John Howard’s plan to decimate Australian wages

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By Leith van Onselen

Across the political spectrum there is a low level moral panic about Australia’s low wages growth, which is experiencing the weakest spell in the post-war era:

The irony is that some of the politicians lamenting this situation are merely witnessing the outcome of policies they have long advocated. In this space, enter former Prime Minister, John Howard, who gave a speech last night calling for further industrial relations reform:

The former prime minister told a closed event celebrating the centenary of the Australian Mines and Metals Association last Wednesday that the country had gone backwards on industrial relations and that the Turnbull government was not doing enough to fix it…

“It’s almost as if the collective political community in this country is now scared to talk about industrial relations reform,” he said…

“There will be a time when we will have to resist the attempts of many in the community to impose still further regulation and strangle the activities of our entrepreneurs”…

Mr Howard told the dinner that by the time he was defeated in 2007, his government had created the economic climate for low strike levels, 3.9 per cent unemployment and steady real wage growth “in part because of our commitment to industrial relations reform”…

“The reality is if wage rises remain subdued or non-existent you do produce what can only be called a very grumpy and discontented, irritable middle class who see the value of their wages remain subdued and although their job security may be higher, that is in a sense taken for granted”…

He said the country needed a “a freer, more open industrial relations system” and that “reforming our workplace system is always unfinished business”.

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Sure, wages growth was strong in the early-to-mid 2000s. A once-in-a-century mining boom will do that. But how can John Howard gloss over the past six year’s decline in real wages, despite decent labour productivity growth:

As well as the long trend decline in workers’ share of national income:

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It is commonly understood that one of the factors behind Australia’s weakening wages growth is the decline in union bargaining power. So how would neutering unions further via further industrial relations reform, as advocated by John Howard, remedy the situation? It wouldn’t.

As explained this year in The Australian Economic Review:

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Wages in Australia have lagged behind the growth in labour productivity in recent years. This has been associated with a significant change in the distribution of income in favour of high-income earners. Although a number of factors appear to have been involved in this development, an important explanation is also to be found in the change in the balance of power in favour of employers and against workers and unions. As changes in industrial relations laws have contributed substantially to this imbalance, a return to the earlier laws may be necessary to restore the institutional mechanism for wages growth.

The Guardian’s Greg Jericho has done a good job today explaining how younger Australians have borne the brunt of Australia’s weak labour market:

The latest Hilda survey… found that young workers are much more likely to be underemployed – 31% of workers aged 15-19 and 20% aged 20-24 are underemployed, whereas no other age bracket sees more than 9% of its workers in such a position:

..The Hilda survey also confirms the belief that underemployed workers have less job security than other workers. While just 7% of full-time and 40% of part-time workers are employed on a casual basis, 57% of underemployed workers are on such an employment arrangement:

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Sadly, Jericho – and the Fake Left more generally – are also big supporters of John Howard’s other gift to the labour market – mass immigration and the heavy use of temporary foreign workers, which has both helped to lower wages and destroy youth job prospects.

The whole industrial relations and immigration system needs to be turned upside down.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.