Six Problems That Will Plague Australia’s Big Economic Summit

(Bloomberg) — Australia’s new Labor government faces a series of challenges at its key economic summit Thursday as it tries to forge the conflicting views of unions and business into a policy agenda.

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Prime Minister Anthony Albanese opens a jobs and skills meeting in Canberra comprising executives, union officials and experts who will try to form a consensus on tackling high inflation, falling real wages and labor shortages at a time of deep budget deficits.

Part of the solution will probably be unpopular decisions like higher immigration and reforms to boost productivity, with the conference also designed to provide some political cover for the government.

The following charts set out some of the economic conundrums.

Workers Receiving Less

Australian workers’ share of national income has been on a steady decline in recent decades and with inflation currently running at 6.1%, more than double wage growth, employees want change.

Albanese is trying to replicate former Prime Minister and Labor hero Bob Hawke’s successful summit in 1983. At the time, Australia was in the grips of a wage-price spiral and Hawke managed to secure union agreement to restrain pay demands in return for programs like government-provided health care.

That accord and the Hawke Labor government’s subsequent reform program helped set up a generation of prosperity in Australia.

Yet pay gains today remain tepid even as employment as a percentage of the population surges to levels well above other economies where wage pressures are more intense.

More Aussies Working

With the labor market and economy running close to full capacity, industry leaders are urging the government to consider raising the number of work visas. Albanese has suggested he is considering raising caps on migration.

Yet the potential for political backlash is high as workers are likely to see more competition as likely to further suppress wages. The Grattan Institute think tank’s Tyler Reysenbach, who previously worked in the Department of Prime Minister and Cabinet, argues lifting migration caps is unlikely to solve the problem.

In a report that she co-authored, Reysenbach cited government studies that show migration has little to no overall impact on the wages of local workers. “More permanent migrants arriving on our shores won’t cool Australia’s ultra-hot jobs market,” she says.

Firms’ Staff Struggles

That’s because migrants add to domestic demand, prompting the need for more goods and services and in-turn more workers to supply them.

She says the government should instead consider introducing a wage threshold of A$85,000 a year — the equivalent of median annual full-time earnings — so that skilled migrants don’t get pushed into lower-paying roles that weigh on wages.

Hospitality Lacking

Unions argue part of the reason for Australia’s stagnant wages is firms are diverting excess profits to shareholders and management.

“We were promised that when business does well pay rises will come – they have not,” said Sally McManus, secretary of the Australian Council of Trade Unions.

Yet there are signs of progress. On Monday, the ACTU and the Council of Small Business Organizations Australia announced they had signed a memorandum of understanding to work toward new bargaining agreements.

Profits Grow, Labor Shrinks

Another key cohort that hasn’t really benefited from a tight labor market is women, who are significantly over-represented in casual work and low-paying jobs. As a result, the gender pay gap, or the difference in average full-time earnings between males and females, has widened to 14.1%.

The government says it will make addressing gender parity a priority at the summit. “There will be a strong overarching focus on women’s experiences of the labor market and the challenges of ensuring women have equal opportunities and equal pay,” it said.

Women Short-Changed

Deutsche Bank AG’s macro strategist Tim Baker has been scrutinizing employment data to try to understand the reason for tepid wage growth. His conclusion is governments are to blame.

Baker found public sector hiring has easily outpaced that of the private sector and “looks to have soaked up remaining labor market slack, but it’s possible it has a reduced impact on wage momentum.”

Australia’s various levels of government, seeking to rein in demands for budget cash, have tried to limit pay rises for their own staff.

Public Sector Contained

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