Wages and jobs


Wages and jobs

Surprise! It's less than a month from the federal election, and already the powers that be have discovered the need for — guess what? — wage cuts!

On Monday (October 26), five academic economists made front-page headlines in most if not all of the commercial media by calling for the abolition of living wage adjustments for low-paid workers — that is, a cut in their real wages.

Supposedly, these workers would be "compensated" for wages lost by tax credits, but even in the unlikely event that this really happened, it would only mean that other workers ended up paying, through higher taxes, reduced government services, or both.

The five academics claimed that their proposal, if enacted, would fairly quickly reduce the unemployment rate to 5%.

By the end of the week, the IMF had weighed in on the question of wages, leaking a report to the Howard government which claims that the latter hasn't done enough yet to reduce minimum wages, holiday loadings, superannuation and award coverage.

In case anyone was wondering, yes, this is the very same IMF whose expert advice, in conjunction with that of the World Bank, has produced economic miracles over the last 15 months in Thailand, Malaysia, Indonesia and Russia, with more such miracles clearly on the way in most of Latin America. Perhaps we should agree to accept the IMF advice when Indonesia's unemployment rate hits 5%.

It is vicious nonsense to claim that reducing real wages can significantly reduce unemployment, and workers should not be fooled by the seemingly scientific basis of economists' charts and graphs.

The academics claim, for example that their proposal would cut labour costs by 4% over four years, and that this would reduce unemployment by about two percentage points. But real unit labour costs in Australia fell by 8% between 1983 and 1992, while unemployment (at similar points in the business cycle) rose significantly.

Indeed, it is well known that average real wages declined by more than 25% during the 13 years of Labor's Accord, but unemployment trended upward over the same period.

In fact, a cut in real wages — whether through a GST or a direct wage cut — can result in higher unemployment. Lower wages mean that workers can't afford to consume as much, and therefore at least some capitalists are left with more unsold goods and a reason to eliminate jobs.

There has been a trend of rising unemployment throughout the industrial countries for 25 years now. This is not because real wages have been rising during that time — in general, they have been falling. It is due to an ongoing crisis of overproduction: companies have a capacity to produce far more than markets can buy. In this situation, lower wages will boost profits, but they won't result in increased employment, because there's no market for the goods those workers would produce.

But there's one field where there is no danger of unemployment. That's among economists who tell governments things they want to hear. The Howard government has, so far, reacted quietly to the proposal of the five academics. Don't be fooled. It is very likely doing a repeat of its GST strategy: remember how the government pretended to resist the idea of a GST, waiting for "popular demand" to be created by academics, business and people in the welfare lobby who should have known better.

If working people sit back and let such types conduct the "debate" on unemployment, we're going to be swindled as badly as in the case of the GST. Above all, what is needed is for the unions to start to do something about a real solution for unemployment, by campaigning for the ACTU's adopted but forgotten demand for a 35-hour week, with no loss in pay.