Contributed by Joe Montero

In the pursuit of a fair sharing of the wealth of this nation, it is reasonable to argue that wages should be raised to a living level that maintains an acceptable standard of living for all.

This is exactly what the Australian Council of Trade Unions (ACTU), Australia’s peak union body, is doing.

In a speech marking the 11oth anniversary of the Harvester decision, the Council’s secretary, Sally McManus, signalled there will be a push to raise wages to a level,  which will take low wage earners out of poverty.  She said that the current minimum wage of $36,000 a year “would not even come close” to the level required to pay for basic goods and services.

The minimum wage currently stands at $18.29 an hour, or $694 a week.   

Peak employer organisaations have traditionally campaign against higher wages and continue to do so, arguing that they add to the costs of business and reduce business activity and cut jobs.

It is undeniable that raising wages raises costs on business and this can impact on small business most of all. While this deserves attention, there is also much more to it than this. Everything is relative.

The first point is that labour productivity is high in Australia. This might be denied by some. But this flies in the face of the change, in which one does work that was once performed by three or more.

This change in the way we work has meant that the total wages bill of many employers is a smaller portion of the total cost and it applies in the office, factory and farm.

A consequence of this, is that it has helped to transfer Australia’s national income from the wage earner to the employer, although by the same token, not all employers have benefited equally.

The great insight of the Harvester agreement is that it recognised that there is a minimum that not only provides an acceptable standard of living, but is also vital for a healthy and vibrant economy. This was set at what it costs to maintain an average family of two adults and two children.

While arguing the merits of equity in setting the minimum wage, the argument that wages are just a cost must be debunked. Low wages do not equal economic success.

When handing own his Harvester finding, Justice Higgins observed what is natural. We go out to work because we need a certain amount of money to live. This is the value we put on our labour. If the market works as it is supposed to work, if we are not paid enough to meet our needs ther tendency would be to go somewhere else to work. If we got more, the tendency would would to be to spend less time working. Overall this would balance out at the Harvester level.

This does not occur, because the power relationship at work is unequal. The employer has the institutionalised power to extract more than would otherwise be the case,  only limited by the extend of the capacity of organised labour to pull it back, or through another institutional process, such as the Fair Work Commission. Without the union effort over the years, the wages share would be much less.

A rise in the power of the employer, assisted by government has meant a fall in wages growth, especially at the bottom end has been greater than it would otherwise have been.

Reduction of the average cost of doing business through increasing capital intensity has translated into falling prices for high tech based goods and services. The greater this intensity in a specific case, the greater the fall in its price over time. Although the is fall is not universal, it is marked enough, to have a telling impact. The driver is the smaller average amount labour used per hour for each unit.

When the fall in price per unit is greater than the fall in the cost per unit, the return on the investment starts to shrink. This is a big part of the collective problem faced by many employers, especially in the most capital-intensive parts of the Australian economy (mining and manufacturing), and hence, the pressure to cut further the wages share to make up the difference.

This is a self-defeating strategy, because lifts the original problem to a new level. Despite this, it is pushed because it does shift a greater share to individual employers in the short-term. But what might work at the micro level does not necessarily work at the macro level and this is one of these times.

Another consequence of the shift of national income away from wages, is that it causes a fall in living standards. In terms of the economy, this means that people spend on less and this translates into falling sales. Falling sales put pressure on the continuing survival of businesses.

There is yet one more change going on in Australia. This is that because of their contradictions, the more capital-intensive parts of the Australian economy have entered a period of decline and the new growth areas are for the most part, concentrated in the less capital-intensive part of the economy. This is still playing out and the full consequences have not yet come to play.

Most new jobs are in in services and especially those concerned with customer service. There is a limit by which people can be replaced by technology at this front line.

Hence the new build up in pressure to push wages down and the rapid expansion off casualised work.

Rising labour intensity brought about by the splintered growth of the Australian economy is imposing a counter pressure on the overall price level.

The need for equity and the need to do what is best for the economic well being of Australia do not stand opposed to each other, but are complimentary. The reason why this relationship is not materialising, is that the major employers have institutionalised power in their hands and are using this to feather their own individual and short-term interests.

A counterforce is needed, and this can only be organised labour, which has the capacity to represent the interests of 95 percent of the population.