Extract from an article by John Buchanan
Low wages growth has been a spectre hanging around the Australian economy for some time. In our series What We Earn we unpick the causes for this and why some workers might be feeling it more than others.
Within the political class there is a low level moral panic about low wages growth. The irony is that those lamenting this situation are simply witnessing the ultimate outcome of policies they have long advocated.
While Australia still has systems like Industrial Tribunals and Awards – given how they interact with market forces today, these institutions now work to entrench wage inequality rather than reduce it.
Wage rates and movements are determined by a combination of market and institutional forces. Technology, human capital, levels of labour supply and the profitability of companies in laggard and leading set the lower and upper bounds for sustainable wage levels.
As economist and philosopher Adam Smith noted, the income workers require to survive sets what’s called a “market floor” for wages – the lowest acceptable limit. Rates of profit in the best performing firms set the upper limit, as Australia’s executive class has shown very clearly for over three decades now. What rates actually prevail within these very broad limits are determined by institutional forces – in Australia, the award system of minimum wages and unions collective bargaining rights.
Historically Australia has had the great benefit of having institutional arrangements that balanced these forces well. The key elements of this were a network of industrial tribunals that regularly assessed the overall economic and social situation and determined what rates and movements in pay were sustainable.
These rates were not set unilaterally, but in coordination with what employers and organised workers indicated was possible, in industry level collective agreements.
The defacto rule was that wage movements should equate to movements in productivity plus the cost of living. The standards set in the leading profitable sectors then spread to the entire workforce through the maintenance of award relativities (ie standard comparative rates of pay set by reference to benchmark occupations like metal fitter, carpenter and truck driver). During this time awards rates approximated pretty closely to going rates of pay..(continues)
SOURCE: John Buchanan, “How market forces and weakened institutions are keeping our wages low”, The Conversation, 08 Sept 2017
Produced by the librarians at the Brotherhood of St Laurence in Melbourne, Australia