Stalling wages, falling growth: getting Australia out of the wage suppression trap

Wages Income Income distribution Cost and standard of living Australia

Inflation expectations affect nominal wage growth and at a time where the benefits of sustained nominal wage growth are substantially undervalued, it is important to recognise that various sectors of the economy not just rely, but work best when nominal wages are growing on a consistent basis.

Reliable increases in nominal wages provide the necessary injection needed to turn around the lack in consumer demand. It can also underpin medium term household confidence, enabling longer term decisions to be made. Further, employers in the past have argued for the need for more time to factor in changes to budgets. Predictable and sustained wage growth help to provide exactly that.

The effectiveness of fiscal and monetary policies to boost the economy out of its current stagnant wage growth is quite evident when the impact of subdued wage growth on the Federal Budget is analysed. A closer look at the Treasury’s documents show cumulative write downs in revenue of up to $98 billion since 2013-14 due to downward revisions in wage growth. This amounts to one sixth of the expected peak in net government debt, and is considerably more than the $52 billion spent in stimulus packages during the GFC. The path back to a fiscal surplus is now contingent on the most optimistic levels of wage growth since 2010. This means even with higher wage growth than last year’s all-time low of 1.9%, Australia could still be exposed to further write-downs of a similar magnitude. It’s time to recognise that a big boost to the national minimum wage is not only necessary to help families struggling with the cost of living, but is critical to restoring the health of our nation’s finances. It is the most efficient tool available to ensuring the Government’s forecasts can be achieved.

Even more destructive than the impacts of low wage expectation, is the damage being done by wage theft and wage suppression. Worryingly, an increasing number of firms that prosper are those that are most effective at suppressing wages, or in many cases, overtly underpaying their staff. Noncompliance to awards is driving a wedge between employers that genuinely want to continue to do the right thing, and those that intentionally underpay wages, penalty rates and superannuation.

Institutions and the government must collaborate to rectify wage growth in order to pave the way for a more equitable and sustainable workforce and economy.



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