The war on waged labour

March 9, 2015

9 March 2015

by Warwick Smith

Despite being haunted by the spectre of WorkChoices, the campaign by the Coalition in support of business interests and against labour remains systematic and thorough.

Various government MPs, including the prime minister, have been telling us that they believe penalty rates are too generous and should be reduced or abolished. Similarly, the government has contained public sector pay rises to below inflation – which means those wages will fall over the next three years in real terms. Overall wage growth on the Abbott government’s watch has been roughly in line with inflation. The economy is growing but wages are not, which means waged labour is falling behind relative to the returns on capital.

When wages are kept low, the government tells us, business will employ more people and our unemployment rate will fall. It’s true that demand for labour may increase, as the Coalition suggests, but the supply of labour is also likely to fall as people decide it’s not worth working or they’d be better off holding out for a better job. However, if there are serious punitive measures taken against the unemployed and if the cost of housing is very high, then people have little choice but to keep working as many hours as they can get. If the government can make withdrawing labour painful enough at the same time as reducing wages and attacking organised labour, then they hand all of the power and all of the benefits to employers.

As a part of this pincer movement against waged labour, the Coalition wants to put pressure on young job-seekers by making them wait six months to receive income support. When there are many more unemployed people than there are jobs available, the only impact of this kind of measure is to reduce the bargaining power of waged labour by making the option to walk away too difficult.

Such policies, in combination, may result in improved international competitiveness and higher corporate profits, but the effect on unemployment is not as clear-cut as the prime minister would have us believe. Henry Ford famously said that he wanted the workers in his factories to be able to afford to buy his cars. In other words, he understood that while wages are a cost to business, they also represent demand in the economy. The more money wage-earners have, the more demand there is for goods and services and the greater business activity is generated. The overall impact on employment of keeping wages down and reducing or abolishing penalty rates is therefore far from certain. One thing that is clear is that it would result in a dramatic increase in the number of working poor and reduce the quality of life of a vast number of Australian wage-earners.

There is a “public good” element to minimum wages and penalty rates: while individual companies have an interest in driving down wages, consumer spending supports the economy. Groups such as the Australian Industry Group and the Australian Chamber of Commerce and Industry represent businesses that have an interest in keeping wages down. Taken as a whole, however, the impact of stagnating wages on business in Australia is likely to be negative, as demand for goods and services also stagnates. Exporters are the only ones who stand to gain, as the lower standard of living in Australia makes our products cheaper for overseas buyers. It’s critically important that we understand these trade-offs. Many measures that improve our international competitiveness reduce our standard of living, and we need to be confident that the improvement in our standard of living from the export income more than compensates us overall.

The government has plenty of viable options for reducing unemployment other than holding down wages and punishing the unemployed for not being in one of the non-existent jobs. Shifting taxes away from wages and earnings and onto rent-seeking and speculation would redirect investment back into productive economic activity and create jobs. Another option is a full-blown government job guarantee. From a business perspective, a pool of unemployed people, particularly desperate unemployed people, is a good thing. They will be willing to accept working conditions that could not attract a worker from another position. Full employment is a worthwhile social goal but is not conducive to profit maximisation.

Federal assistant infrastructure minister Jamie Briggs gave us a great insight into the government’s thinking on wages and employment when speaking about penalty rates: “We cannot accept that on New Year’s Eve you can’t attend your favourite restaurant because it is impossible for that restaurant to pay its staff to open up.” Jamie Briggs and his colleagues cannot accept the possibility of being denied their favourite restaurant just because some waiter is having a holiday with their friends and family. There’s no acknowledgement that the economy should serve the people rather than the other way around. Briggs is very concerned about being able to eat out where and when he wants. I’m sure he’s also very concerned about the profits of the restaurant owner. The people who don’t seem to feature in his list of concerns are the employees of his favourite restaurant. In the absence of penalty rates, New Year’s Eve becomes just the same as any other work night, when they earn just enough to pay the rent and bills. Briggs’ comment exposes what appears to be the Abbott government’s real economic reform agenda: supporting the top end of town at the expense of the rest.