‘Same Job, Same Pay’ would be barrier to innovation

‘Same Job, Same Pay’ would be barrier to innovation

David Alexander is chief of policy and advocacy at the Australian Chamber of Commerce and Industry

 

The federal government is currently proposing another wave of industrial relations changes.

Called Same Job, Same Pay, these changes will have significant impacts on Australian businesses.

As the title suggests, the principle behind the legislation is to change the system so people who do the same work receive equal wages.

The rationale for these major alterations has been described by the Minister for Workplace Relations, Tony Burke, as addressing a “loophole”.

That term suggests that there has been some well-recognised oversight by legislators that now requires a sensible and helpful remedy.

But this is definitely not the case. Let us be clear on this point: there is no loophole at all. There has been no oversight. The central assumption of the government’s changes is a flawed premise.

Before we look at the specific government “loophole” claim, let’s understand the context. We need to recognise that different wage outcomes are a core part of a healthy, dynamic, market-based system.

We depend on a system that allows wages to vary according to skills, experience, business types and business conditions. That variation of wages is not a bug but a feature.

That variation of wages allows reward for effort, reward for skills, and flexibility for businesses of vastly different shapes and sizes.

Most people are comfortable with the existence of difference in wages, but others are not. Some people look at wage variations and think that the very existence of difference is proof of injustice or conspiracy.

The fact that wages differ, according to this mindset, allows “undercutting” of the person on higher wages.

Some countries have tried to eliminate differences in wage outcomes, but the results have been terrible – think of those failed old utopian projects of the 20th century. The lesson is that prosperity requires a level of comfort with differences in wages.

When it comes to the government’s same job, same pay proposals, the central concern of the government is that “undercutting” can occur because some workers in the same occupation have lower wages than other workers. This is the so-called “loophole”.

The proper response to the notion that wage differences exist is “Of course!” rather than “That’s terrible.” We want a system where difference is permitted, and where, for example, higher skilled workers get paid more than lower skilled people, and small business is not forced to pay the same wages as big business.

The government now says that it will limit the scope of the measure to labour hire companies, but this is really just a matter of damage limitation.

As it stands, one mining company, BHP, says that the changes will cost the company $1.3bn per year and threaten “serious damage to every level of the Australian economy”.

The government will soon release details of the proposed legislation, but the point that all legislators should keep in mind is that the introduction of a one-wage-fits-all policy is bad for the Australian economy. It is not neutral or benign. The Minister’s loophole has a loophole.

Published in The Daily Telegraph on August 22, 2023

Nuclear energy still has a part to play in our future

Nuclear energy still has a part to play in our future

David Alexander is chief of policy and advocacy at the Australian Chamber of Commerce and Industry

 

The Australian government has announced ambitious emissions reduction targets over coming years and decades, a 43 per cent reduction by 2030 and net zero by 2050.

The rationale is that every country needs to do its fair share if we want to address the problem.

The government believes that the emissions reduction targets can be met while keeping energy prices affordable but this outcome is inherently uncertain. Energy markets have always exhibited enormous volatility, they continue to do so, and no-one really knows the future.

There are two possible outcomes as we move through the decades – the goal of affordably achieving the targets is met or it isn’t.

At the moment there are a number of worrying signs that the task could end up being beyond the government. Electricity prices are high and have been rising, while the abatement task is looking more challenging.

The head of the Australian Energy Market Operator, Daniel Westerman, has warned the level of investment in renewables is not nearly enough to meet future targets.

The head of the Clean Energy Finance Corporation, Ian Learmonth, has also said that investment in renewables is well behind what’s needed.

Former Chief Scientist, Dr Alan Finkel, says what we have now in renewables infrastructure “has to be scaled up by a factor of 20”.

It will take “untold miles” of highvoltage transmission lines to service the new dispersed networks.

“Think forests of wind farms carpeting hills and cliffs from sea to sky. Think endless arrays of solar panels disappearing like a mirage into the desert.”

This Finkel vision will be disconcerting and disquieting to many people. It is possible that community concerns about these developments will result in lower investment approvals than have been envisaged in meeting overall targets.

If investment levels continue to track below what is necessary, the result will be upward pressure on prices. Higher electricity prices would be of great concern to consumers and businesses. It could be the case that prices rise to the point where the government is forced to abandon its targets. The government may not want to think that such an outcome is possible but the assessments being issued by respected figures behoves a serious contemplation of these challenging scenarios.

So what should the government do about it? Here is one important thing: the government should rethink the ban on nuclear energy.

The availability of nuclear energy may end up being the difference between Australia meeting its emissions reduction targets in an affordable way, or failing those aims.

It may be that nuclear energy is not commercially viable right now, but it’s possible that future price rises from other electricity sources make it viable in the future.

Rather than be potentially caught out with a diabolical problem down the track, either failing the emissions reductions targets or making conditions intolerably painful for businesses and consumers in meeting them, the government should look at removing the ban on nuclear energy to mitigate that possibility.

Rather than making an assumption that nuclear energy in the future will be economically uncompetitive, why not remove the ban and allow the market to decide the commercial viability?

Given the stakes involved, accepting that nuclear could become commercially viable seems like a very simple but obvious way to prepare for uncertain futures.

Published in The Daily Telegraph, The Courier-Mail and The Advertiser (Adelaide) on August 17, 2023

Legislating for higher wages will always backfire

This opinion article by Australian Chamber of Commerce and Industry chief of policy and advocacy David Alexander was first published in The Australian on Wednesday 23 November 2022.

From time to time different governments around the world will feel frustrated that the wages of their citizens are not high enough, so they reach for the big lever – legislation. This is what the Albanese government is proposing in Australia: “Get wages moving” by changing the law. Force wages negotiations away from enterprises and give government appointees and unions a bigger role.

Legislating for higher incomes sounds so easy. So obvious. Just change the law and watch wages rise. What could possibly go wrong?

Most people haven’t studied economics, but they can sense this solution just sounds a little too magical. If legislating to raise wages is the solution, then let’s legislate for even higher wages. Heck, let’s legislate to engineer super-high wages across the land.

Things obviously don’t work like that. The advocates for legislating higher wages are clearly neglecting to mention some important downsides.

Let’s take a look at those downsides by stepping through what happens when governments decide to legislate to increase wages.

Here’s what happens in the short term.

Well, some businesses will be forced to put up wages, because that’s what the new system preordains. But other businesses will lay people off because they can’t afford to pay those wages. The loss of those jobs, and the eradication of those wages, are clearly significant downsides.

Businesses have just lost control of a key element of their business, making them less able to adapt to the infinite variety of consumer demands. If your business model was catering for budget-conscious families using lower-cost labour to provide lower-cost products, for example, your business model has just evaporated. This forced inflexibility is an immediate drag on innovation and economic growth.

As time goes on the second-round effects kick in.

The government has just induced a decline in profitability of running businesses, so investment in the economy is going to decline. This is the silent killer.

Businesses give up on their next project, buildings don’t get built, crops don’t get sown, mines don’t get dug, computers don’t get upgraded, research and development dries up, and along with this reduced activity the demand for workers declines.

Reduced investment means fewer jobs created, higher unemployment, and downward pressure on wages. With a crumbling economy even government-mandated wage increases break down over time. The weaker economy becomes the context in which future wage setting is made.

This was the case with countless failed utopian projects throughout the 20th century. One of the striking outcomes of these experiments was that the legislating-higher-wages approach would ultimately end up with lower wages.

The net effect of making the economy less attractive to invest in is to depress wages, notwithstanding what the law says.

The idea that legislating higher wages ends ultimately with lower wages may seem like a paradox, but it really just reflects the unsurprising fact that poorer countries, one way or another, produce poorer wages.

The way forward on wage progress is to set aside magical thinking and focus on the very real channels of growing incomes across the whole population.

Real, substantive wages growth can come from numerous sources, from workers skilling up to attract a wages premium, to innovative companies finding more productive ways to operate.

For government, policy settings need to encourage investment to maximise the “bidding war” for workers that helps drive wages growth. Encouraging investment means keeping tax levels modest, fostering competition, minimising government risks to investment, allowing pay to reflect productivity and creating an environment in which people want to bet on the future in Australia. These sorts of measures are not exciting, and they’re not fast-acting, but they are the tried and true foundations of solid wages growth across the income spectrum.

So far in the debate the government has provided a list of the advantages of legislating to increase wages. The natural next step will be for the government to share with the public the downsides of such a measure. Educating the public about upsides and downsides will enhance the quality of policymaking and minimise the chances of mistakes being made.

David Alexander is chief of policy and advocacy at the Australian Chamber of Commerce and Industry.