cent of earners has increased by about 2.5 per centage points in Australia while the share for everyone else has gone down over 10 years between 2003-04 and 2013-14.

Consumer impact

Having strongly argued for wage restraint during the years of the mining boom, business groups are now grappling with the impact on consumer spending of stagnant wage growth.

ACCI director of economic and industry policy Adam Carr recognises that sustainable wage increases are needed to drive consumer spending.

He says Australia is feeling the lagged effect of global economic conditions and is confident that as productivity increases, so will wages.

“We don’t view this as the new normal,” he said.

Russell Zimmerman from the Retail Traders Association argues that simply increasing wages is not the answer – it would fuel inflation, which would force retailers to increase their prices. He puts the blame on chaos in Canberra.

“There is money out there for consumers to spend. People are not spending because there is too much uncertainty and lack of confidence in the government,” he says.

Zimmerman does acknowledge though that many people are doing it tough and living week-to-week to cope with increased electricity prices and huge mortgages as property prices rage out of control.

Mark Morey, the secretary of Unions NSW, says stagnant wage growth is undermining economic growth “because people don’t have money to spend”.

“People who have mortgages are two years ahead on their payments because [they are] worried about job security and not spending money on new TVs,” he says.

In a bid to avoid scaring off consumers with higher prices, manufacturers and suppliers are shrinking the size of their products to increase profitability.

“My beers are getting smaller,” he says.

And he’s not imagining it.

Products shrink

Australian consumer advocacy group CHOICE says companies such as Arnott’s which reduced multipacks of Shapes and Tiny Teddies, are shrinking product sizes without cutting prices.

It says the marketing trick is designed to bolster brand profits and reduce value at the supermarket checkout.

The phenomenon is known as “shrinkflation”.

The whole cocktail means shoppers are more focussed on price which has sparked battles between big producers and Australia’s powerful supermarkets.

In a spray against multinational companies, Coles managing director John Durkan says they seem happy to charge Australians more for their products than in overseas grocery markets.

The price differences often related to the same product made and sourced in the same place.

“Why should Australian customers pay more for products like baked beans, coffee and razor blades, chocolate bars, than customers overseas?” he said in a recent speech.

Coles managing director John Durkan accused multinational food companies of overcharging

Coles managing director John Durkan accused multinational food companies of overcharging Photo: AAP

Durkan has also raised concerns many Australian families were feeling cost of living pressures and spending less on fresh produce and meat.

Over the past few years, wages growth has languished on the back of a soft labour market.

“At a time when incomes are not growing much, many households are having to confront large price increases in other areas of their everyday living.”

These pressures – falling wages, rising prices, shrinkflation – are attributed as some of the drivers behind the global populist backlash as the middle and lower classes face the squeeze.

Niki Baras certainly knows how that feels.

Melbourne translator Niki Baras has been on flat wages for many years.

Melbourne translator Niki Baras has been on flat wages for many years. Photo: Paul Jeffers

Seventeen years ago, she was earning 15 to 18 cents per word as a translator.

Today she earns virtually the same money and in some cases is offered less.

“We’ve actually gone backwards,” she says.

“I’ve learned to live with it. I have had to take on other related jobs to support myself. I haven’t been able to make a living in my profession.”



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