Real wages are falling and cannot be the cause of inflation

By Joe Montero

Despite all the hype, and even a Reserve Bank forecast of a 3.5 percent rise next year, the pay packet of the average punter is not going up, and in real terms, it is going south. Even if the Reserve Banks prediction, which doubtful to start with,  it will still fall behind  rising inflation. This means it will cost more to maintain the same standards of living.

This reality doesn’t stop those in high places and ideologically driven economists from blaming wage rises as the principal cause to inflation. They do this because their belief that wages are always the cause of inflation, no matter what. It is part of a dogma, and dogma has the ability to overlook reality.

Which brings us to the next falsehood in the body of this dogma. This is that job vacancies have spiked so much that it has caused labour shortages, which shows just how well the Australian economy is going. Two inconvenient facts are left out of this narrative. There has been a large-scale return to work after the pandemic lockdown. The main cause of labour shortages has been that foreign guest workers on visas that have left and not been replaced.

The following graph from the Australia Institute shows that growing gap between nominal wage (the money face value) which continue to stagnate, and fast falling real wage (what the wage can buy).

According to figures of the Department of Home affairs, the number of skilled visa workers employed in Australia fell by 31.1 percent in 2019-20, and a further 18.5 percent in 2020-21. This is almost 58,500 jobs not being filled, and the trend is continuing even with the ending of the lockdown. The figures for the last financial year are due out on 17 August.

And there has been little access to backpackers for agricultural work and parts of the hospitality industry, nor the ability to use foreign students to fill some jobs. A combination of Covid and negative publicity lie behind this.

This gap in the available workforce has not been filled by new migrants, as would have been the case in the past. China and India have been the biggest source of migrants in recent times.

Many of the available jobs are not being taken up by domestic workers because they don’t fit in, or the pay is too low and conditions less than acceptable in the Australian community. Last month (June) saw the rate of underemployment rise by 6.1 percent, according to the Australian Bureaux of Statistics (ABS).

No wonder the boost in job opportunities that Australia is supposed to be having is not pressuring wages upward.

Wage stagnation I set to continue and fall further behind as inflation rises.

It doesn’t have to be this way. Contrary to the insistence of the dogmatists that keeping wages down encourages the investor to grow the economy and create jobs, real life is showing that the effect is in the other direction. Part of the answer is to increase wages to a level that it raises the standard of living. This would encourage participation and increase the market for businesses.

But only so far as this is accompanied by policy that sets appropriate investment priorities and implementing them requires an adequate level of regulation under law and by the government.

The coming Jobs and Skills Summit (1-2 September) will be a tasting ground for two opposing approaches to jobs and wages.

There are those who hope to see a move towards something like the Prices and Incomes Accord of the Hawke government in the 1980’s. Only wages were held down in practice, and the promised increase in government spending on services, then dubbed the social wage, did not eventuate. The real purpose was to transfer the share of income upwards and allow free reign to investors. This was backed by the corporatisation of government and unions, and the relationship between them and employer bodies. The prices and Incomes Accord was key to the introduction of destructive neoliberalism into Australia.

The Summit must not be allowed to take us down this road again. It should be used as an opportunity to put forward a clear alternative.

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