Coca-Cola Amatil has this week closed a pay deal that will see wages frozen for current Victorian warehouse employees and new employees will be paid 38 percent less for carrying out the same job. A spokesperson for Coke said the deal will bring wages closer to market rates and restore the business to a sustainable earnings growth.
Coke is not the only Australian employer straining under our high cost economy. Holden workers had agreed on a three year pay freeze in a futile attempt to keep manufacturing in Australia and many public servants also face the prospect three year wage freezes.
Data from the Australian Bureau of Statistics (ABS) show real wage growth started to fall at the start of this year. Wage growth has been lower than inflation for the first two quarters this calender year – the worst in 17 years – as higher paying jobs are lost and existing employees are fearful of negotiating pay rises.
But falling wages should actually be a welcome relief for Australia, helping to increase our global competitiveness and retain much needed jobs. While trade exposed export markets such as manufacturing steal most of the limelight, many administrative, IT and back office jobs are also being lost offshore as larger corporations try to contain wage pressures and retain sustainable business units.
Earlier this year, Boston Consulting Group published its Global Manufacturing Cost-Competitiveness Index ranking the world’s 25 largest good-exporting nations on wages, productivity growth, energy costs, and currency exchange rates. No prices for guessing – Australia ranked last.
Organisation for Economic Co-operation and Development (OECD) data released last year, showed Australia’s relative unit labour costs had surged 54.1 per cent since 2000, while for comparison, unit labour costs fell in Germany, UK, US and Japan by 14.6, 20.4, 25.9 and 46.2 per cent respectively. The report showed Australia had the second fastest labour cost growth in any developed economy.
In March, the Australian Council of Trade Unions’s (ACTU) called for a rise in the minimum wage to offset our unprecedented housing bubble. The Sydney Morning Herald reported the story :
While the minimum wage was equivalent to 14 per cent of the mean house price in 1993, it is now at less than 7.5 per cent.
ACTU secretary Dave Oliver said a 250 per cent increase in average house prices in the past 20 years had made it impossible for those earning minimum wages to buy a home.
“For those on a low wage, home ownership is a now pipedream,” he said. “Someone on a minimum wage of $622 per week has enough to cover their basic costs and that’s about it. These workers tell us it’s impossible to save up a deposit, let alone afford the weekly repayments.”
Mr Oliver said the minimum wage had increased by 91.2 per cent from 1993 to last year, and would have needed to rise by 254.7 per cent – $1154.42 a week or $60,029.84 a year – to keep up with house prices.
But trying to keep wages in pace with an unsustainable housing bubble is a sure fire bet to shut Australia down.
When businesses shut down or move offshore, getting them back is extremely difficult. Even more so when you lose an entire sector such as Automotive.
While it is disappointing not to hear even a peep from our legislators on this serious structural issue plaguing the economy, the good news is automatic stabilises are rapidly kicking in.
In commenting about Coke’s pay deal and falling wages, HSBC chief economist Paul Bloxham told Fairfax, “There is a disconnect between income growth and house price growth and that needs to be watched very closely. If house prices keep running so far ahead of income growth, there is an increasing risk of a very sharp slow down in property,”
A “very sharp slow down in property” will be disruptive in the short term, but will pay dividends with a sustainable, globally competitive economy in the long term.
» Coca-Cola Amatil slashes wages with new employees to work for less – The Sydney Morning Herald, 11th September 2014.