Why there's nothing wrong with lifting lowest wages in line with inflation

When, in the final days of the 2022 election campaign, the then opposition leader Anthony Albanese backed an increase in award wages to keep pace with inflation, his opposite number in the Coalition, prime minister Scott Morrison called him a "loose unit".

"He just runs off at the mouth, it's like he just unzips his head and lets everything fall on the table," Morrison said.

Allowing the wages of low-paid Australians to climb with inflation would "make interest rates rise even higher, it would threaten the strong growth we have had in employment, and ultimately it would force small businesses, potentially, out of business altogether."

Now, two years on, after yet another Fair Work Commission decision that lifted award wages in line with inflation, the Coalition has returned to the fray.

On Monday, opposition finance spokeswoman Jane Hume asked Treasury secretary Steven Kennedy at a Senate hearing how he could support a wage increase linked to inflation at a time when productivity growth was uncertain.

She was, she said, just asking for Treasury's position.

The Fair Work Commission had just given Australia's lowest-paid workers 3.75 per cent.

The approach goes back some time. In 2014 the Coalition's recently installed industrial relations minister Eric Abetz warned of something akin to the "wages explosions" of the 1970s and early 1980s unless "weak-kneed" employers stood up to unions.

At the time, only 17 per cent of Australian workers were members of unions, down from more than half in the early 1980s. It's now just 12 per cent.

Far from setting off a wages explosion, increases in award wages (those awarded by the Fair Work Commission to predominately low-paid workers) appear to barely move the dial at all.

Last year the Commission awarded low-paid workers 5.75 per cent. In the year that followed, overall wages climbed 4.1 per cent. The previous year the Commission awarded 5.2 per cent. In the year that followed, overall wages climbed 3.7 per cent.

Overall wages - those received by most of us, the three-quarters of workers whose wages aren't linked to awards - have been climbing by less than award wages, and for most of the past three years, by less than the rate of inflation.

It isn't because the conditions haven't been right. For the past two years, unemployment has been lower than it has been in the previous four decades.

From 1974 right through until 2022 unemployment never fell below 4 per cent, and rarely fell below 5 per cent. Yet the past two years haven't sparked a wages explosion.

It ought to have been easier to walk out of the door and into a new higher-paying job than it's been in most of our lifetimes, yet the share of us doing that has dived from almost 20 per cent per year at the start of the 1990s to less than 10 per cent today.

At the peak of what was then the biggest mining boom in a century in 2012, only 6200 Australians were crossing the Nullarbor to live in Western Australia. Five times as many new arrivals were pouring into Western Australia from overseas.

In the past year, in the midst of a new and bigger mining boom, only a net 11,200 Australians have moved west for a better life.

Our remarkable passivity when it comes to moving to earn more and our lack of interest in joining unions has collided with a wage-setting system that for those of us not on awards makes it easy for employers to resist paying us more.

Individual contracts are usually offered on a take-it-or-leave-it basis. Those of us uninterested in leaving (most of us) take them.

Enterprise bargains typically last for three years. When they expire there is nothing to stop employers stringing negotiations out or simply not commencing them, leaving their workers on so-called "zombie agreements".

The Business Council says they can "act like a wage freeze".

Australia's total wage bill has been climbing much more slowly than prices. In part this is because decisions on awards, like the ones handed down this week, apply only to awards.

Awards, applying mainly to low-wage jobs, make up only 11 per cent of the total wage bill.

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It is true, as several senators mentioned on Monday, that inflation in the price of services is now greater than inflation in the price of goods. But the Treasury secretary doesn't think that's because of excessive wage growth.

Mr Kennedy said inflation took off as economies ran short of goods when they restarted after closing down in the first wave of COVID. Then Russia invaded Ukraine, pushing up the prices of oil and food.

Inflation in the prices of those goods has receded, but goods are an input to services. Mr Kennedy says what's happening to the price of services is an echo of what happened earlier to the price of goods.

It will take a while for that to flow through, and for services inflation to follow goods inflation down.

As unthreatening as the latest 3.75 per cent increase in award wages is to inflation, it'll be welcome to those that receive it.

Wednesday's national accounts are likely to show that living standards, as measured by GDP per person, went backward for the fourth consecutive quarter in March - for an entire year. If so, it'll be the first time in 40 years.