After spending years complaining of low wage growth, RBA governor Phil Lowe yesterday warned of the need for wage restraint, arguing that 5% pay rises could see high inflation become entrenched. Lowe instead wants to see real wages continue to fall with wage increases of around 3.5%:
“It’s good to start with a three,” Lowe says…
“I hope I don’t get into an environment where I’m complaining that they … have a five in front of them.
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“Three-and-a-half is kind of the anchoring point that I want people to keep in mind, and I know it’s difficult when inflation is higher than that.
“But in the ’70s we got into trouble because wages growth responded mechanically to the higher inflation rate.
“We had higher inflation, wages responded and then that becomes persistent, and then you have to have higher interest rates and a downturn to get inflation down.
“I’m hopeful we can avoid that, but it’s an important issue. Three-and-a-half is better than two and better than five.”
In yesterday’s speech, Phil Lowe didn’t once mention that Australia’s real unit labour cost (ULC), which “are an indicator of the average cost of labour per unit of output produced in the economy” and “are a measure of the costs associated with the employment of labour, adjusted for labour productivity” collapsed 6.3% below their re-pandemic level in the March quarter and have fallen for the better part of 35 years. This means that labour costs has become cheaper for Australian businesses over the pandemic.
Nor did Phil Lowe call out Australian businesses for driving prices higher and making record profits. The next chart tells the story with wages’ share of national income falling to historical lows while company profits have soared to record highs:
Why didn’t Phil Lowe fire a warning shot at businesses for driving prices (inflation) higher, instead of attacking workers whose real wages (and share of national income) has fallen? And where was Phil Lowe’s call for East Coast gas reservation and coal/gas export controls to delink Australian energy prices from the global market to bring down inflation?
Phil Lowe’s analysis reads straight out of the business lobby’s playbook: wrongly blame Aussie workers for inflation while businesses ruthlessly gouge consumers and make obscene profits.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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