Occasionally I wonder if I will ever get to see a genuine wages breakout, because in my 30 years of working and 15 years of writing about politics and economics I have yet to see one, despite regular warnings that one is imminent.
The New South Wales election result immediately brought news that unions (and please be sitting down, this will shock you) are going to push the Minns government to give public-sector workers a decent pay rise. I know, unions, what can you do, eh?
The Australian ran the headline: “Unions pounce to collect pay.” Yes, a scare campaign about unions pushing for higher public-sector wages when those same wages in NSW last year grew just 2.5% compared with inflation in NSW of 7.6%.
In fact, public-sector wages across the country last year not only all rose well below inflation but also below wages in the private sector:
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The big issue is the NSW public-sector wage cap which is set at 3%, after being lifted from 2.5% last year.
The cap was introduced by the O’Farrell government in 2011 notionally to reduce government expenditure. At the time Barry O’Farrell argued: “We have a financial situation in this state that is dire. We have to live within our means.”
Of course, it was never about budget repair and even when the NSW budget returned to surplus from 2013-14 onwards, the wage cap remained.
Its real purpose was made abundantly clear by the former NSW treasurer Matt Kean during the election campaign when he told an audience of the NSW business community that removing the cap would “mean for each and every one of you … that you will now be competing for labour against the public service who were paying huge wage increases. Imagine what happens when you’re competing against the might of government and the public servants who were paid huge pay increases.”
It is always instructive when conservative politicians say the quiet part out loud. It suggests they assume it will get treated with nodding respect from various media and commentators. And they are always shocked when voters call them out as they did last Saturday.
We see the same each year when it comes to the minimum wage.
Last year, when the then opposition leader, Anthony Albanese, suggested the minimum wage should increase in line with inflation, the AFR reported that “Employers warn Labor’s 5pc pay rise will crush business” (it didn’t). One senior journalist suggested it was “a one-way ticket to the Weimar republic” (it wasn’t), while others were suggesting the 1970s were about to return (they haven’t).
The 5.2% increase that was awarded to workers on the minimum wage (and a smaller 4.6% increase to those on award minimum wages) did not even do enough to keep pace with inflation and we should not forget that this was unusual.
The minimum wage comes into effect in the September quarter of each year and in both 2021 and 2022 the minimum wage increase was below that of inflation growth in the 12 months to September:
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Each year the minimum wage rise is designed to recover the lost value of the minimum wage over the past year and also give a real-wage increase.
Not only did last year’s increase not do enough to recover the lost value but the subsequent increases in prices has also meant by June the minimum wage will have fallen about 4.5% since last September and will be about 7% below where it was in 2020:
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Not surprisingly the 5.2% increase did not set fire to inflation – purely because it is rather tough for wage rises of a small minority of low-paid workers to drive inflation when they are actually rising slower than prices!
Nor did it lead to a wages breakout.
The latest data from the Fair Work Commission on new enterprise agreements shows a plateau of 3.5% annual growth, which is in line with the annual growth of the private-sector wage price index:
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This is essentially what workers should be getting in the best of times.
Recall back in 2018 when the governor of the RBA, Philip Lowe, was arguing we need stronger wages. He told the house economic committee that: “I think wages in Australia should be increasing at three point something. The reason I say that is that we are trying to deliver an average rate of inflation of 2.5%. I’m hoping labour productivity growth is at least 1% – and I’m hoping we can do better than that – but 2.5 plus one equals 3.5.”
At the same hearing he also argued that “caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes”.
There has not been a wages breakout even in this period of extraordinary inflation and yet the fears of one continues to be spread.
It is time to end the fear and instead admit that workers are the ones who have been hurt the most from inflation and they are due some back pay.
• Greg Jericho is a Guardian columnist and policy director at the Australia Institute’s Centre for Future Work
