Thursday, August 09, 2007

Closing the gap

One of the goals both government and opposition agree on is the need to close the gap in wages with Australia. And there's some statistics out today which show what the government is doing in this area. The first is the quarterly Household Labour Force Survey, which shows unemployment again at a record low (in percentage terms) of 3.6%. The other is the Labour Cost Index, which shows the effect of this low unemployment: higher wages (there's also been an obvious and impressive step-change in annual wage growth since unemployment hit the 3.6% "floor" - they've increased by around 1%, from 2% to 3%). In other words, the government has engineered (through its loosening of the Reserve Bank's Policy Targets Agreement) an ongoing labour shortage, and is now letting the law of supply and demand take its course. The result is rising wages - particularly in areas where unions can leverage their collective power. This also puts pressure on employers to up their game, and invest in training and capital improvements to increase productivity, which should also help close the gap in the long run.

Meanwhile, what are National's policies? Squashing wage rises by introducing probationary employment and limiting the right of unions to collectively organise and bargain, while engineering a labour surplus by kicking people off the sickness benefit and DPB and into the labour force. These policies won't close the gap with Australia; instead they will widen it, just as they did when first introduced in the 90's. But they will increase the profits of National's big business backers, which is what they really seem to care about.