January marks two years since the introduction of Fair Work Australia, the body established by Labor to replace the industrial relations system of Work- Choices. It is now up for review. Unsurprisingly, this has led to a growing chorus of business voices claiming problems, from mounting paperwork to falling productivity and rapidly rising wages.
In fact, there is little evidence of spiralling wages. The latest Bureau of Statistics figures show wage rises slowing last year. Labour productivity may be lower than in the 1990s, but this trend was worse under WorkChoices.
It is important to see Fair Work in a broader context. For most of the last century, Australia was one of the most equal countries in the developed world, despite comparatively low taxes. More than most other countries, Australia sought to achieve a ‘fair go’ through wages, rather than welfare. Our governments sought to ensure we had enough to begin with, rather than giving us more at the end.
Since the 1970s, the processes of globalisation and deregulation have placed greater strains on the way Australian governments traditionally achieved equity. While today unemployment is low by international standards, at about 5 per cent, it is higher than at virtually any time between 1950 and 1975. And during the past 30 years the proportion of national income going to workers as wages has consistently fallen
– from more than 62 per cent in 1974/5, to 53 per cent in 2010/1 – while the proportion going to business owners in profi ts rose from 17 to 28 per cent.
However, this shift on inequality has been partly offset by other factors. Women’s entry into the workforce increased most household budgets. The government helped more, via low and middle-income family payments, now some of the world’s highest.
Overall, inequality in Australia has increased, especially in recent years. The standard measure, the Gini coeffi cient, rose slightly from the mid- 1980s to the mid-2000s, and then increased signifi cantly until 2007/8. This coincided with both WorkChoices and large tax cuts favouring highincome earners.
All this highlights an important problem with seeing the present industrial relations debate in isolation. As wages have fallen behind profi ts, only higher government spending has stopped the income gap from growing faster.
Yet business calls to wind back Fair Work are combined with aggressive campaigns to oppose tax increases (such as the mining tax and carbon taxes) despite Australia’s tax take being well below the OECD average.
A few years ago, free-market advocates proposed an alternative way to reduce inequality. They argued governments should reduce ‘churning’ by better targeting payments to those in need rather than the middle class. This resurfaced during the last budget. However, Australia’s direct spending is already well targeted. It’s not direct government spending that favours higher income earners, but expensive tax breaks such as those on superannuation and negative gearing.
If government spending is already well targeted, winding back industrial protections can lead only to rising inequality. Without raising taxes, Australia will be left on a path of low wages and little government support.
America demonstrates the dangers of this direction. In the decade before the global financial crisis, not only did the rich benefit more than the poor, the poor missed out altogether. There, the top 10 per cent of income earners received more than 100 per cent of the nation’s increased income - the incomes of the rest actually declined. More than half of this went to the top 1 per cent - something that has inspired the ‘we are the 99 per cent’ cries of the Occupy movement.
Fortunately, despite the lobbying, public opinion seems to have stuck to the old Australian consensus. Despite three decades of free-market ‘deregulation’, most Australians continue to oppose reforms such as privatisations and weaker industrial laws. The 2007 election showed that Australians remain committed to a fair go at work.
It is always good to review legislation and no doubt improvements can be made. But when you hear claims that wage pressures are threatening the economy or employment, remember just how much wages would really have to rise to even begin to catch up to business owners and the very rich. And remember too, that if wages do not rise to ensure an equal share for workers, then taxes will - or else we head down the perilous route of America.
Ben Spies-Butcher is a Fellowat the Centre for Policy Development. First published in the Sydney Morning Herald 19 January 2012.