“Wages explosion” risk not based on facts

Employment minister Eric Abetz’s assertion of a risk of a wages explosion isn’t backed by facts. AAP

In a speech appropriately titled Industrial relations after the 30 years war, employment minister Senator Eric Abetz made the controversial and widely reported claim that “we risk seeing something akin to the ‘wages explosions’ of the pre-Accord era, when unsustainable wage growth simply pushed thousands of Australians out of work”.

Can this be so? That after 30 years of what Senator Abetz refers to as “war”, the lid is about to explode and wages again could reach the heights of the 1970s and early 1980s?

The obvious way to assess this is to look at the facts as evidenced by data. The first place to turn to is the official data on wage increases through enterprise agreements, produced by Senator Abetz’s own department. If a wages explosion was at risk of igniting, then the least we would see are some notable upward movements in wage pressures through agreements.

Source: Department of Employment.

Yet the data show that wage increases under enterprise agreements are falling. At 3.7%, the growth rate is the lowest in 13 years. It sits below the long-term average, since enterprise bargaining was introduced, of 4.0% from 1992. Indeed, probably the first thing that will strike you when you look at the chart is how stable wage outcomes over enterprise bargaining have been for a long time, showing no signs of “explosion” regardless of which laws are in place.

What about wage growth in the economy generally? Surely it must be increasing, otherwise Minister Abetz could not be making such a claim? The widely accepted measure of wages growth across the economy is the ABS Wage Price index (WPI). It’s been used since 1997. This is what it looks like.

Source: ABS Cat No 6345.0.

Again, there is no sign of wage growth rising. Rather, the clear indication is that wage growth is falling – in fact, its growth is the lowest level recorded since the measure was introduced. Again, at 2.7%, it is well below its long term average of 3.6%.

Of course, to fully understand the Minister’s remarks we need data that go back to the “wages explosions of the pre-Accord era” themselves, which neither of these data series do. (The Accord was a period of agreement between the Labor government and the ACTU that brought down wages growth.)

The ABS average weekly earnings (AWE) series is not widely used for measuring wages growth these days, because unlike the WPI it is affected by composition change – jobs growing more rapidly or slowly in high wage industries or occupations, differences in hours worked or employment in part-time and full-time jobs, and so on. On average, it tends to overstate wages growth, but not always. Still, AWE for all employees is the only useful series going back to the early 1970s, so that is what we can use for comparison.

Source: Reserve Bank of Australia, using ABS data.

The chart shows just how wide is the difference between now and the wages explosions of the pre-Accord era. Average earnings growth peaked at 14% in 1971, 30% in 1974 and 15% in 1982. In no pre-Accord year was earnings growth as low as the average under or since the Accord, and in no pre-Accord year was it was low as it is now. Wages growth would have to multiply five or ten times over its current rate to reach “explosion” status. A wage earner who started a job at the beginning of the last year of the Howard government would probably still not have seen that wage rise by as much, over the seven years to now, as someone earlier would have seen in 1974 alone.

In other circumstances, strange talk of a wage explosion might have been excused as a rush of blood to the head. But this was no off-the-cuff remark, it was the culmination of a carefully scripted speech. And indeed there is nothing new about unsubstantiated talk of wages explosions. In April 2007, former treasurer Peter Costello warned that amending the Workplace Relations Act would lead to a wage explosion. It didn’t. From 2008 News Limited ran stories and regularly editorialised on a forthcoming wages breakout that never materialised.

The reference in the speech to a wage explosion was no more impromptu than the 12 mentions of war littered throughout it. War seems to be a popular word at the moment. Most references in the speech were to the “30 years war” over industrial relations – a “war” it appears Minister Abetz does not yet see as being over.

People may speculate over who is the target of the war. But one possibility is that part of it is a war on facts.