No longer the lucky country for workers?

Thursday, July 5th, 2018

A report issued last month showed for the first time in history that less than half of Australians held a permanent full-time job.

Australia has created one million jobs over five years and our economy is growing at a healthy 3.1% a year, but for workers, the lucky country has lost some of its shine. Wages growth is stuck near record lows and household debt is among the highest in the developed world. Average wages grew 2.1% in the year to the end of March, below the 3.5 to 4% levels that we enjoyed during the decade-long commodities boom that ended in 2013. This is causing concern at the Reserve Bank of Australia, which warned that weak household income growth and high debt posed a risk to the economy.

Figure 1. Year-on-year wage growth
Source. Financial Times


“The crisis is really in wage growth,” said Philip Lowe, RBA Governor. Last week, Mr Lowe said that any pick up in wages was likely to be gradual, due to spare capacity in the labour market and structural factors. Australia is emerging from a slowdown caused by the end of a resources boom. But despite the unemployment rate falling from a high in mid-2014 of 6.4% to 5.5% and a surge in corporate profits, wages are stagnating when adjusted for inflation.  This trend is making wage growth and workers’ rights key battleground issues for when the general election takes place.

Lacklustre wage growth is a familiar theme in western countries, with workers experiencing barely any pay increases despite low unemployment. There is debate over the causes, with intensifying competition, technology, the “gig economy”, migration and changes to industrial relations laws the key factors. Domestically, there is a focus on the changing structure of employment, particularly the “casualisation” of the workforce. It has the third-largest share of part-time workers among the 34 OECD member countries, behind the Netherlands and Switzerland.

Figure 2. Percentage of part-time workers in workforce
Source. Financial Times


This factor is likely undermining the bargaining power of workers. The Centre for Future Work at the Australian Institute published a report last month showing that for the first time in history, less than half of Australians held a permanent full-time job. “Temporary, casual, and irregular workers have no significant bargaining leverage to ask for higher wages,” the report stated. The explosion of delivery riders on Sydney’s roads is an example of the expansion of the gig economy. Foodora, Uber Eats and Deliveroo have established thriving businesses in Australia based on the premise that riders are independent contractors rather than employees. That means they do not benefit from statutory protections such as the minimum wage, holiday pay and pensions.

Delivery drivers/riders are paid about $7 a delivery and many did not make near the minimum wage of $18. Trade unions say the casualisation of the workforce is undermining their influence. Just 15% of workers in 2016 were union members, compared with 40% in 1992, denting their ability to bargain with employers. The Australian Council of Trade Unions is running a “Change the Rules” campaign, aiming to limit the use of casual employees, boost safeguards for people working in the gig economy and strengthen the industrial relations framework.  But it would be fair to say that data on casualisation is not definitive because of different definitions of what constitutes casual work. And perhaps more people take on casual work, because that’s what suits them, and employers prefer casuals because the associated on-costs of permanent workers are simply too high.

Figure 3. Percentage of workers underemployed
Source. Financial Times

The consequences of low wage growth are not restricted to workers. The RBA Governor has warned of a cascade effect whereby it contributes to weak inflation, which keeps interest rates at record low levels — a trend that pushes up asset valuations and social inequality.  Weak wage growth also damps spending by households and restricts income tax collection by the government, which is betting on a recovery of wages growth to 3.25% by 2019-20 to return the budget to surplus.

The powerful forces that have helped sustain the robust recovery in share markets around the world since the GFC are now coming up against resistance. Valuations are generally full, interest rates are on the rise, inflationary pressures are emerging and a trade war threatens. This is a time for careful consideration of asset allocations and ensuring that asset price volatility is taken advantage of rather than simply endured. A durable portfolio must be safeguarded through appropriate diversification and sensible tactical tilts. We encourage clients to contact their Clime Private Wealth advisers and ensure their portfolios are fit for purpose.

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5 Responses to “No longer the lucky country for workers?”

  1. Tony says:

    All we ever seem to hear about is that “lack of wage growth is the problem…” What a load of rubbish! Wage “growth” is (and definitely should be) only a function of any real productivity improvements with the potential of the worker taking a portion of those improvements relative to their contribution (and even that should still allow for the business owner- and risk taker- to secure the majority of those improvements for additional business growth. The only people that genuinely believe wages should increase “just because…” have no concept of how industry actually performs. The real problem is the additional demand that has been promoted by increases in capacity for debt rather than real wealth developed through production efficiencies. So we see prices going up, but capacity for that demand being artificially and unsustainably generated. That is why we are seeing lack of improvement in “standards of living”. Coupled then with Governments (Councils through to Federal) increasing their take through increases in fees and taxes structured as percentages of nominal wage levels we arrive to where we are today. Adjustments should come through the limiting of artificial demand rather than continuing to fantasize about a magical “wage increase”.

  2. John Clarence Tonkin says:

    Simply we have moved to a service economy which operates 7 days a week and employers should be able to determine where and when they require staff … not have unions standing over them making all sorts of demands which are untenable in this type of economy. Corn Flakes do not cost anymore on Sunday than a week day and a coffee from the local café should not either … wages will have to come into line with the way things actually are.

  3. Roseworthy Rural Supplies says:

    A very biased and one sided perspective in this article. I can’t see a comparison of wages with our near trading partners nor a comparison to a similar sized population country such as Sri Lanka. I look around and young people have everything that opens and shuts all the must have everything and good on them. We are not competitive to our suppliers of goods so we have no demand for labour in manufacturing and other jobs so there is plenty of labour available and I think the law of supply and demand works in this field as well. Many people work in part time jobs because they want to. If I could cut down to 4 days a week I would. Many female workers seem to like less work load, maybe they have it right?

  4. Kenneth Beer says:

    Many Australian companies have relocated their operations overseas because Australia is a high cost country. Labour cost is a major component of the cost of doing business in Australia. The mining industry is cannot relocate overseas so to reduce labour costs it is pushing driverless trucks and trains. Casualisation of the workforce is an attempt to stay in business. To fight the trend will send more Australian business operations offshore. Why not decrease regulation of the workforce to make hiring full time workers more attractive?

  5. Jim Hutchins says:

    This is fair comment about the Australian economy and the workforce as a casual worker myself I a setting myself up for a down turn should it come at present it is good, so for me pay out dept as quickly as I can save as much a possible because of the connected and volatile world we live in but at the same time looking for future investments to provide wealth in retirement

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