Anyone with a memory longer than a goldfish will know that the last time Australia was fighting a combined falling commodity price and rising wages outlook was in the late 1980s:
The Prices and Incomes Accord was an agreement between the Australian Council of Trade Unions and the Australian Labor Party government of Prime Minister Bob Hawke and Treasurer (later Prime Minister) Paul Keating in 1983. Employers were not party to the Accord. Unions agreed to restrict wage demands and the government pledged to minimise inflation. The government was also to act on the social wage. At its broadest this concept included increased spending on education as well as welfare.
Basically, this was an effort to increase Australian competitiveness to help offset declining national income as the Japanese commodity boom ended.
These days, the challenge is the reverse of what it was in 1980s and 1990s. We again face the prospect of a large income drain from falling commodity prices, but wages growth is already weak. Our challenge this time is to lift wages while national income falls.
Why? Because the last decade under the Coalition foisted the entire competitiveness adjustment onto labour via the policy of quantitative peopling. That is neither equitable nor, in the end, very good for business and profits, because it hollows out middle-class demand.
Anthony Albanese made some sense on this issue yesterday:
Anthony Albanese says he will offer voters an election platform to help create personal wealth for millions of aspirational Australians, while ruling out any new taxes to help fix the nation’s ballooning debt levels caused by the pandemic response.
In an extensive election-year interview with The Sydney Morning Herald and The Age, Mr Albanese ruled out any need for another Prices and Incomes Accord with unions to help lift stagnant wages, instead saying his proposed Bob Hawke-style jobs summit would bring together business, unions and government to reduce unemployment and underemployment.
…Reassuring the nation that Labor had learned its lessons from waging class-war politics of economic redistribution, he said driving economic productivity and growth would instead help “lift up” Australians who have been left behind after nine years of a Coalition government.
That’s good. But there will be a need for an ‘immigration accord’ if Albo is to deliver anything for workers and living standards. Quantitative peopling squashes productivity and wages growth by promoting disproductivity and capital shallowing.
Only if the policy of quantitative peopling is significantly reduced will wage growth be possible in the presence of an output gap, which Australia has had since the GFC and especially after 2012:
Notice several things in this chart. First, despite the large and persistent output gap post-2012, Coalition governments swamped Australia with foreign workers. Hence wages growth crashed.
Second, during the 1990s, when the output gap was also wide, immigration was held down, even during much of the Howard Government’s tenure, which supported wages growth in the 4% range.
The OECD outlook for the Australian output gap is for -2.2% this year and -1.3% next. Based on the above output gap history, we can’t run an immigration rate above 0.5% if we want 3% wages growth. If we want 4% wages growth then immigration must fall below 0.5% and the output gap must be allowed to close.
It would not be hard for somebody smarter than me to create an index that tracks the relationship between the output gap, wages and immigration. It could form the heart of an ‘immigration accord’ between business and unions.
The hard part would be getting them to put aside their interests to agree to it.
Even so, there is immense upside for an Albo Government in doing it:
- It would depoliticise immigration instantly, turning it from an identity to an economic issue.
- It would be very popular in the electorate as it reversed ten years of living standards decline under the Coalition, decongesting cities, taking pressure off house prices and slicing the national income cake more fairly for workers.
- It would corral the useful idiots on the left that are barracking for trickle-down economics and class warfare without knowing it.
- It would maintain an immigration macro-economic failsafe for inflation and the real exchange rate in the event that the output gap did close, protecting house prices.
- Indeed, it would very likely sink the AUD given it would guarantee no wages breakout even before the RBA got involved, lifting competitiveness.
If we still live in a rational age, it is a no-brainer.
