Raising the Bar: Government Spending Power and Labour Standards

Australian governments could help to solve the problem of stagnating wages by better leveraging their own spending power in support of better wages and working conditions.  That’s the conclusion of new research from the Centre for Future Work at the Australia Institute on the connection between government spending and procurement and working conditions across the economy.

The report, titled Raising the Bar, by the Centre’s Director Dr. Jim Stanford, argues that weak labour market conditions (including record-weak wage growth) could be improved significantly through pro-active efforts by government to link public spending in all forms to improved job quality and compensation.

The report lists three distinct channels through which government spending could lift wages and working conditions, including:

  1. Direct work and production undertaken within government and its departments and agencies (the public sector).
  2. Arms-length service-producing organisations which depend on government funding (the non-profit sector).
  3. Private-sector firms which supply government and public agencies with goods and services (the private sector).

Australia’s government sector is by far the largest single part of Australia’s economy.  The report documents the enormous fiscal dimensions of the economic footprint of government:

  • Total expenditures of over $660 billion per year, equal to 36 percent of Australia’s GDP.
  • Total “consumption” spending (that is, expenditures on current production of public goods and services) of over $330 billion per year (18.5 percent of GDP), and investment spending (on longer-lived capital projects) of over $85 billion (another 5 percent of GDP).
  • Direct public sector employment of close to 2 million workers, with millions more jobs indirectly dependent on government injections of spending power into the economy.
  • Fiscal and policy support for public and community service provision by arms-length non-profit agencies, worth at least another 4 percent of GDP.
  • Goods and services procured from private-sector suppliers equivalent to around 10 percent of GDP (or about $175 billion per year).

This economic footprint, if wielded consistently to achieve higher wages and better jobs, could have a powerful impact on labour market outcomes.  Moreover, through a “demonstration effect,” improved wages and labour standards would “spill over” into better practices in businesses and sectors that have no direct connection to government spending at all.

It is ironic that Treasurers always pray for stronger wage growth in every budget they prepare, because strong wages are essential to healthy government revenues and stronger economic growth.  But governments don’t pursue obvious opportunities to help achieve that growth, by tying their own expenditure programs to stronger wages and better working conditions.

The report documents numerous ways in which Australian governments could better link their expenditure programs to the pursuit of better jobs and stronger wage growth.  Examples are provided from previous Australian experience (at the federal, state and local levels), from governments and public agencies in other countries, and even from leading private sector businesses -- all showing concretely how spending decisions can be linked effectively to requirements for better jobs and higher wages.

The report concludes with ten specific recommendations which would help Australian governments (at all levels) link their spending power to the attainment and preservation of top-quality labour market outcomes and standards.

Please read the full report, Raising the Bar: How Government Can Use its Economic Leverage to Lift Labour Standards Throughout the Economy.


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