Is there a political wage cycle?

There is a longstanding notion — that has not been easy to prove — that there is a political business cycle with booms timed to coincide with elections. Today, Bill Shorten raises the question — although not explicitly — is there a political wage cycle in Australia? (Click here for the news report).

Shorten accuses the Fair Pay Commission of playing to the electorate in giving a higher than expected wage rise last week.

“It’s an extra $27 you wouldn’t get unless there’s an election next year,” said Mr Shorten, as he farewelled union members before next year’s federal poll, in which he will be the Labor candidate for Maribyrnong in Melbourne’s outer west.

Unions fear the Fair Pay Commission’s surprise decision to compensate 1.2 million workers for inflation over 18 months was a “one-off” to boost the Coalition’s standing in the face of criticism about the harsh effects of the Howard Government’s new industrial laws.

Now there is clear politicking going on here. The wage rise is the sort of thing the unions would like which, of course, makes it difficult to criticise the government. Not surprisingly, the government was pretty happy with the decision of its independent commission. This left Shorten to do the obvious thing and criticise the independence of the commission.

On the one hand, that critique sticks because there is no one from the economic left on the commission. My colleague, Ian Harper, who heads it is definitely on the Right of these matters. On the other hand, what if that hadn’t been the case? If there was a commissioner from the other side of the political fence, would that person have opposed the current decision? I don’t think so.

Incidentally, had the Commission really wanted to be explicitly political it would have approved a wage rise of more than $30 per week; higher than the Union demand. In this way, the government would have been able to claim it was ‘more fair’ than the unions. But it didn’t do that but it also didn’t present itself as a target either.

So Shorten’s critique is somewhat weak this time around. It may be true but so what? More substantively, there is nothing special about this government if it is the case that wage rises are timed for elections. The incentive is there for any government. The question is whether it has occurred in the past. We have a long history of centralised wage fixation in this country. If there is a cycle, perhaps we would see it in the data? I don’t know but perhaps someone with the data might take a look.

I think a better line for Shorten would be to argue that it is all ‘smoke and mirrors.’ The government gives with one hand and takes with the next. This is the suggestion borne out in today’s Age. Here is the summary of the NATSEM modeling:

It found those hardest hit by the compound effect of tax and a rapid withdrawal of benefits once income grows are single-income families relying on the minimum wage.

In a typical minimum wage family with one salary and two children aged 8 and 10, a working dad would lose $9 in tax, while the stay-at-home mother would forfeit $13 in welfare benefits. That would leave them with just $5 extra a week.

The point here is that the government has effectively shifted the burden of welfare from itself to employers. Is that a good idea? In a sense, it is a privatisation of social security. This is surely the issue that Labor needs to hit upon. It can thank The Age newspaper for commissioning that study.

[Update: this blog post appeared as an article in Crikey (30th October, 2006)]

4 thoughts on “Is there a political wage cycle?”

  1. Joshua,

    Why didn’t you declare in the Crikey article and this blog that Bill Shorten attended MBS and that you either did or did not teach him.

    Also – why did you only mention Ian Harper as “your colleague” when he has also been your boss.

    Surely the reader of both the Crikey article and your blog need to understand the full context in which you were stating your opinion.

    To borrow a phrase from your post – there is clear politicking going on here and you are treating the reader with contempt.

    Former Student


  2. Well, it is not relevant but in any case Ian Harper is not my boss. During the three month period he was Acting Dean it might be construed as that but even then that is ambiguous as I was a Director and so from a corporate governance perspective, his boss (with others).

    And yes I did teach Bill Shorten half a subject back in 1997.

    Finally, the article I link too, had all of those disclaimers about Shorten and MBS in it. Blog posts should not be read in isolation.


  3. Joshua,

    May I draw your attention to the Media Alliance’s Code of Ethics, specifically section 1 which recommends that those who seek to inform and entertain Australia should “disclosure of all essential facts. Do not suppress relevant available facts”.

    If your article was only published on your blog, the discussion which we are now having would be theoretical at best.

    Your article, however, was not only published on your blog.

    The article was published on Crikey and as such was disseminated to more than 10,000 subscribers.

    As such it crossed the line from the realms of your blog into mainstream media consumption and as such it could be easily successfully argued that a reasonable person expected full disclosure of all relevant facts.

    That you taught Bill Shorten for half an economic based subject in 1997 is relevant when you are critically discussing Shorten’s assertion that there is a political (and economic) wage cycle.

    Additionally you are incorrect to say that all the disclaimers about Shorten and MBS are in the article to which you linked.

    The mention of the relationship is limited to the following quote “Mr Shorten is on cordial terms with Professor Harper, an evangelistic Christian who taught him economics in the late 1990s at the Melbourne Business School.”

    To the best of my awareness I cannot see any reference in that article or your Crikey contribution that you taught Shorten.

    Additionally, either Ian Harper was your colleague – in which case that implies managerial interconnection or you were a Director overseeing the actions of the Acting Dean. A Director is not a collegue of a person in a managerial position.

    You have misled your blog and Crikey readers by not disclosing your Director position.

    I reiterate my observation that you have treated the reader with contempt.

    I look forward to a self clarification of this matter in a future Crikey.

    Former Student


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