Money Work Three divisive economic polices that might just boost your income
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Three divisive economic polices that might just boost your income

Economists are divided on what to do to lift stagnant wages.
Economists are divided on what to do to lift stagnant wages. AAP
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Australians waiting for a pay rise received more bad news on Thursday, with official jobs figures showing the unemployment rate had remained at 5.5 per cent.

Of most concern to economists was that the level of underemployment had increased, pointing to an excess of workers looking for more hours.

That will leave businesses under little pressure to lift wages because they know that, if any existing employees quit, there are plenty of other potential employees waiting in the wings.

Callam Pickering, APAC economist for global job site Indeed, said this “high degree of labour market slack” was “not conducive to higher wages”.

“The economy still has a long way to go before we can safely say that our labour market and economy is in a healthy place. While economic growth was strong in the March quarter, something remains rotten in the labour market,” he said.

So what will it take for wages – currently growing at a near-record low of 2.1 per cent per annum – to increase?

The New Daily asked a number of economists and employment experts this question, and found three distinct – and potentially contradictory – solutions.

Here they are.

1. Cut the cash rate

Economist Stephen Koukoulas of Market Economics told The New Daily that, on the current trajectory, wages were not likely to go anywhere.

“Unemployment is basically stuck at around 5.5 per cent,” he said.

“If you want wage growth at 3 per cent you need unemployment at 5 per cent, not just for one month, but for at least six months.”

He said falling house prices and banks reducing their lending meant there was little chance of the economy picking up any further without a change in monetary policy.

While he said income tax cuts would help stimulate the economy “at the margins”, the best solution was to reduce interest rates.

“The economy is not in so bad a state that you need fiscal measures. The Reserve Bank should cut rates.”

This, he said, would stimulate the economy, reduce unemployment, and increase the chances of wage increases – without inflating the property market, which he said market forces and regulatory measures had brought under control.

2. Give workers more freedom to bargain

Professor John Buchanan, an employment expert at the University of Sydney Business School, said while economic growth was important, it was only part of the story.

“Economic growth would certainly help, but how that demand and growth is distributed is dependent on institutions such as trade unions and the Fair Work Commission.”

Australian industrial relations rules severely limited workers from putting pressure on their employers to pay them more, he said.

“Australia’s anti-striking laws are among the most draconian in the world. Real wages have flatlined for the last 30 years. There’s a major divergence between wages and productivity.”

The answer, he said, was to allow industry-wide bargaining, rather than enterprise-only bargaining – a policy recently proposed by the Australian Council of Trade Unions.

Roger Wilkins, a professor of applied economic and social research at the University of Melbourne, agreed restrictive industrial relations rules were “part of the story” of stagnant wages.

He added the Australian economy was not competitive, with a few large employers dominating fields. This created what he called “monopsony power” – that is, one large employer dominating certain industries, leaving workers in those industries with no alternative choices if they feel they are not being paid enough.

Professor Wilkins said collective bargaining was more important in monopsony industries. However, he said industry-wide bargaining could hurt small businesses.

3. Cut company tax and slash red tape

Aaron Lane, legal fellow at the Institute of Public Affairs, had a radically different solution to the problem of wage growth, focusing primarily on the needs of businesses rather than workers.

“The best thing we can do for wages is to have a competitive labour market. But to have a competitive labour market we need a competitive business environment. And we won’t have that if business is burdened with red tape.”

While both Professor Buchanan and Professor Wilkins said the Fair Work Act had restricted workers’ ability to take industrial action, Mr Lane took a different view, saying it had made it much more difficult for businesses to hire.

He also said the government’s company tax cuts – which have been blocked by the Senate – would “make Australia a more attractive place to invest”, which would lead to higher employment and, eventually, higher wages.

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