Subscribe to BrookesNews’ Bulletin
Why the Liberal Party is getting it wrong on labour market reform
Gerard Jackson
It looks like Australia has a touch of the “French Disease”. Thousands have taken to the streets to demonstrate against the Liberal Party’s labour market reforms. Unlike advocates of reform I can empathise with the demonstrators, though not with the organisers.
For decades Australian workers have been told that without a regulated labour market and the minimum wage safety net real wages would be forced down by greedy capitalists and labour ruthlessly exploited. Now the Government suddenly expects the workforce to abandon its attachment to these myths.
Looking at it from this angle it becomes obvious that the Liberal Party made a grave tactical error ramming this reform package through the Senate without first arming itself with the necessary intellectual ammunition to defeat its opponents in the market place of ideas.
How did this sorry state of affairs come about? For more than 20 years the Liberal Party has been taking the advice of a coterie of self-professed experts on labour markets. We are now witnessing the results of that expert advice. As a member of that coterie Bob Day needs to share some of the responsibility of failing to sell labour market reform to the public.
I have said more than once that the first thing any advocate of reform has to do is succinctly challenge the case against his critics by stressing the fact that economic history and economics conclusively show that that it is impossible for unions or government regulations to permanently raise real wages for everyone. This would immediately put opponents on the defensive. But the likes have Bob Day seem to have made a particular point of not doing this.
Day’s article World of the work force is changing for the better (The Australian, 27 March 2006) underlines this fact. He focused on independent contractors, arguing that they were happier and better paid because they worked for themselves. So what? The situation for these contractors tells us nothing about how real wage rates are determined. Union officials understand this, even if Day does not.
This is why they would argue that even if contractors are doing all right the mass of unskilled employees still need a regulatory structure to protect them against abuse at the hands of employers. Day offered nothing substantial against this argument and I doubt if he ever has — or could. No wonder the Liberal Party is in a bind over the issue.
Hugh Morgan, another in the Bob Day mould, is long on figures (in his case a single figure) but short — very short — on economic analysis. As member of the coterie his basic argument is that the minimum wage is 58 per cent of the median wage (Lateline 10 August 2005). Once again: So what? Mr Morgan appears to be under the misapprehension that statistics stand by themselves. If only that were so. They have to be interpreted and for that to be done successfully one needs theory. Unfortunately, Morgan knows as much economic theory as Day.
Morgan’s appearance on Lateline was interesting in what it inadvertently revealed about this mob’s insensitivity toward the mass of workers. Here we had a multimillionaire and former mining executive, who had also just splurged $750,000 on a painting, appearing on the ABC to smugly tell its audience that people on the minimum wage were making too much money. (It’s no wonder that some people are starting to think that certain Liberal politicians have a political tin ear).
Occasionally one of them does try his hand at economic analysis, with about the same pleasing results than if I had tried my hand with the banjo. Des Moore argues that employees need not worry because the country’s 1.1 million firms put a floor under wages. No they don’t. He has made the dreadful mistake of confusing the number of firms competing with labour with the intensity of demand for labour. They are two different things.
In a free labour market the former would set individual wage rates with respect to the value of the labourer’s marginal product. However, it is the ratio of capital to labour that determines the intensity of demand, i.e., the height of real wage rates. The greater this ratio the higher real wages will be irrespective of the number of firms competing for labour.
The chart below is from 1960 to 2000 and clearly shows that wages move in tandem with productivity, which is the dotted line. (The data came from the Council of Economic Advisors 2001). Yet this little group of experts chooses for reasons of its own to ignore this information.
BrookesNews.Com
Monday 3 April 2006
|
A union official from Sydney rang me up recently to ask why is it that the rightwing only put up the same faces. I replied that it was because this group had turned the debate on labour market reform in to a closed shop. Fortunately it looks like the situation might be improving. In response to an intemperate attack by Ray Evans, president of the H.R. Nicholls Society, Kevin Andrews’ office responded with the comment:
What would you expect? Let’s get a grip. The H.R. Nicholls Society is such a small group it is almost moribund.
Moreover, conversations I have had with Liberals (disclosure, I am a Party member) make it clear that they feel they have been badly served by those who have spent years asserting that they alone possessed the required knowledge and ideas that are necessary to successfully explain and promote free labour markets.
Gerard Jackson is Brookes’ economics editor