The Dog’s Bollocks

Truth is like a dog’s bollocks – pretty obvious if you care to look.

The limits of productivity as a wage determinant

In the face of the latest post-budget concern by the commentariat that there will be a wages break out under Labor’s Industrial Relations regime, the Government is at pains to assure us that wages will only increase by improvements in productivity.

Productivity increases for wage increases have been a feature of Australian IR since the days of Hawke’s Wages Accord. While productivity is certainly an important factor in wage remuneration, it cannot logically be the only determinant. For example, a worker employed in the public sector would have to be twice as productive to earn the same relative amount once the cost of living has doubled.

While this could conceivably be the case in a manufacturing job with changes in technology (ignoring the likelihood that less people would be employed), how does this sensibly apply to nurses, police, doctors or teachers, where productivity isn’t determined by numbers of widgets produced? Will teachers need to teach twice as many kids or teach the same number twice as quickly? Will public hospital surgeons be required to operate on twice as many patients, or the same number twice as quickly? Such scenarios are patent nonsense.

The profit sector typically aspires to grow at 10% per annum. In this case, productivity increases in wages sufficient only to keep pace with the cost of living (say 4% per annum) will lead to a wage increase of around 30% after 5 years. Profits in the same period will have doubled.

Clearly wage determination must also be linked to profitability for an equitable growth in prosperity. This was a factor in The Accord’s Enterprise Agreements. Presumably market forces in the private sector, such as limits in the supply of highly skilled labour in the mining industry, for example, will lead to wage growth beyond that determined by productivity. In the public and not for profit sector wages growth must necessarily be linked with the increased cost of living and not on productivity alone.

Wages limited to productivity alone is the dream of free market ideologues as a means of enhancing profits by reducing the cost of labour inputs. Work Choices was an audacious and clumsy attempt to enshrine this imbalance in the Australian economy. It inevitably leads to greater profits and dividends for executives and shareholders to the detriment and cost of working families.

20 years ago, nearly 50 percent of working men and women in Australia were clustered around the middle income band. By 2005 that proportion has slipped to 37% for men and 44% for women*. The increased casualisation of the workforce, longer working hours and 7 day working weeks are all having an impact on the quality of family and community life with growing numbers of overworked or under-employed individuals suffering stress, family dysfunction, anxiety and depression.

Linking wages growth to productivity alone, without consideration of the growth in profits it brings and the burden of the increased cost of living, is inequitable and socially destructive. I guess how you see it depends on whether you think we live in a civil society or The Economy, or whether you are a worker or a business owner.

* Hugh Mackay, 2007, Advance Australia Where? p83.

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