'Stuck-in-the-Mud' Workers Not to Blame for Wage Stagnation

The Commonwealth Treasury raised eyebrows recently with a new research report that seemed to pin the blame for record-weak wage increases on workers' reluctance to quit their jobs in search of better-paying alternatives. The report was presented to the recent conference of the Economic Society of Australia, and elicited gleeful headlines in conservative newspapers blaming "stubborn" workers for their own poor wage results.

In this commentary, which originally appeared in 10 Daily, Dr Jim Stanford argues that Treasury has mis-identified the true source of the problem. With so few decent job opportunities available, it's rational that many workers would choose to stick with their current jobs - despite stagnant wages and poor conditions.

Here is the full commentary:

When in Doubt, Blame the Workers

Blaming the victim is a long and dishonourable tradition in labour policy debate. Unemployed workers on the dole for months at a time? Clearly they aren’t looking hard enough for work. Low-wage workers stuck in dead-end jobs? Clearly they didn’t invest in their own “human capital.” Young workers facing a never-ending series of gigs? Clearly they don’t have the discipline to stick with a real job.

A new highwater mark in this lamentable practice was surely set this week with a research paper from the Commonwealth Treasury. The report examined historically weak growth in Australian wages over the last several years. It proposed a novel but far-fetched explanation: workers are failing to leave their existing jobs to seek out better-paying opportunities elsewhere. This stick-in-the-mud attitude explains why wages aren’t growing.

The formal paper contained all sorts of statistical cautions and academic nuances. But that was lost on the legion of gleeful pundits who seized on its findings, pointing their accusing fingers at complacent, “stubborn” workers for their own low wages. Never mind obvious actions that could directly boost wages: things like raising the minimum wage, restoring collective bargaining (which has all but disappeared from private sector workplaces), or abolishing the Commonwealth government’s own strict 2% limit on wage increases for its own employees.

No, it’s far easier to ascribe record-low wage growth to some perverse characteristic of the workers themselves. After all, the forces of supply and demand are always working their magic: allocating resources efficiently and ensuring everyone gets paid according to their “productivity.” If that payment isn’t enough to live on – well, that must be your fault, not the market’s.

In this approach the Treasury follows in the footsteps of other efforts by economic experts to ascribe blame for lousy wages anywhere but on Australia’s labour policies – which for many years have been premised on the assumption that government should stay out of the way, and let private market forces do their thing.

For example, consider Dr Philip Lowe, Governor of the Reserve Bank of Australia. Even he expresses grave concern about the consequences of weak wage growth, highlighting the dangers to economic growth, consumer finances, and even social stability. But he, too, has ultimately blamed workers for the problem: they are not demanding enough from their bosses, perhaps because they’ve been overly intimidated by fears of job loss arising from about globalisation and robots.

The Productivity Commission has also weighed in with a robust defense of existing labour market practices; if anything, they say, market forces should be further freed, not reined in. For example, its chair recently proposed eliminating current requirements that enterprise agreements (including those implemented unilaterally by employers, with no union involvement) cannot undercut minimum standards specified in Modern Awards. Will weakening these minimum protections somehow drive wages up? That’s hard to believe – but in any event, if workers really want higher wages, he said, they must acquire the right skills and boost their productivity.

We should be deeply suspicious of any economic theory that rests on an assumption of collective irrationality by large numbers of people: like Australia’s 12-million-strong workforce. It is true that workers are less likely to voluntarily quit their jobs in recent years – certainly less than the heady 2000s, when many could quit a job one day and get a better paying one the next. Instead, workers are now imbued with a deep sense of insecurity.

Especially if you’re in the lucky minority who holds a permanent full-time job with normal entitlements (like paid holidays and superannuation), you will naturally be tempted to hang onto it – not because you are unimaginative and lazy, but because you know full well there aren’t many other opportunities out there. Quality jobs are in short supply. And there are almost 3 million underutilised Australians (including unemployed, underemployed, and marginally attached workers) who need and want one. In that context it’s hardly irrational to hold onto your current job. Rather, it’s a predictable response to insecurity.

Moreover, the insecurity and powerlessness felt by workers is no accident. It’s the deliberate outcome of a generation of labour and social policies predicated precisely on instilling fear and discipline among workers – assuming that will lead to greater obedience and productivity. Newstart has been frozen for a generation; protections against dismissal have been dismantled; steady jobs have been casualised or converted into gigs.

In that context, there’s little hope of successfully demanding a raise from your boss: more likely, they’ll brand you a troublemaker and not renew your contract. And with strong restrictions on union activity and collective bargaining, there is little institutional possibility for workers to wield collective bargaining power.

Even if Australia’s workers were to suddenly and collectively develop itchy feet, and abandon their posts en masse in search of greener pastures, wages would still be stuck in the doldrums: there are too many workers chasing too few jobs, and there are no institutional supports (like collective bargaining) to help workers win a better share of the pie.

But never mind. The high priests of economic policy would still come up with other reason to blame the victims for their own plight – not the system. Perhaps their choice of music. Or their insistence on eating smashed avocado for Sunday brunch. Or their bad planning in being born into families without inherited wealth.

After six hard years of virtually zero real wage growth, maybe this is a good time to look at what’s wrong with the way Australia’s labour market is working. Instead of blaming the workers who can’t get a raise.


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