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Now that we know where wage stagnation can lead

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The Turnbull government's response to Donald Trump's election win and the lowest wage growth on record is, wait for it, to claim a mandate to cut the corporate tax rate. Seriously.

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Turnbull: Trump a 'deal maker' and 'pragmatist'

As is customary in presidential elections, Prime Minister Malcolm Turnbull called to congratulate US President-elect Donald Trump, remarking that he's a deal maker and pragmatist.

I suppose it makes sense on one level. I mean if the Coalition can keep a straight face while blaming wind turbines for the storms that blacked out South Australia and that building new coal mines is part of our plan to tackle climate change then, in some sense, it is consistent to claim that Trump's election is vindication of the need for more trickle-down tax policies. Consistently bizarre that is.

Fairness has been a big word this week. Everyone thinks it is important now. Everyone has "heard the message". And so it is that fresh from failing to pass its planned cuts to unemployment benefits through the Senate, the Turnbull government is back to arguing that tax cuts for big business will create "jobs and wages growth". The addition of the word "wages" is as optimistic as it is belated.

Wages account for 44 per cent of all the income earned in Australia, down from 48 per cent about 30 years ago. But it is not just the share of national income accruing to workers that has fallen steadily in the past few decades, the share of wage income accruing to low income workers has fallen faster still. Not only has the minimum wage risen more slowly than the average wage, but the number of people working short hours on low pay has risen rapidly as well. Of course, no one is worse off financially than the unemployed, which begs the question of why Turnbull recently tried to cut their incomes by $230 a year.

Luckily, Australian workers have not fared nearly as badly as US workers, either in terms of reductions in real wages or in their access to essential services such as health care. But that is cold comfort as the cost of housing rises, the generosity of our welfare safety net falls and the idea of job security becomes a distant memory. The lives of more and more Australians are becoming precarious and insecure.

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Scared workers who fear for their jobs are less likely to hold out for higher wages in negotiation, and less likely to strike. And their willingness to demand better terms and conditions is eroded further still when they fear that even if their job isn't taken offshore, that they might be replaced by a guest worker on a 457 visa. Trade deals worry trades workers.

It is not an accident that wage growth is so low, it is a direct consequence of the structural changes that have been introduced to the Australian labour market and welfare system over the past 30 years. And unfortunately, things are likely to get a lot worse unless we significantly change the direction our work and welfare policies are heading in.

Back in the 1980s and '90s the business community argued forcefully, and successfully, for the deregulation of the labour market. Rather than the system of centralised wage setting that had dominated the industrial relations system since Federation, the business community wanted market forces, not notions of comparative wage justice, to set wages in Australia.

But since they got their way they have raged against any market forces that put upward pressure on wages, while remaining strategically silent whenever real wage growth was slow. Take the notion of a "skills shortage" for example.

In a "free market" when the demand for something rises faster than the supply, the price will generally rise. At Christmas, for example, the demand for prawns rises faster than the prawns can breed, so the price goes up. The high price is used to ration who gets prawns for Christmas and who gets ham. The process has winners and losers, but it's the process business leaders profess to prefer.

Except when it comes to workers. During the mining boom the demand for skilled mining and construction workers went through the roof, and their wages rose significantly. But their wages would have risen further still were it not for employers complaining about "skills shortages" and demanding the right to bring in temporary workers from overseas to put downward pressure on wages.

Economists don't usually talk about "prawn shortages" at Christmas, but whenever wages start to grow, conservative business and political voices are quick to talk about "skill shortages".

Even if we were to take the issue of "skills shortages" seriously, such a problem is caused by a fundamental failure of the private sector to train the workers it knows it will need. Since when does capitalism rely on the public sector to anticipate the future demand for skills? Isn't placing bets on what the future will look like what entrepreneurs are supposed to be good at?

Which brings me to apprentices. Apparently the "skills shortages" are also a result of the fact that it is hard to find young people to work for a pittance in exchange for a lack of job security. It is, we are told, the slovenly work ethic of the young, rather than their rational decision to choose a job that can cover their rent, that is the cause of "the skills shortages". The simple way to "solve" the "shortage" of apprentices is to offer them higher wages.

The state-owned electricity corporations, water corporations, rail corporation and housing corporations once trained hundreds of thousands of apprentices, most of whom, on finishing their trade, went to work for the private sector, or themselves. But the business groups that wanted labour market deregulation also wanted privatisation and corporatisation as well. The "inefficient" staffing levels of those institutions have all been "fixed" and the supply of trained welders, carpenters and electricians has plummeted.

Leaving aside that one person's skills shortage is another person's opportunity for a decent wage rise, it is remarkable in Australia how successful the spruikers of small government have been in blaming government, and the young, for the private sector's refusal to train the staff they need.

But while business community rants about skills shortages are hypocritical, they are not reckless. Business leaders know that they could train workers if they wanted to, but they also know that it is cheaper to bring in temporary workers on 457 visas. More importantly, in addition to saving them money on training they know that bringing in foreign workers puts downward pressure on the wages they have to pay their existing staff.

No one knows exactly why US voters supported Trump, but few have argued that it was out of a strong sense within middle America that the gap between the rich and poor needs to grow further and that low income workers need to lower their expectations. But in Australia we are pretending that that is what the election means.

While Turnbull's interpretation of US politics is as irrelevant to the US as it is bizarre, the 35 per cent swing against the Nationals in last weekend's Orange byelection suggests that Australian voters are watching quite closely. Foreign workers have the potential to contribute significantly to the Australian economy and community. They do not "take" Australian jobs, but they are regularly offered them by Australian bosses.

If 457 visa holders are used to push down wages, then it should come as no surprise that some Australian workers might resent them. The simple solution for the government and the business council is to encourage employers to give decent pay rises. The Commonwealth could even lead the way, but not if it is determined to give a $50 billion tax cut to big business.

Richard Denniss is the chief economist at The Australia Institute.

Twitter: @RDNS_TAI