It is Wednesday and I have only a short blog post today as I have had a lot of commitments that stop me from writing. But I did read a recent Australian Treasury paper – Wage Growth in Australia: Lessons from Longitudinal Microdata (July 2019) – which purports to model the reasons why there is wage stagnation in Australia. The results were presented at the Australian Economists Conference earlier this week and set off a storm because it appeared, at first blush, to blame workers lassitude and excessive risk averse attitudes for the lack of wages growth. I read it slightly differently. It tells me that, first, the Treasury is reluctant to acknowledge the legislative attacks on unions’ capacities to gain wage increases that have been characteristic of the neoliberal era; and, second, that the unions might take the message as a call to arms – take the employers on more often through costly industrial action within the tight legal environment that is left to them.
Treasury thinks slow wages growth is the fault of workers
The Treasury paper initially finds (surprise surprise) that there has been a shift in the relationship between “growth in the aggregate wage price index” and the growth in productivity.
I have been writing about that for 2 decades.
Clearly, when the federal government started to create situations that suppressed real wages growth in line with productivity growth that would cause a redistribution of income and wage stagnation.
That started under the Hawke Labor government in the late 1980s and has been a characteristic of the neoliberal era.
Please see this blog post – The origins of the economic crisis (February 16, 2009).
The fact that the Treasury has only just started looking into it tells you where their heads have been.
They find that:
This corresponds to around one-third of the unexplained weakness in wages growth observed in recent years. The change in the relationship between workers’ wages and firm-level productivity thus provides a new mechanism to understand the meaningful but modest portion of the weakness in aggregate wage growth over recent years that cannot be explained by historical relationships.
I love their arrogance – “provides a new mechanism to understand”.
MMT economists have been pointing this out for many years now.
The Treasury claim this is only a “potentially transient, shift in the relationship between wages and firm-level productivity”. They are thus oblivious to the fact that the gap between productivity growth and real wages has been deliberately engineered by government industrial relations policy.
It is part of the neoliberal approach. There is nothing transient at all – unless we break this system by abandoning the neoliberalism that the Treasury is captured by.
They then seek to understand what the real factors driving wage stagnation – yes, for them the wage-productivity effect is a sideshow.
The Treasury authors write:
… the decline in labour market fluidity … implies fewer outside options for workers, lower labour market fluidity may have reduced workers’ confidence and power in negotiations, and thus lowered the scope for rent sharing. Equally, lower labour market fluidity could reflect decreased feelings of job security amongst workers due to globalisation and technological advancement
No mention, of course, of the role that fiscal austerity and the obsessive pursuit of fiscal surpluses has done to engender this risk averse behaviour.
Essentially, the Treasury paper suggests that a significant factor explaining the wages stagnation is the lack of job shifting by workers.
They claim that:
… higher job switching rates are associated with higher wage growth at the local labour market level in Australia, even after controlling for a range of cyclical and demographic factors. Moreover, even workers who remain with their incumbent employer appear to benefit from more fluid labour markets, which provides further evidence that the decline in job switching rates – to the extent it is structural – could be related to the shift in rent-sharing.
The unions, predictably, came out yesterday claiming shock and horror at these findings. The head of the ACTU said it was “obnoxious” to suggest that workers are to blame for the meanness of their bosses.
Rather than get all hot and bothered about the implied insult from the Treasury – I actually don’t think these officials have any empathy so would really know what an insult was anyway – I think a better response would be to challenge the robustness of the research.
They claim they controlled their regression analysis with “a range of cyclical and demographic factors” but failed to model:
1. The impact of fiscal austerity.
2. The impact of structural shifts in industrial relations due to legislative changes.
3. Categorically failed to model the impact of these shifts on working days lost through industrial disputes.
4. Categorically failed to model the impact of declining union coverage (density) precipitated by these industrial law changes and other structural shifts (increased proportion of service sector in total employment).
5. Failed to examine the shift in job structures – rise of precarious casualised employment etc.
For example, the following graph shows working days lost due to industrial disputation since the March-quarter 1985 to the March-quarter 2019. This period coincides with several direct legislative changes by both Labor and Conservative federal governments at various times, which outlawed many formerly accepted industrial strategies by workers to put pressure on bosses to hand over a fair share of the productivity growth.
One would expect in a research design seeking to isolate factors contributing to the stagnation in wages growth in Australia in the last decade or so that it would be essential to examine the impact of the dramatic change in working days lost due to industrial disputation.
One is not the Australian Treasury – which has been hollowed out over the neoliberal years of any significant capacity to act with a degree of independence. It is now a part of the neoliberal ‘sound finance’ team – highly politicised and damaging.
Finally, the paper tells me that the Treasury thinks that if workers adopt quit behaviour they increase the pressure on employers to pay higher wages or face the prospect of losing their skilled workers.
Whether that sort of mobility is possible depends on the macro conditions and at present workers are sensible to hunker down because there are declining hire rates.
But if the increased fluidity is the way to bully the bosses into paying fairer wages, why not take the more obvious route – threaten the existing employers with profit losses through industrial action.
Workers can still go on strike (just) in Australia.
If the Treasury are really suggesting that fluidity lessens the imbalance in bargaining power that the legislative environment has created, then so do the threat and execution of costly industrial action.
Unions should stop pussying around and go back to the days when they closed down trains and caused massive inconvenience to the public and related tactics.
That way workers do not have to engage in the uncertainty of job change and still enjoy better wages and conditions.
Radio interview touching on these questions
I did a radio interview for the National broadcaster that touches on some of these issues and more. We are fighting a fairly nasty local government in Newcastle at the present, which is dolling out millions to unprofitable motor car races and destroying the local area by conceding to the demands of greedy developers.
One of the impacts has been that we have lost our local rail line (truncated out of town) to make more land available for high rise apartments. The disruption has killed local businesses many of who are just small-time crafts people earning small incomes.
The interview is about those issues and more (very MMT orientated).
Call for financial assistance to make the MMT University project a reality
The – Foundation for Monetary Studies Inc. – aka The MMT Foundation serves as a legal vehicle to raise funds and provide financial resources for educational projects as resources permit and the need arises.
The Foundation is a non-profit corporation registered in the State of Delaware as a Section 501(c)(3) company. I am the President of the company.
Its legal structure allows people can make donations without their identity being revealed publicly.
The first project it will support is – MMTed (aka MMT University) – which will provide formal courses to students in all nations to advance their understanding of Modern Monetary Theory.
At present this is the priority and we need some solid financial commitments to make this project possible and sustainable.
Some sponsors have already offered their generous assistance.
We need significantly more funds to get the operations off the ground.
In order for FMS to solicit tax-exempt donations while our application to the IRS is being processed, the Modern Money Network, Ltd. (“MMN”) has agreed to serve as a fiscal sponsor, and to receive funds on FMS’s behalf.
MMN is a non-profit corporation registered in the State of Delaware, and is a federal tax-exempt public charity under Section 501(c)(3) of the Internal Revenue Code.
Donations made to MMN on behalf of FMS are not disclosed to the public.
Furthermore, all donations made to MMN on behalf of FMS will be used exclusively for FMS projects.
Please help if you can.
We cannot make the MMTed project viable without funding support.
A close friend was updating me about an MMT event they participated at recently and wondered about the lack of youth in attendance, given the topic.
I sent her a link to this song by Adelaide singer/songwriter Paul Kelly and Kev Carmody – From little things, big things grow – which is a ‘protest song’ about the struggle for land rights recognition by Indigenous Australians.
This presentation was at the memorial service to former Prime Minister Gough Whitlam, who was the first Australian leader to show respect for the indigenous struggle.
The song is specifically bout this mammoth event in Australian history – Wave Hill walk off, 1966-75 and its aftermath.
The walk-off, ultimately led to the introduction of the Commonwealth Aboriginal Land Rights (Northern Territory) Act 1976 – on December 16, 1976.
In August 1966, a large group of Indigenous Australian workers walked off the cattle station owned by the British colonialist Lord Vestey at Wave Hill in the Northern Territory demanding better pay and conditions, and, most importantly, respect.
The walk off (strike) led to an organised movement throughout the remote pastoral lands. The strikers camped out at Wattie Creek and demanded not just better working conditions but ownership of their traditional lands.
It was labelled ‘black communism’ by the conservatives. Lord Vestey claimed that if the Aboriginals won the struggle then they would move in to take over all our land. Scaremongering was rife.
They stayed on strike for 8 years getting support from other Australians until the Federal Labor government handed the indigenous people their land back.
This led eventually to the general Land Rights Act, which reversed the status quo established by the British when they invaded the continent – that they were coming to ‘terra nullus’ and so could just take over despite the presence of the indigenous people for between 40,000 to 60,000 years.
An historic film is available at this site – The story behind an iconic Australian protest song – which is hosted by the National Film and Sound Archive of Australia.
It was a momentous strike and gave some return to the workers.
You can read the – Lyrics – to learn how the song relates to the events.
The message generalises – which is why I sent the song to my pal in the UK. Solidarity and small-scale struggles can build into outcomes far beyond what was expected at the outset.
MMT started with a few of us. Millions now know about. It is now the rival paradigm in macroeconomics. From little things big things grow.
That is enough for today!
(c) Copyright 2019 William Mitchell. All Rights Reserved.