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Would Somebody Please Tell Governor Lowe That Workers Can't Just Ask For Higher Wages?

The idea that they should just puff out their chests and demand a wage rise must seem like a joke to low-income earners.

Comments this week by RBA Governor Philip Lowe, exhorting Australian workers to do the economy a favour by demanding higher wages, were extraordinary on many levels.

He told the annual Crawford Leadership Forum in Canberra that weak wage demands were holding back the national economy. Mr. Lowe spoke of a "crisis... in wage growth," and urged Aussie battlers to follow the money: worry less about job security or automation, and more about getting a raise.

The RBA Governor thus becomes the latest, and certainly most luminous, economic expert to agree that Australian wages are too low -- not too high. Others in recent months to express similar concern over the lifelessness of Aussie pay packets include economists for the major banks and international organisations (like the OECD).

There was a curious "blame the victim" undercurrent running through his reported remarks, almost like it was the fault of workers for not bothering to ask.

Even Treasurer Scott Morrison joined this chorus, worrying earlier this year that record-weak wage growth would scuttle his deficit-reduction plan (obviously, the less people earn, the less taxes they pay).

But this unusually candid recognition didn't stop the Treasurer from subsequently throwing caution to the wind in his 2017-18 budget, which giddily assumed a dramatic acceleration in wage payouts (more than tripling the rate of growth by the fourth year of his budget).

The only problem is that no-one outside of government believes it. Speaking at the same Canberra conference as Mr. Lowe, NAB's chief economist Alan Oster put it bluntly: "I don't believe the government's wages forecast any more than they do."

But Mr. Lowe is not just any other economist. He is, after all, head of the Reserve Bank. He is paid to take away the punch bowl when the party gets too loud. He is immersed in the joyless culture of neoliberal monetary policy, which sees inflation lurking behind every corner. The sight of a central banker urging the working classes to the barricades in a crusade for higher pay constitutes a startling instance of cognitive dissonance, in these strange post-GFC times.

The most extraordinary aspect of Mr. Lowe's comments, to my mind, was his demonstrated lack of comprehension of what would actually be required to achieve higher wages -- and, by extension, his lack of understanding how the modern, precarious labour market in Australia actually works. Indeed, there was a curious "blame the victim" undercurrent running through his reported remarks, almost like it was the fault of workers for not bothering to ask.

The cruel reality in today's labour market is that it doesn't matter how uppity and self-assured individual workers may be. They simply don't have the power to demand (and win) higher wages. Mr. Lowe's silence on this subject makes it hard to fully accept his concerns over wages at face value.

First, the RBA Governor places unjustified faith that a supposed "tightening" in labour markets will automatically accelerate wages. After all, the official unemployment rate is "only" 5.5 percent -- just a half-point higher than the RBA's estimate of so-called "natural," desirable unemployment. Any minute now, and the automatic market-equilibrating magic of the invisible hand will kick in and set fire to wages.

This ignores that the unemployment rate is an increasingly biased indicator of labour market well-being. The true pool of underutilised labour is much bigger: at least three times higher than the official rate.

Including involuntary part-time work, discouraged workers and "marginally attached" individuals (who want to work but don't believe there are any jobs for them), around 3 million Australians are without work or underemployed. Meanwhile, half of those who are employed experience one or more dimensions of precarity: working part-time or irregular hours, in temporary or labour hire positions, or engaged in marginal self-employment.

Young people experience the reality of this hyper-flexible labour market full-on. The idea that they should just puff up their chests and ask for more, must seem to them like a sick joke.

More seriously, Mr. Lowe made no mention of the structural disempowerment of workers that is the only credible explanation for the historic deceleration of wages -- and the parallel erosion of workers' share of total GDP (which touched an all-time record low in the most recent ABS economic statistics). The institutions of redistribution which were built up over decades in Australia, and underpinned the very notion of "a fair go for all," have been systematically dismantled and weakened.

For example, the national minimum wage declined from 65 percent of median wages in 1985, to just 53 percent in 2015. Trade union membership has fallen to under 15 percent of paid employment, compared to over 40 percent in 1990, and coverage by enterprise collective agreements has fallen correspondingly (to just over one in three workers as of 2016).

The enforcement of basic minimum standards is questionable, further undermining their real impact. The weakened state of these redistributive instruments directly undermines workers' ability -- both individually and collectively -- to demand and win higher wages.

So if Mr. Lowe really wants to see higher wages, he should advocate fixing those institutions: strengthening minimum wages, maintaining penalty rates, rebuilding collective bargaining, and more.

Previous claims that the so-called "deregulated" labour market would be more efficient at creating work -- and rewarding workers -- have been disproven; it's time once again to make redistribution an actual goal of economic policy. Seeing a central banker arguing for that, would really confirm that the economic world has turned upside down.


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