Low wages: ‘A deliberate design feature’

March 15, 2019

In an interview with Sky News on March 8, finance minister Matthias Cormann said, “The whole reason why it is important to have flexibility in the labour market … is … to ensure that wages can adjust in the context of economic conditions, is to avoid massive spikes in unemployment … That is a deliberate design feature of our economic architecture.”

As has been frequently pointed out, wages in Australia have been virtually stagnant for years, even in the face of surging profits.

The fact has been criticised not only by workers and unions but even some sections of business have started to bemoan the resulting lack of economic demand and poor retail sales.

But, as Cormann points out, low wages are no accident, they are deliberate policy.

Cormann’s all-too-frank admission resulted in a comical interview with Defence Industry Minister Linda Reynolds on Sky News.

Asked by David Speers if she agreed “that flexibility in wages, and keeping wages at a relatively modest level, is a deliberate feature of our economic architecture to actually drive jobs growth”, Reynolds responded: “No I don’t believe that, absolutely not. And for Bill Shorten to even suggest that, I think, shows a fundamental lack of understanding about economics.”

When Speers interrupted to point out that it was her cabinet colleague, not Shorten, who had made the claim, she responded: “He’s absolutely right.”

That low wages is government policy is hardly a shock. Penalty rate cuts, the Australian Building and Construction Commission and other attacks on unions all paint a pretty clear picture.

Political reporter and former adviser to then workplace relations minister Tony Abbott, Peter van Onselen, responded to Cormann’s comments on the ABC’s Insiders program, “What Matthias Cormann said is accurate but probably shouldn’t be said.”

It is a standard part of mainstream economics that the laws of supply and demand mean there is a trade off between wages and unemployment. If wages increase, employers will be less willing to employ labour and unemployment will increase. If wages decrease employers will employ more people and unemployment will go down.

From the perspective of those who have soaked up this economic ideology, those demanding higher wages are responsible for causing unemployment while people like Cormann are helping create jobs.

In public, however, the rule is talk up job creation and don’t mention the plan to keep wages down.

Conversely, it is also a deliberate design, usually unmentioned, to make sure unemployment isn’t allowed to get too low. That would increase workers’ bargaining power and result in a feared “wages breakout” that would eat into profits.

That is why, in defiance of the rules of mathematics and reason, full employment is usually defined by economists and politicians as being when the unemployment rate reaches 4–5%.

However, this all takes a society governed by the free market as an absolute given.

In a rational society, where there is both unemployment and insufficient wages, the two problems would be seen as the ingredients to their own solution. The unemployed are given jobs which then has the effect of both increasing incomes and producing more goods and services to be purchased with that income.

But this is plainly not a solution that could emerge from the free market. The only reason this obvious solution is not pursued and is seldom even mentioned is because of the grip of market ideology on our society.

Insiders host Barry Cassidy prefaced Cormann’s remarks by proffering a justification on the government’s behalf: “Somebody’s pay rise is another person’s job ... research found if you give a 3% increase to low paid workers 1% of young people will lose their jobs.”

Such an excuse is only credible from a perspective trapped within the confines of market ideology. Unfortunately, this is exactly the perspective of nearly all of our politicians and media.

At Green Left Weekly, we don’t believe a world beholden to the whims of the free market is the only possible world. We know that unemployment and low wages are unnecessary and condemn them both.

If you agree and want to help us spread that word far and wide, please take out a supporter subscription or make a donation to our 2019 Fighting Fund.

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