Contributed by Joe Montero

The International Monetary Fund’s (IMF) latest economic outlook report, notes that industrialised economies are experiencing slow wage growth and Australia is at the head of the pack.

Under the heading Seeking sustainable growth: short-term recovery, long-term challenges, the latest report has downsized its prediction for Australia’s economic growth to 2.2 percent this year. The unemployment rate, even by the underestimating measure used,  is expected to stay the same over the coming period.

The focus is on the absence of wages growth. The IMF suggests that the reasons are higher unemployment, the rise in underemployment, declining productivity growth and what is defined as lower inflation expectations in general, but not so much for Australia.

While the connection with a lower inflation expectation is unclear at best and may be taken with a pinch of salt, what is undeniable, is that underemployment is a major driver. The IMF is right to suggest this and has a point, to an extent at least, in pointing to an association between wages and underemployment.

This is no mystery to most Australians, who do not need an IMF report to tell them this is the way it is.

To an extent was mentioned, because the IMF overlooks the simple reality that underemployment, or the casualisation of labour by another name, is really a form of unemployment.  So, when viewed in this context, the relationship between wages and unemployment remains the same, except that that it has changed the way it looks.

The IMF report wrongly holds that the old nexus between unemployment and wage rates no longer holds. The problem  is that is that the agency is locked into a world view, backed by economic theory that has limited connection to the real world, which blocks the capacity to adapt to anything else.

What is important is not the number of jobs on the books, but the number of hours worked, along with the relative positions of the employer and employee to exert their interests. The report does recognise the that the average number of hours worked is falling in Australia and other industrialised countries. the problem is that is goes no further.

Unacknowledged, is the failure of  more than three decades of neoliberalism, which has involved an active drive to push down wages. The IMF has been one of its leading advocates.

Successive Australian governments have been zealous in applying  neoliberalism and continue to be so today.

The IMF’s suggested solution to stagnated wages is that in an era of highly flexible employment, governments needs to protect and extend minimum wages and change the approach to unemployment benefits, to acknowledge that the era of full time unemployment has gone.

Measures like these will improve the safety net for the most vulnerable and are justifiable on this basis. But they will not solve the problem.

The biggest weakness in the report is that it in no way challenges the existence and growth of underemployment. The stock argument remains, and that is that the best way to improve the jobs market is to increase productivity. There is not even a hint of steering away from this.

Increasing productivity means more quantity of goods and services created in a given period of time. Contrary to the claim sometimes made, Australia, like other industrialised countries, has a high level of productivity.

This has been brought about by a combination of high skills levels and the application of new technologies. The form that rising productivity has taken has been the replacement of labour by these new technologies and the associated re-organisation in the way work is done.

An outcome of this has been to feed an ongoing increase in the relative oversupply of labour. This is what unemployment is.

Employers finding that they have relatively greater strength to impose their will, have not backed off taking advantage of the opportunity. And they have been supported by government to wage an assault, which takes the shape of turning full time jobs into lower paid and often causalised work, provided by labour hire firms.

The government has moved in and helped by slashing jobs in the public sector and has set up the Fair Work Commission to strengthen the hand of the employers. The recent decision to cut penalty rates is a case in point.

While increasing productivity there has been a fall in the cost of doing business for those that can operate on a large enough scale, there is a paradox, in that it has at the same time, particularly in the higher tech areas,  has caused a fall in prices, while those in relatively lower tech and more labour intensive areas, have been squeezed by higher costs and an inability to compete without raising prices

Falling prices have led to a lower rate of return per unit, a rate of return on investment, wilting investment in the real economy and the economic stagnation.

Responding to a systemic problem, employers are using higher real unemployment as a tool to offload the cost of running the business onto the wage earner.

The second paradox is that while it might look good on the short-term balance sheet of individual businesses, the longer-term effect, if it occurs on as big enough scale across the economy, is that it will inevitably shrink the available market.

We are already seeing a trend to lower consumer spending. And this contraction of the market comes around to hit the bottom line, induce further economic stagnation, if not contraction. Life is made more difficult for the employers that pushed in this direction and it is made even more difficult for those on which the burden had been imposed.

For as long as agencies like the IMF and governments like those that Australia continue to ignore these realities and fail to act appropriately, they will continue to be part of the problem.

A solution to the problem is not easy because it is systemic and correcting this requires operating the economy in a way where it is not driven by the major employers and takes the form of working together and rewarding for effort.

At the very least, there is a need for significant government intervention to slow the rot, taking the form of simultaneously enforcing acceptable wages and conditions of employment and applying a plan to grow a new economy that will provide a new supply of job opportunities.