Waging War


Declaring war on a phenomenon has become something of a cliché in political rhetoric. However, such graphic metaphors have their uses. They signal seriousness of intent, and sometimes a desire to mobilise the community in pursuit of a common goal.

So it is with the Rudd Government’s war on inflation.

But it doesn’t look as if all the combatants on the wages front are marching in lockstep. Kevin Rudd himself has set the tone with his recent announcement that pollies’ wages will be frozen until July next year. Big business, while preaching spending cuts all round, doesn’t look likely to fall in – with the Business Council of Australia’s new president, Greg Gailey, intimating to ABC radio that pay restraint among executives on million dollar packages was unrealistic as their remuneration is "a response to market demands".

Market forces, as Gailey understands, are a big part of the problem. Although questions could be posed to economists about how central wage increases actually are to inflationary pressures, there’s no doubt they play a role, with a tight labour market seeing substantial increases spreading to the retail and hospitality sectors, according to the latest ABS figures. But while Ministers may be reloading fiscal policy as part of its economic firepower, the legacy of two decades’ worth of industrial relations deregulation means that there are big limits to how much the government can mould wages policy.

The Government – or more properly the Fair Pay Commission – rather bizarrely left in place as part of Labor’s transitional arrangements for the repeal of WorkChoices, can influence minimum wages, and thus, the remuneration of the lowest paid in the community. The FPC’s chair, Professor Ian Harper, has signalled that he will be taking inflation into account when next adjusting the minimum wage.

Wage restraint, it seems, doesn’t extend to Professor Harper’s own remuneration. Blogger Ken Lovell at Road to Surfdom analyses the increase in pay for Harper’s part time gig from $81,445 to $119,830, rightly casting a skeptical eye on the process and the justification.

So, it seems that parliamentarians and the low paid, if not CEOs and those who determine the wages of the low paid, are both going to see real wage cuts this year. This hardly constitutes an equitable outcome, nor does it give much hope that wage restraint will be meaningful across the whole workforce.

Prior to Paul Keating’s reforms in 1993, it was possible for the Industrial Relations Commission to enforce wages policy, but it’s been a long time since the total wages bill has been closely shaped by government action rather than market forces. Collective bargaining, with an emphasis on productivity tradeoffs, still has the potential to counter wages inflation, but the politics of last year’s campaign meant that the transition away from a focus on individual contracts under Labor’s regime will be a tardy one.

As Deputy Prime Minister Julia Gillard has argued, the real pressure on wages isn’t coming from 16-year-olds getting eight rather than seven bucks an hour for flipping burgers. Nor is it just the mining sector. It’s a direct result of skills shortages and a tight labour market where employers are bidding up wages, and a significant number of employees are shopping around for a higher paying job.

Kevin Rudd may be attempting – with his insistence on keeping his tax promises for the low and middle income brackets – to enshrine a wages/tax tradeoff by stealth, along the lines of the Hawke/Keating era Accord. But his problem is that much wages growth is taking place in the non-unionised sectors of the economy, and there’s no realistic prospect of doing a corporatist style deal with anyone. So what the Government has left is rhetorical jawboning.

Nobody seems to have pointed out, though, that it takes two to tango in wage negotiations. Employees may have more of an eye on the main chance rather than on the national interest (and who can blame them?) but employers bear a large responsibility for an approach to recruitment and retention that focuses solely, or largely, on cash. There’s a lot of good academic research around that suggests that non-monetary factors – like autonomy at work, job satisfaction and work/life balance – are potentially more powerful motivators for employees than oversized pay rises. If the big end of town isn’t going to take a pay cut, it might profitably focus on these findings, and Julia Gillard might consider some creative policy incentives. Then the poor might not have to take the brunt of the anti-inflationary pain.

It might not have the military cachet of war metaphors, but a happier workforce and less pressure on interest rates might be a peace settlement everyone can love.

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