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How would Job Guarantee wages be set?

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It is Wednesday so some snippets and some music – sad music this week because it signals the death of one of the great pioneers of Jamaican music last week. I am holding a Mini-Music Festival today – right here on my blog. Join in an celebrate a legend. But a few economics matters first pertaining to the Job Guarantee and the nonsensical arguments I have been seeing in the media about it being a system of enslavement and not better than a system that forces workers into unemployment.

Job Guarantee wage setting in Australian context

I get sent various screenshots from Facebook and other social media debates about my work. I don’t solicit them nor particularly welcome them.

I have formed the view that much of the ‘conversation’ on Facebook is not helpful to advancing an education in Modern Monetary Theory (MMT).

As an example, last week, apparently there was a debate on Facebook about how Job Guarantee wages would be set.

It follows some stupid Op Ed (the Ed bit being missing) articles claiming that the Job Guarantee would be oppressive and not allow workers to bargain for their wages because the government would just dictate the levels.

The debate I saw parts of then launched into this topic reaching all sorts of conclusions that were spurious and venturing that the MMT originators really hadn’t thought any of this out etc. Ad nauseum.

We have written about this in the past and a moment’s research would have solved the question in the first place.

In Australia, we have a judicial process, independent (largely) of government, where wages are set.

There is some collective bargaining and the conservatives tried to increase the incidence of individual bargaining (because they knew workers would be screwed given the power imbalance).

Further, trade union membership in Australia has sharply declined since the 1990s.

The Australian Bureau of Statistics reported that in August 2016:

16% of full-time workers and 12% of part-time workers were trade union members.

Between 1976 and 2016, the number of trade union members decline from 2.5 million to 1.5 million, and given the labour force growth over that period, the density rates fell from 51 per cent to 14 per cent (Source).

This graph is taken from that cited article provided by the Parliamentary Library of Australia (October 15, 2018) – Trends in union membership in Australia and tells the story.

So the idea that most Australian workers are represented by a union which then achieves wage outcomes for them is far fetched.

The reality is that the Fair Work Commission and its predecessor Conciliation and Arbitration Tribunals set the minimum wage and the award wages that flow from that setting.

The – National Minimum Wage Orders – are set annually via a judicial process.

The decisions of the Fair Work Commission cover all workers who are part of the Australian national workplace relations system. Some workers are covered by the state workplace relations systems, which work in a similar fashion to set specific wage levels.

Organisations like the Australian Chamber of Commerce and Industry, the Australian Industry Group, the Australian Council of Social Service, the Australian Council of Trade Unions, the Australian Government, and State and Territory Governments – all make submissions to the process and can argue their cases at hearings.

I have been involved in these processes regularly on behalf of the unions.

The so-called Minimum Wage Order is then applied to minimum award wages across the plethora of award wage agreements that are set in the Commission.

Only workers who have achieved an enterprise bargain that has not fallen below the relevant judicial award are not covered by the decisions of the Commission.

Approximately 2.2 million workers are paid the minimum wage or get adjustments in line with the minimum wage decisions from the Commission. Total employment in July 2020 was 12.5 million.

So the Job Guarantee wage would not be a government dictate and workers through their relevant representatives would have the ability to influence the decisions of the Commission, just like a significant number of workers in Australia.

The idea that these other workers enjoy the capacity to set their own wages and Job Guarantee workers would not enjoy that capacity is ludicrous once you understand how wages are set in Australia.

Further, while the Job Guarantee wage would represent the minimum wage in Australia if such a program was introduced, I always emphasise that it would be a socially-inclusive minimum, which would be much higher than the current federal minimum today.

That would mean changing the legislation that binds and guides the Fair Work Commission in its deliberations.

1. The Commission would have to determine an annual productivity bonus (as it did under a different guise before neoliberalism) that would be passed onto all workers, including Job Guarantee workers.

This would allow the low-paid, who have limited power to complete enterprise bargaining agreements and who work in small workplaces that may not be capital intensive (hence high productivity) to enjoy real wage gains in line with the overall capacity of the economy.

That is an equity measure.

2. In determining what ‘socially-inclusive’ meant the considerations would move beyond simple ‘capacity to pay’ arguments from employers, and, instead, take into account factors that allow a person to be ‘included’ in society – housing costs, entertainment and dining out costs, transport costs, holiday costs, etc.

Forcing those considerations would take us away from the narrow private profit considerations that dominate current wage setting and ensure that the minimum wage allowed a worker the opportunity to participate meaningfully in society.

This type of wage setting system is nothing at all like what the critics, who want to cast the Job Guarantee as workfare, have claimed we advocate.

This wage setting would be more progressive and fair than anything we have seen in the past.

The Job Guarantee is not much different to the NAIRU

Among the more absurd claims I have seen recently is that the Job Guarantee is basically workfare. I dealt with that nonsense in this blog post – Setting things straight about the Job Guarantee (July 30, 2020).

Then, last week, a ‘senior economist’ from a centre that proffers itself as a progressive voice in the Australian policy context, claimed on Twitter that the Job Guarantee was “not a real departure from NAIRU”.

An astounding claim when you think about.

I wrote to the Director of that Centre and asked him:

Are we to conclude that the position of your Centre … considers that a guaranteed job at a socially-inclusive minimum wage (well above the current minimum wage in Australia), that provides holiday pay, sick pay, special leave, statutory employer contributions to superannuation, choice of hours of work, opportunities to undertake training and formal education within the paid-work environment, and can be held indefinitely if desired, is “not a real departure” from rendering a person unemployed and forced to undertake pernicious work tests in return for a below-poverty line income support payment?

I received a reply indicating that the Director was not concerned with the Twitter claim. Thus answering my question by implication.

Go figure!

The other part of the Twitter claim was that with a Job Guarantee, “higher wage workers are laid off to enter low-wage JG”.

I pointed out to the Director that this claim defies empirical logic.

Even when official unemployment is high, higher wage workers rarely have to endure job loss.

Unemployment is typically overwhelmingly endured by low-paid, precarious workers.

And when higher-wage workers do lose their jobs they typically are able to draw on redundancy payouts, which allow them to enter ‘wait unemployment’ and see out the crisis.

The following graph illustrates what happens to unemployment rates over the economic cycle.

The data is for Australia from 1989 to 2019 (OECD database) and the rates by level of educational attainment: Below upper secondary school, Upper secondary school, and tertiary education.

These levels are matched fairly closely with pay levels.

Even during the 1991 recession, the worst downturn since the Great Depression (to that date) the tertiary educated workers (who would form the higher paying workers) only saw their unemployment rate rise to 5.7 percent and drop quickly after that.

By contrast, the least educated (and paid) saw their unemployment rates rise well above 11 per cent and hover at those elevated rates for some years.

Would the low paid workers have preferred a Job Guarantee to that situation? Almost assuredly.

Would the highly paid workers have been forced into the Job Guarantee? Most had redundancy payments and other resources.

I am finding a lot of statements about the Job Guarantee to be really ill informed and bizarre.

Read the original blog entry – including the tribute to Frederick Nathaniel “Toots” Hibbert on Bill Mitchell’s blog page.

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