Wages Will Continue to Lag Without Targeted Wage-Boosting Measures: New Report

A comprehensive review of Australian wage trends indicates that wage growth is likely to remain stuck at historically weak levels despite the dramatic disruptions experienced by the Australian labour market through the COVID-19 pandemic. The report finds that targeted policies to deliberately lift wages are needed to break free of the low-wage trajectory that has become locked in over the past nine years.

The report, The Wages Crisis: Revisited, authored by three of Australia’s leading labour policy experts: Professor Andrew Stewart from Adelaide Law School, Dr Jim Stanford from the Centre for Future Work, and Associate Professor Tess Hardy from Melbourne Law School, updates analysis and recommendations from their 2018 edited book, The Wages Crisis in Australia.

The report shows that annual nominal wage growth recovered after initial lockdowns during the pandemic – but rebounded only to the same slow pace (just above 2% per year) recorded for several years prior to COVID. Unprecedented fluctuations in employment and labour supply, including a significant decline in the official unemployment rate, do not seem to have altered wage growth, which is still tracking at the slowest sustained pace in post-war history.

“It is striking that despite so much turmoil in our labour market during and after the pandemic, wage growth is still stuck at historically weak rates,” noted Professor Andrew Stewart.

The research found little correlation between the lasting slowdown in wage growth after 2013, and changes in supply-and-demand balances in the labour market.

“Traditional market forces did not cause the wages crisis, and market forces are unlikely to be able to fix it – even with a relatively low unemployment rate,” said Dr Jim Stanford.

Instead, the authors identified nine policy and institutional factors which were more important in explaining the deceleration of wages, including: the erosion of collective bargaining coverage; inadequate minimum wages; pay restraint imposed on public sector workers; and widespread wage theft.

The problem of restrained compensation in public and human services reaches further than just the pay caps imposed directly on public servants. Wages in publicly funded services (like aged care, the NDIS, and early child education) are also held back by inadequate funding and weak labour standards in those programs.

The report makes special mention of the need to improve wages in aged care, in the wake of the recent Royal Commission’s finding that wages in the sector must be improved as a top priority in improving care standards and attracting the new workers the sector needs.

“A combination of underfunding, outsourcing, and precarious employment has suppressed wages for some of the most important jobs in our economy,” commented Associate Professor Tess Hardy. “The Aged Care Royal Commission identified this problem, and directed government to solve it, but so far the government has done nothing to improve wages.”

The authors suggest that nominal wages should grow faster than 4% per year in coming years, to restore healthy relationships with productivity growth, inflation, and national income distribution. But a resuscitation of wage growth will not occur without proactive wage-boosting policies.

The authors list five broad measures to quickly support wage growth. One is a proposal for a new statutory definition of employment. This would prevent businesses from drafting contracts that present workers as being self-employed, even if in reality they have no business of their own. The authors predict that such arrangements will become far more widespread, including in the growing gig economy, in the wake of two recent decisions by the High Court.

“The High Court has said that employment status has to be determined by what your contract says, not what you actually do. That opens the door to much wider use of contractor models, even when the actual conditions of work clearly indicate an employment-like relationship”, said Prof Stewart. “Without urgent action to prevent minimum wage laws being avoided in that way, the negative impacts on wages will steadily become much worse.”

The full 80-page report The Wages Crisis: Revisited’ is available here.

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