Finance Finance News Australia in danger of becoming 7-Eleven of Asia
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Australia in danger of becoming 7-Eleven of Asia

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Revelations this week of the systematic under-paying of workers at 7-Eleven stores will help end that particular wage fraud – and who knows, perhaps a few others.

A joint investigation by the ABC and Fairfax found many 7-Eleven workers were paid just $12 an hour to put up with unsociable hours, long shifts and the perennial threat of violent robbery.

While that exposé deserves much applause, the story has some unpleasant economic ramifications that must also be faced up to.

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The first of these is that foreign workers, and some domestic workers too, take on work in other sectors at below-award wages.

From simple cash-in-hand transactions, to longer-term off-the-books arrangements, the unifying principle is that workers involved do not think they’ll get the job if they kick up a stink.

Getty
7-Eleven may not be the only one underpaying workers. Photo: Getty

Indeed, in some cases there will simply be no job if the low-price transaction doesn’t occur. You can offer to mow old Granny Smith’s lawn for $15, but if you ask $40 she will most likely push the damn mower up and down herself.

Okay, so no economy in history has stamped out all of these grey-economy transactions. It would be impossible, and undesirable for many people.

But the fact remains that in such scenarios, both worker and employer prefer to flout employment law rather than see no job created at all.

However, as reporter Adele Ferguson rightly points out, that situation becomes much more unjust when the worker is threatened by the employer – for instance, by notifying immigration that visa requirements have been broken.

And it is equally unjust when the worker has no idea that Australia has a system of award wages and enterprise bargaining agreements.

So let’s divide workers into two groups – those who are being coerced or who do not know they’re taking below award rates of pay, and those for whom neither of those things is true.

This latter group is where the real economic story begins. That’s because real wages in Australia are so much higher than in neighboring Asian economies that it is only rational for some foreign workers to be positively gleeful about working for $12 an hour in Australia.

The minimum wage in Indonesia, for instance, is around $A200 per month – or two days’ pay in Australia at $12 an hour, based on a straight currency conversion.

That is not a reason to throw open the borders and welcome an army of $3-an-hour pool cleaners, house cleaners and so on, as happens with Mexican workers in the US.

While a few extreme political thinkers might welcome such a law-of-the-jungle economy, most Australians would not.

But the question that does need addressing is this: on what basis are our wages so much higher? And, furthermore, how is that situation changing?

The answer isn’t pleasant. In 2014 the Reserve Bank estimated that the mining boom has pushed up real incomes in Australia by around 13 per cent at its peak – which, incidentally, was four years ago.

The price we paid for imports in those years was a lot less than other nations paid for our exports – as shown in the terms-of-trade chart below.

Burgess graph

But not all of our higher wages can be explained away by the mining boom. The ongoing reason wages are higher is Australia’s high levels of productivity.

Australia’s economy, unlike those of many of our near neighbours, is characterised by well-capitalised businesses, well educated workers, advanced management techniques and plenty of advanced technology.

As each of these things improve in neighbouring economies, so does their productivity and the profitability of their businesses. As that process continues, real wages rise.

The challenge in Australia is to find productivity improvements in a range of industries to offset the end of the mining boom and the debt-fuelled housing boom.

That won’t be easy, but it is the only road that will maintain real wages and, hopefully, increase them.

And they are going to need increasing, because as explained previously, real disposable income per capita has been falling for more than three years.

Shutterstock
The mining investment boom pushed wages up. But it’s over now, and nothing else has taken its place. Photo: Shutterstock

By ‘real wages’, economists mean the spending power of wages. Those unhappy souls behind the 7-Eleven counters can’t buy much with $12 per hour, but what is not widely understood is that the real wages of many Australians is also beginning to slide.

Part of that is because of the falling Australian dollar. This is most noticeable for people wanting to buy US-manufactured goods, as the Australian dollar has fallen most against that currency.

Fortunately, some of the great manufacturing nations in our region have also fallen against the greenback, so not all imports are more expensive.

The other side of real wages is the relationship between wage growth and inflation.

Wage growth is currently very weak, and may remain so. At last week’s National Reform Summit, the chairman of the Productivity Commission Peter Harris suggested that wages may grow at half the rate seen in the past 50 years.

The point to make here is that Australians do not get to simply choose a number as the minimum wage, and close the borders to maintain it. Economics just doesn’t work that way.

When the Abbott government, or the Labor opposition talk about serious reforms – be it tax reform, super reform, IR reform – blanket opposition to unpleasant plans is the wrong response.

The right response is to ask: what will the reform do to national productivity, and how can we ensure that any boost to national income is shared fairly between workers and investors.

Sounds easy! But these are the hardest choices Australian voters will have faced for a couple of generations.

And if each time we take the popular and easy path, we’re on a one-way path to lower wages ourselves.

Read more columns by Rob Burgess here

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