Low wage rises a threat to economic stability

Low wage rises a threat to economic stability

Contrary to what the economic rationalists within the Liberal Party and the highly paid executives running Australia's major corporations may think, the record low wages growth recorded over the past three years is not a good thing.

It is, in fact, an economic disaster in the making that has the potential to slash business profits, crash share prices and spark a residential property crash.

These outcomes are all but inevitable if the gap between the gradually increasing cost of living and the wages and salaries that are paid to millions of hard-working Australians is allowed to widen indefinitely.

The looming crisis, as Fairfax business analyst Ross Gittins pointed out last November, is not about inflation or the CPI.

According to the Reserve Bank the inflation rate is running well below its target zone of 2 to 3 per cent at the moment.


"The crazy thing is the widespread view that our big problem is the rapidly rising cost of living is roughly the opposite of the truth," Mr Gittins said. "It's the weak growth in wages that's giving people trouble balancing their budgets – a problem they then mistakenly attribute to the rising cost of living."

The irony is the decline in the value of their wages being experienced by many Australians has coincided with record business profits in many areas.

Those profits have then been reflected in the bonuses paid to the corporate giants who run our top 100 companies.

These are the same people who, presumably, welcome getting away with paying their workers less year-on-year and feel the abolition of penalty rates was an overdue correction.

We have, since 2013, seen the application of a similar ideology within the Australian public service. Public sector workers who negotiated new workplace deals in the September quarter have only averaged pay increases of 2 per cent.

This is 33 per cent down on the 3 per cent for this time last year and just below the 2.2 per cent national average for all industries and work sectors.

According to the Public Sector Union the Coalition's decision to cap rises at 2 per cent while targeting workers' rights and conditions has been a disaster.

"The government's approach has cost public service workers and their families and hurt the whole economy," acting national secretary Michael Tull said.

Ultimately these savings run the risk of being false economies. Labour costs are just one of many inputs in any business and, by themselves, will never determine the direction in which the bottom line is moving.

That said, underpaid employees are generally unhappy employees and any "savings" will soon be absorbed by higher staff turnover and the effects of poor morale.

More importantly, as Mr Gittins pointed out, "when the growth in household income is weak, so is the growth... in consumer spending. What sounded like a great idea at first ends up biting business on the bum".

Or, as the Old Testament put it several thousand years ago: "Thou shalt not muzzle the ox when he treadeth out the corn".

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