Government Spending Power Could Support Stronger Wage Growth

Australia’s state and federal governments could help solve the problem of stagnant wages by better leveraging their own spending power.

New research from the Centre for Future Work at The Australia Institute demonstrates a strong connection between government spending and working conditions across the economy.

“Weak labour market conditions, including record-weak wage growth, could be improved by linking public spending in all forms to improved job quality and compensation,” said Dr. Jim Stanford, Director of the Centre for Future Work.

The Centre for Future Work report finds three main avenues through which government spending could lift wages and working conditions:

  1. Direct work and production undertaken within government and its departments and agencies (the public sector).
  2. Arms-length service-producing organisations which depend on government funding (the non-profit sector).
  3. Private-sector firms which supply government and public agencies with goods and services (the private sector).

“It is ironic that Treasurers are always praying for stronger wage growth with every year’s budget in order to generate stronger growth and stronger revenues. Yet governments don’t pursue obvious opportunities to actually achieve that wage growth by linking labour standards to their own expenditure policies,” said Dr Stanford.

“This is clearly a lost opportunity. Australia’s government sector is by far the single largest part of Australia’s economy.

“This economic footprint, if wielded consistently to achieve higher wages and better jobs, could have a powerful impact on labour market outcomes.”

Australian government economic footprint at a glance:

  • Total expenditures of over $660 billion per year, equal to 36 percent of Australia’s GDP.
  • Expenditures on current production of public goods and services of over $330 billion per year (18.5 percent of GDP), and further spending on capital investments of over $85 billion (another 5 percent of GDP).
  • Direct public sector employment of close to 2 million workers, with millions more jobs indirectly dependent on government injections of spending power.
  • Fiscal support for public and community services by arms-length non-profit agencies, worth at least another 4 percent of GDP.
  • Goods and services procured from private-sector suppliers equivalent to around 10 percent of GDP (or about $175 billion per year).

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