According to Treasury, wage stagnation has nothing to do with the government — workers just need to go and find businesses that pay higher wages.

Wouldn’t it be great if the whole problem of wage stagnation could be explained away as no big deal? As though the flat or in some cases negative real wages growth of recent years was merely a passing phase, not evidence that something had gone structurally wrong in neoliberalism?

But better yet if it could be blamed on workers themselves — which is exactly what Treasury is now trying to do with its latest work on the issue, the subject of a speech yesterday by deputy secretary Meghan Quinn (a rising Treasury star, making a couple of speeches in the past month). The substance of the new Treasury working paper is that there’s historical evidence that more productive firms pay higher wages, so if workers don’t move to high-productivity firms as much, then there’ll be lower wages growth. They claim there’s evidence that lately Australian workers have been less “fluid” in moving from low-productivity to high-productivity firms.

This, according to Quinn, solves the problem of wage stagnation, by filling a significant gap between actual wage outcomes and what other economic factors can explain about it. She says that “a sizable portion of the decline in nominal wage growth from an average of 4% in the five years leading up to the global financial crisis, to an average of 2.1% in the past five years, appears to reflect standard macroeconomic mechanisms”.

(Call us nitpicky, but these “mechanisms” that are to blame for most of the wage stagnation of recent years don’t seem to have been so “standard” that Treasury was able to avoid being wrong again and again in its wage growth predictions for most of the last decade — so much so that the downgrade in WPI forecasts at MYEFO has become as much of a budget ritual as the lockup and the budget night fundraiser. But anyway.)

The gap-filling explanation of lack of worker “fluidity” is ingenious isn’t it? It gets the government completely off the hook. None of this “deliberate feature of the industrial relations system” stuff — wage stagnation is because Aussie workers won’t get off their backsides and get jobs at more productive companies. If only they were a bit more entrepreneurial, they’d have higher wages! Better yet, they’d be more productive as well — thus explaining why Australia’s labour productivity growth in recent years has slowed to halt.

Now, to be fair, the Treasury authors admit the evidence for this is limited. They exclude utilities, education, public administration and safety, health and financial services from their analysis — which is slightly problematic since that’s pretty much the top five sectors for wages growth in recent years. And they acknowledge that there is “… little evidence of a growing divergence between wages paid by firms at the top and bottom of the productivity distribution … The ratio of wages paid by the most productive firms to those paid by other firms has been broadly stable over the sample.”

Moreover, what happens if there aren’t enough productive firms to move to? “Declines in firm entry rates over recent years are suggestive of a decline in business dynamism and efficient reallocation,” they admit. There’s also a chicken-and-egg problem. What if more productive firms, like other firms, have become less willing to offer wage rises, deterring workers from shifting? Wage stagnation might be the reason why fewer workers are moving, not a result of it.

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The Productivity Commission also recently looked at the link between wages growth and productivity and, as it turns out, considered this idea of labour “fluidity” too. The PC was far less enthusiastic about it:

There is good evidence of wage pressures through this mechanism for the United States and some OECD countries. However, ABS data suggests small changes in the share of people with less than 5 years tenure with businesses from 1972 to 2018, and no change since 1994. That said, the employer-to-employer transition rate did fall during the recent period of wage stagnation, while the frequency of wage changes in the economy has fallen …

And the RBA has considered the idea, but as governor Philip Lowe pointed out, workers may not want to change jobs because they’re feeling more economically uncertain — something that wage stagnation contributes to.

But it’s interesting, isn’t it, that a Treasury now run by a Liberal party apparatchik in Phil Gaetjens should produce a half-baked theory that just happens to excuse the government from any role in the six years of wage stagnation over which it has presided.