Australian wages alert
Bruno Altin recently asked a very interesting question about Australian wages on my Facebook page. Here’s his question, and my response…
Q: Roger, do you think that wages in Australia will fall to be comparable to the rest of the world? And if yes, do you also think Australia will see a period of unprecedented recession like Europe is experiencing due to lower wages and high debt levels? Thanks and keep up the good work.
A: Hi Bruno, I think we need to cap salaries and wage growth expectations because our desire to be paid more and more is the source of persistently low utilisation rates, productivity and competitiveness. One way to do that is to allow people into the country who are willing to work for less, willing to do the jobs Australians think they are ‘too good’ for and allow them to make their own way because they can see it for the opportunity that it is.
I think about the many Greek, South African, Indian and Chinese people I have met who said they came to Australia with just a few dollars in their pocket and the shirt on the back. These people, with a genuine hunger to better themselves are now running businesses employing thousands of people.
As Stefano Manfredi told me this week, we have poisoned any chance of allowing more people to emigrate here and improve our competitiveness because we have politicised our border policy.
If we keep our gates closed we will eventually have to sell the farm.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
mitch mcquitty
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Indeed the US has lower labour rates due to lower wages but alot of lower paid people have 3 jobs to just get by. Is that really the sort of society we want? Also i am a shift worker and the only people who think you should not get paid extra for working weekends, public holidays or night shift are the people who don’t have to do it and have never done it (do as i say not as I do) When you start a small business most people understand that there will be long hours, but the pay off for this is the possibility of greater rewards. Very few do it for the greater good of society. Nothing burns me more than when you read about a questionably performing CEO getting $50000 per week saying that a night shift worker on $30 per hour is getting paid to much. A CEO gets paid alot because they have studied and worked hard to get where they are, a shift worker gets paid more because he is awake at 3 am in the morning working when everyone else is sleeping!
Roger Montgomery
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I hear you Mitch but the reality of the world is that not everyone will be rewarded equally so We need to do more to share the spoils of success with the less fortunate. One way to do that is to first help those with the ability to create vast wealth and then we need less regressive policies to help redistribution. Singapore has done that with affordable housing and cheap loans etc etc..
Fletcher
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Roger, as regards the migrant issue, you might be interested to learn that there are already highly skilled and qualified immigrants and repatriates in the country who are simply ignored by the jobs market. The standrard answers are ‘not a cultural fit’ or ‘not enough Australian experience’, even to those with Austtalian and international professional qualfications and track records. Accordingly, the path forward is not just one of wage price but structure of the jobs and professional markets and the barriers to entry which have seen protectionism trickle down and entrepreneurialism snuffed out. As a result, the conversation around lower wages and bringing competitiveness to the Australian work place and businesses is never commenced.
Roger Montgomery
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When I meet qualified doctors and engineers driving taxis I am completely miffed. Our xenophobic immigration policies don’t end at our borders they begin there.
Yavuz Atasoy
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How about Australia start eliminating or reducing penalty rates for holiday / weekend work? There are people who want to work on the weekends / holidays, but cannot because of high rates (because it limits the jobs on offer, which is dependent on business owners’ decision to open or not his / her business at all).
Roger Montgomery
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Yes. The dialogue in the post was in response to a post calling for exactly the same thing. In their wisdom the Fair Work Commission said they could see no evidence that any more people would be employed if those rates were lowered!
Sue
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When I started working for Bank of NSW in 1973 (Westpac now) I earned about $66 per fortnight BUT I remember getting a bonus due to “profit sharing”. I don’t think any company execs should get a bonus without it being “shared’. If everyone got the same % of their income as a bonus then the execs would still get more, but the bludgers should get less or nil, giving them an incentive to “pick up their socks”. Should be good for productivity, but they were different times ….
Roger Montgomery
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Thought-provoking Sue
david howard
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Closing the borders would have a negative effect on Australia in the same way as a business that does not recruit new talent. The key to recruiting people for Australia is to recruit those that will most benefit Australia.
Relatively high wages (and generous social safety net) may not be the ideal solution in a business sense but there are benefits to society when there is less poverty and desperation because of reduced crime etc.
Australia wages are paid in Australian dollars. The Oz has dropped about 13 cents from just a short time ago. This means that Australians have taken more than a 10% wage cut, the safety valve of a floating currency is a benefit that countries like Greece do not have.
As the taper begins I think we may see the $US rise. If this happens this will further reduce the Australian dollar and so Australian wages.
PS
A falling dollar may also benefit
-industries selling products priced in $US
-businesses that grow sales with inflation eg Woolies
Roger Montgomery
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Good points David.
john oshea
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I can’t understand how bringing in more people will help increase wages unless they are more skilled than our current workforce. Surely the secret to maintaining our higher wages is our ability to provide higher productivity than other countries.
Why find more truck drivers when you can design the roads to avoid use of traffic lights and thus increase the km/hr travelled while reducing fuel consumption for trucks? If you have the right road network and the right truck then your existing fleet of trucks will do more work per hour providing a better return per hour on capital employed. If you develop a system of driverless trucks like Rio Tinto then we need even less truck drivers but each truck driver we have moves multiples of freight per hour when compared to our overseas competitors. Our labour limitations have forced us to find very unique alternatives and solutions for improving productivity with particular note of farming and mining industries. These solutions allow Australians to create more wealth (and earn more) per hour of labour than most countries in the world. The key to earning more as an individual is creating more gdp per capita and more profit per capita. From a purely economic standpoint, the only way that new emigrants are going to improve our average wage per person is if they are skilled with knowledge or abilities that allow them to create more wealth per hour of work than current Australians. The fact that you note many emigrants you know are very successful indicates to me that our policy is in-line with the economic goal of ensuring emigrants add wealth to Australians. If we let everyone in without restriction then my thought is that we would reach the eventual outcome of market equilibrium and wages would drop to the world average as our average labour skill drops and our competitive advantages of low population density are eroded.
Conversely, if we invest our money carefully into things that provide a great return on investment then we will continue to outperform our peers and earn more per capita. For example (a very hypothetical situation here), if we invest in universities such that all Australians attended and we got a return on investment of 15% for 30 years then we modified healthcare such that we could extend the working life from 30 years to 50 years at a cost of 2 years income per Australian then we would earn more tomorrow than we do today. However, if we invested our money into booze store gift vouchers of $1,000- per year for every person to boost the economy through increased sales we would get very good sales results through the year when compared to the year without gift vouchers, but over a longer period we would all be happy drunks that earn very little compared to today as we progressively earn lower returns on investment.
Roger Montgomery
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Brilliant John.
Robert Pearson
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Australia has very limited water resources.
The excessive growth of the main cities has also removed lots of good agricultural land.
Eventually we will reach a sustainable bound.
Some would probably say we have already exceeded this.
Roger Montgomery
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A valid counter argument levied at the demographers and economists
komal.pandya.940
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Indeed a very good point…When I migrated to Australia 2007′ – I was really surprised by the wages given to non-revenue generating positions like – support functions that included assistants, administrative staff, this may also include information technology, Help you desk staff, receptionists etc…
Hytherto, I was of the opinion that revenue generating staff – like sales & distribution – would be among the best paid jobs, as it is worldwide…Contrary to my opinion I learnt that there was no difference between – a waiter at coffee shop, & other professionals… Zig Zaggler – said that sales person earns higher than CEO or any other personnel but he discounted “AUSTRALIA” in the equation…
I still get amazed by salaries that government employees are paid…As when you sit across – once your mind starts thinking – hey I think I have better skills than how come your salary is way higher than me?
To conclude – yes Australian Salaries in general are High (and they are much more higher) – but this leads us to vicious circle that starts from – higher salary – higher lifestyle- higher expenses- higher leverage (Investment property is tax effective) & hence higher INFLATION mate!!! which is not good for any economy…
Roger, your video that depicted – ON Sale – if we continue with these higher salaries (which is one of the biggest expense for companies) their may be potential for a scenario to sell those companies or assets to outsider(s) who in-turn would manage to bring their own labour force that could be cheaper…
Scenario 2 could be where Companies starts putting their foot down saying that this is what I can afford to pay you…take it or leave it!!! I think thats what is happening in WA…
Scenario 3 could be where fixed rates are lower but variable rates are higher so you would be paid subject to your putting up extra skills efforts etc…
Its just depends whether one looks at internal or external resolution(s)…
Roger Montgomery
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Good thoughts Kamal.
Julian Watt
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Does your view on wages follow through to senior executive remuneration?
Australian execs are raking it in compared to their peers in Asia. Difficult to put the case to the masses when the 1- 5% are doing so well.
Roger Montgomery
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Of course, especially where profitability is poor. When execs reduce ROE hurdles so that they can achieve their bonuses (Wesfarmers) it must lead one to believe they are being rewarded for time and effort rather than performance.
Asher Jebbink
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What if, hypothetically, border restrictions were lowered and it “allow[ed] people into the country who are willing to work for less”?
What happens to the thousands, tens of thousands, (hundreds of thousands?) of people who already live here and then do not have a job. Even more people added to the welfare list?
I agree there are issues but I don’t think flooding the market with cheap labour will solve anything.
Roger Montgomery
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Seems to work in Singapore Asher, and has helped the US and Europe maintain lower labour rates. Eastern EUropean migrants in the case of the EU and South AMercian in the US as well as Malaysian, Indian and Others for Singapore have helped improve productivity. Lower salaries would achieve a great deal. We need to lower costs (labour and taxes) to boost profits to incentivise the commencement of new businesses that add value to our exports will lead to an improvement in our current account, which in turn will reduce our reliance on a capital account surplus. The latter is achieved by encouraging foreign “investment” (read selling our farms). So lets explore the differences in policy…
Not everyone is an entrepreneur – some people will never start a business – but we must do what we can to encourage those that are wired that way to start businesses and employ people. Cheaper labour rates and lower taxes are simple solutions. yes the social balance we are used to will change but we can either be in control of that change or find it will change anyway and it will be in someone else’s (or someWHERE else’s) control.