Reserve Bank governor Philip Lowe.

Reserve Bank Governor Philip Lowe

As Crikey showed last week, even experts have divergent views on what’s causing the wages stagnation currently plaguing Australia. The less-informed, and more biased, have other explanations. In June, Scott Morrison suggested that wages growth would pick up when corporate profits picked up — a view not merely at odds with economic orthodoxy but the long-standing position of the Liberal Party itself.

Then there’s the view of the head of the BCA Grant King, that wages growth will only happen when business gets a tax cut so it will invest. And Richard Goyder’s view that low productivity is to blame for low wages growth.

The Reserve Bank isn’t overly interested in such explanations. Back in June, Reserve Bank governor Phillip Lowe said it would be a good thing if workers started demanding pay rises. Yesterday, he went further, saying businesses were part of the problem.

“Not only are wage increases low, but some people had been moving out of high-paying jobs associated with the mining sector into lower-paying jobs. We have heard from our liaison program that there has been downward pressure on non-wage payments, including allowances, and an increase in the proportion of new employees hired on lower salaries than their predecessors … Businesses are not bidding up wages in the way they might once have. This is partly because business, too, feels the pressure of increased competition. One response to this competitive pressure is to have a laser-like focus on containing costs. Over recent times there has been a mindset in many businesses, including some here in Australia, that the key to higher profits is to reduce costs.”

The governor might have added the widespread practice of wage theft by employers across the economy (aided and abetted by the appalling SDA), vividly shown in a report released this week. 

Lowe and the RBA are concerned about low wages growth because, putting aside whatever political consequences might flow from wage stagnation, and the consequences for low-income earning households, it is undermining growth and affecting the RBA’s plans to move monetary policy to a less “accommodative” setting.

“At the same time, though, growth in consumer spending remains fairly soft. Indeed, for a number of years consumption growth has been weaker than we had originally forecast. The picture is pretty clear. For some years, consumption growth has been weaker than forecast and it has not exceeded 3% for quite a few years.”

Who are the drivers of this “laser-like focus on containing costs”? Company shareholders — in most cases, institutional investors such as superannuation funds — retail, corporate and industry funds — who are bashing company boards and managers by selling off the shares at the first sign of bad news, or lower profits. It is in fact a grim irony that in the name of maximising investment returns to boost savings for their retirements that millions of Australian workers are seeing their wages compressed or cut at a time. As RBA deputy governor Guy Debelle noted last week, “the stock market is rewarding cost reduction rather than investment spending where the payoffs are multi-year rather than immediate.”

The lack of wages growth, along with low inflation and unused capacity in the labour market prompted Lowe to be unusually blunt on the future of monetary policy: “A continuation of accommodative monetary policy is appropriate,” he said. “If the economy continues to improve as expected, it is more likely that the next move in interest rates will be up, rather than down. But the continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment in monetary policy.”

The question is now whether there’ll be any rate rise at all until 2019. That will be eight full years since there was last an interest rate rise.