Crikey demands wage growth policy…well, here it is!

As we know, Australian households have suffered through a lost decade of historically weak wages growth. Bernard Keane at Crikey has done a better job than most on these falling incomes and rising inequality. Here’s the chart:

Yesterday Keane continued the pressure:

…there are other demographic stories that point to growing inequality. According to a paper last year by Guyonne Kalb and Jordy Meekes of the Melbourne Institute, higher-income earners have faster mean wages growth than low-income earners. Moreover, the gap between those groups grew over the 10 years to 2018, which incorporates the period of wage stagnation that set in in 2013. While both groups’ wages growth slowed compared to the period before the financial crisis, the wages growth of the lowest quintile of incomes slowed by 33% compared to 22% for highest-income workers.

Similarly, wages growth was highest among university graduates and fell by less than wages growth for Year 11 and 12 graduates compared to pre-GFC levels; those with long-term health conditions had lower wages growth than those without; low- and medium-skill occupations like labouring, retail and machinery operators had significantly lower wages growth; accommodation and food services, retailing and manufacturing had the lowest growth (though mining, reflecting the mining boom in the Labor years, had the highest).

Australia needs an effective wages policy aimed at increasing real wages growth. Monetary policy alone will not deliver wages growth, as the Reserve Bank acknowledges in its forecasts (and wages growth declined despite the 2019 interest rate cuts). Nor will fiscal policy: the Morrison government plans to remove fiscal stimulus starting next month.

Yet, again, although Keane has kept the heat on, he studiously avoided mentioning the elephant in the room: immigration.

There were many forces at work in producing low wages over the last decade. It started with a large terms of trade shock. Low productivity growth made it worse. Governments added to it. Lowflation turned it into a self-fulfilling cycle.

Yet the number one change from a macro point of view from previous cycles was running mass immigration into what was throughout a slack economy with abundant supply. We had never done this before in modern Australia.

In previous downturns (1980s, 1990, 2000) we let immigration fall when growth fell or was weak, which is when the output gap widens most, to absorb the fallout on behalf of workers. This was sensible based upon the notion that immigration was complementary to the economic cycle.

But, in the last decade, we instead experimented with the idea that immigration could be the driver of growth itself. The results are in. Immigration can drive growth. But only at the cost of a permanent output gap as the labour supply shock never ends.  The result was crushed wages growth, as it always is when the output gap widens.

The evidence on the ground was everywhere to see. The wave of immigration into a slack economy triggered the near-total destruction of microeconomic conditions for labour. A plague of wage theft, rorting and collapsed conditions infected everything from the local shops to the largest corporations.

Today, Labor is proposing to fiddle with destroyed microeconomic conditions to boost wages. But that will only do so at the margin so long as we ignore the crushing macro input of a migration-driven permanent labour supply shock which both parties are planning to resume the moment that the virus allows.

The policy solution for higher wages demanded by Crikey is therefore simple. Slash temporary migrants and halve immigration.

The real imbroglio is that everybody, especially the disgraceful fake left, is too cowardly to discuss it.

David Llewellyn-Smith

Comments

  1. I used to really love crikey in the early/mid 2000s. Subscribed for years. I actually gave subscriptions as presents,

    The thing that did it for me was some kid subeditor paying out sting when it was Phil Collins, or the other way around.

    Someone corrected it and teh response was “It’s all the same”.

    Such a deep contempt for the audience, and I was only in my early 30’s then. But that’s when I knew I didn’t fit into the demographic.

    • blacktwin997MEMBER

      Same here, i subscribed for the initial breadth of reading material and perspectives, stayed for First Dog On The Moon but then bailed out once the pustules of woke started breaking out over most all the pages.

  2. Payroll tax needs to be reconfigured; no tax on full time workers receiving award rates or better, some tax on workers getting below award rates and the full tax for each casual worker (with the usual carve out for mum and pop operations)

    • So tax minimum wage employment? Doesn’t sound appealing and the effect would be marginal, at best. Payroll tax needs to be abolished, it’s an appalling tax.

      • Mark HeydonMEMBER

        Maybe a naive question, but what, economically speaking, is the difference between payroll tax and income tax? From the employer’s perspective, isn’t payroll tax identical to income tax, only paid to a different tier of government?
        Or is income tax equally appalling as payroll tax and should also be abolished?

    • Do you really think the people illegally paying below award wages are documenting it and paying payroll tax?
      hahahahahahaha

  3. chuckmuscleMEMBER

    You and your evidence, pfft.

    Some clown “economist” from ANZ was in the AFR earlier this week saying there is simply no evidence that immigration has any impact upon the labour market or wages. It really is a cult. No offense to clowns intended.

  4. There was a similar article on todays The Conversation lamenting low wages and insecure work. No mention of immigration, so I pointed that out. Got all my posts deleted for my trouble.