Workers can have whatever they want – except higher wages
With a red-hot labour market starting to cool, many employers will be hoping they’ve dodged the wage-rise bullet
It seems like only a few months ago I was writing about how ongoing labour supply shortages had given workers the whip hand for the first time in almost half a century. As it turns out, it was only a few months ago I was writing about how ongoing labour supply shortages had given workers the whip hand for the first time in almost half a century (see here, here and here).
I still think long-term demographic, political and geopolitical trends will result in the balance of power shifting away from Capital and towards Labour. But, to coin a phrase, while the arc of the industrial-relations universe bends towards wage justice, that arc could turn out to be longer than I imagined.
The magic-pudding mirage of productivity
You may be familiar with the following observation: “Productivity isn’t everything, but, in the long run, it is almost everything.” If you’re a real econ nerd, you may even be familiar with the slightly less well-known second sentence of Paul Krugman’s most famous quote: “A country’s ability to improve its standard of living over time depends on its ability to raise its output per worker.” But you almost certainly aren’t aware Krugman’s zinger comes from a not entirely upbeat book about the prospects of the US economy entitled The Age of Diminished Expectations, which was first published in 1994.
For decades, productivity has been the ultimate political get-out-of-gaol-free card for right-wing union leaders, neoliberal economists, politicians of almost all stripes, and media pundits. No need to make any difficult decisions about how the national income pie gets sliced up, just increase productivity and both the proletariat and the bourgeoisie get rich!
To be fair, during what the French describe as the three glorious (post-war) decades, productivity did rise strongly and both the workers and bosses did get a lot richer.
But that was then.
There are two things any worker being exhorted to increase his or her productivity should keep front of mind.
The end of the grand bargain
The first point to be made is that rather than productivity increases continuing to be a win-win deal, they’ve long been a ‘heads I win, tails you lose’ lay down misère for Capital.
The IMF report the above graph report comes from notes, “After being largely stable in many countries for decades, the share of national income paid to workers has been falling since the 1980s… Chapter 3 of the April 2017 World Economic Outlook finds that this trend is driven by rapid progress in technology and global integration.”
I’m not an IMF economist or anything. But I suspect that’s a somewhat incomplete explanation of the causes of the ongoing redistribution of national income from Labour to Capital.
I was alive at the time and seem to remember even left-of-centre political leaders such as Gough Whitlam, James Callaghan and Jimmy Carter flirting with pro-business policies (tariff reductions, cuts to government spending, various inflation-fighting initiatives that increased unemployment) in the mid to late 1970s, right around the time the workers started to be subjected to what would be a decades-long reaming.
Of course, the successors of Whitlam, Callaghan and Carter went the whole hog with the neoliberal economic project. They either directly set about crushing the unions (Thatcher and, to a somewhat lesser extent, Reagan) or put in place economic settings that would render them increasingly powerless and irrelevant (Hawke and Keating).
Despite so many learned economists, savvy business journalists and entirely disinterested business leaders providing arguments to the contrary, I can’t quite shake off the suspicion that shareholders and senior executives making out like bandits during an era when wages were flatlining for the little people wasn’t simply a matter of vast, impersonal forces such as technological change.
In my wildest fever dreams, I’m sometimes even seized by the dangerous delusion the move from a Labour-Capital win-win grand bargain to a win-lose bad deal had something to do with Capital seizing the moment when the post-war Keynesian settlement collapsed in the 1970s then ruthlessly pressing home its advantage in subsequent decades.
I rarely see them quoted in the corporate media, but when I’ve dived deep enough down Internet rabbit holes I have found other individuals and institutions that share my outré conspiracy theories.
For instance, the Economic Policy Institute (EPI) – supposedly a “nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions”, but no doubt a sinister collection of degenerate Trots – has made statements such as: “Since the late 1970s, our policy choices have led directly to a pronounced divergence between productivity and typical workers’ pay. It doesn’t have to be this way…pay for workers climbed together with productivity from 1948 until the late 1970s. But that didn’t happen by accident. It happened because specific policies were adopted with the intentional goal of spreading the benefits of growth broadly across income classes. When this intentional policy target was abandoned in the late 1970s and afterward, pay and productivity diverged… policymakers began dismantling all the policy bulwarks helping to ensure that typical workers’ wages grew with productivity. Excess unemployment was tolerated to keep any chance of inflation in check. Raises in the federal minimum wage became smaller and rarer. Labor law failed to keep pace with growing employer hostility toward unions. Tax rates on top incomes were lowered. And anti-worker deregulatory pushes—from the deregulation of the trucking and airline industries to the retreat of anti-trust policy to the dismantling of financial regulations and more—succeeded again and again… Where did all the income growth [generated by] rising productivity go? Two places, basically. It went into the salaries of highly paid corporate and professional employees. And it went into higher profits (i.e., toward returns to shareholders and other wealth owners).
The EPI has also published (no doubt deceptive) graphs such as the following:
The likes of the EPI and the OECD have also observed that, had wage growth kept pace with productivity increases since circa 1980, minimum, average and median wages would all now be substantially higher. For instance, the US minimum wage, which has been stuck around the $7 an hour level for as long as anyone can remember, would now be $20. This would mean far fewer fast food and retail workers in the US would need to rely on food stamps to keep themselves and their children from going hungry.
There are few productivity gains to share
Look, I’m sure there has simply been some sort of four-decades-long misunderstanding and that Capital is now more than happy to divvy up the proceeds of productivity gains more equitably. After all, as recently as August’s Jobs and Skills jamboree, Business Council CEO Jennifer Westacott was gushing that, “Lifting productivity creates safer, more rewarding, higher value, more meaningful and more satisfying jobs… Australian mining is a great example. Our [mining] industry is one of the most productive in the world. It pays the nation’s highest wages on average, contributes about 27 per cent of total company tax revenue, delivers by far the most export revenue of any sector, and is critical to supporting regions and communities.”*
This brings me neatly to the second point I want to make about productivity. Let’s assume that lifting productivity would once again start to lift wages for the average worker, rather than just corporate profits. The catch is that productivity growth has long been sluggish. You can debate why it’s been sluggish and, God knows, plenty of economists have. But the point is, there’s a widespread consensus that productivity growth isn’t likely to revive anytime soon. So, anybody who says big productivity increases and hence wage rises can be achieved by, as Westacott argues, creating “a workplace relations system that works for all and… [is] designed to deliver outcomes for both workers and employers” is either lying to themselves or you.
The rise and fall of ‘unpaid overtime pizzaing’
A long time ago, I was in a high-powered meeting with a senior executive on his way to heading up ACP, Kerry Packer’s then-wildly-profitable magazine company (I told you it was a long time ago).
One of my fellow magazine editors asked the soon-to-be ACP Managing Director how he should handle a valuable employee who was dissatisfied with his remuneration. He was told to avoid making the rookie mistake of giving the employee a pay bump and to instead give him a bonus. The senior executive explained that this was because a bonus would only involve a one-off payment of, say, a few thousand dollars while a pay rise would probably result in the employee earning tens of thousands more over time. I don’t know what ended up happening. But I’m assuming the editor in question blew some smoke up the employee in question’s arse about how much he was valued, slung him a relatively modest amount of cash and, at the minimum possible cost to the company, resolved the disgruntled employee situation.
You may or may not be in a line of work where bonuses are handed out, but you’ve almost certainly experienced what I call ‘unpaid overtime pizzaing’ at some point.
Here’s how it works: your manager wants you and your colleagues to work back for three or four hours. In a previous era, you and your colleagues might have expected to earn a substantial amount of overtime for this imposition. But in today’s ‘flexible’ workplaces, unpaid overtime is part of the deal in many industries. Nonetheless, an emotionally intelligent manager will do something to signal he appreciates his industrious subordinates. More often than not, this will involve ordering some pizza. So, rather than feeling they’ve been gipped out of the $100 overtime payment they could once have expected, the manager’s subordinates, especially if they are young and unjaded, are likely to believe they’re winning because they scored $10 worth of ‘free’ Hawaiian pizza.
‘Pizzaing’ can take many forms – gift cards, well-stocked office kitchens, Thursday night office drinks, Friday afternoon massages, lunchtime yoga classes – but the result is the same. Employers spend a little bit of money providing workers with a seemingly generous perk, which allows them to sidestep the serious financial burden of raising wages.
When economies ‘run hot’ and labour is in short supply, you would expect wages to rise. Yet the currently available data indicates that didn’t happen when labour markets were tight both immediately before Covid hit and after national governments slammed borders shut while pumping huge amounts of stimulus into their economies. Granted, there was lots of ‘pizzaing’ – barmen and waitresses and shop assistants being offered handsome ‘sign-on bonuses’ and white-collar types being allowed to keep working remotely part or all of the time – but not much movement in terms of wage increases.
Not only did workers miss out on wage rises in 2019 and 2021; high inflation has meant real wages have been falling throughout 2022. Plus, the interest rate rises prompted by high inflation are now working their dark magic and taking the heat out of labour markets. (Undemanding foreign workers are starting to appear in significant numbers in countries such as Australia, further tilting the balance of power towards once besieged employers.)
Having ridden out the historically low unemployment storm, employers aren’t even having to engage in much ‘pizzaing’ anymore. (When is the last time you saw a news report about a desperate restaurateur offering $5000 sign-on bonuses?) And, having spent years solemnly agreeing that workers deserve higher wages, employers are now furiously resisting industrial relations changes that might, you know, result in workers getting the higher wages they deserve. Which is something I may address in next week’s musing.
*Australia’s mining industry is so productive because, rather than having 11-year-olds digging blood diamonds and rare earth minerals out of the ground with sticks, it uses a lot of machinery and highly skilled labour. Precisely because it is so highly automated, Australia’s mining industry employs relatively few people. Because they require relatively few people to generate billions of dollars in revenue, mining entrepreneurs can pay their workers above-average wages while still growing unimaginably wealthy.
But it should be noted that, historically, miners in first-world nations weren’t paid particularly well. In many developing nations, they continue to work in unpleasant and often dangerous environments for modest remuneration. Gina Rinehart is on the record lamenting that “Africans want to work, and its workers are willing to work for less than $2 per day. Such statistics make me worry for this country's future," while discussing an enterprise migration agreement facilitating the importation of 1,700 foreign workers to labour on her Roy Hill Iron Ore project. Ms Rinehart has also suggested that, rather than being bamboozled by the “class warfare smokescreen”, indolent non-billionaires take a good hard look at themselves: "If you're jealous of those with more money, don't just sit there and complain; do something to make more money yourself – spend less time drinking, or smoking and socialising, and more time working.)