Low wages growth is undermining financial stability, curtailing economic growth, driving people into dangerous indebtedness, deepening inequality and undermining the Australian social compact built on the principle of a "fair go".

That's the conclusion of a new book produced by some of Australia's leading labour market scholars and researchers, The Wages Crisis in Australia.

"The impact of stagnant wages goes further than subdued consumer spending. The resulting precarity in household financial stability is … a potentially more dangerous consequence of flatlining wages," argue the book's editors, labour law academics Andrew Stewart and Tess Hardy, and economist Jim Stanford of the Centre for Future Work.

"Wages stagnation [is] contributing greatly to rising financial fragility."

Australia's household debt levels — among the highest in the world — have received a lot of attention, but there has been less focus on "the income of households, the crucial determinant of their capacity to carry debt", the authors said.

"The deceleration of wages … both compels households to borrow, while simultaneously undermining their ability to service their resulting debts."

Inequality is increasing as the share of national income going to wages shrinks and a greater share goes to investment income and business profits, the book argues.

"Facing stagnant pay packets, rising prices for essentials and pervasive insecurity, many Australians are losing confidence that they will ever share fully in the fruits of economic progress," it says.

The damage "could extend well beyond the economy, and eventually jeopardise the stability of our social and political institutions".

"The rise of divisive and xenophobic ideas in many communities, and the fragmentation and extremism which now characterise much political discourse, can at least partly be understood as consequences of the loss of confidence among Australians that they have a realistic opportunity to share in future prosperity."

'Market forces alone will not solve the problem'

Reserve Bank governor Philip Lowe has acknowledged the existence of a "wages crisis" and warned that low wages growth is undermining a sense of "shared prosperity".

But, in common with many economists, most employer advocates and Prime Minister Scott Morrison, the central bank argues that market forces will resolve the problem over time.

The authors disagree.

"Market forces alone will not solve the problem of faltering wages growth," they argue.

It's a view shared by all of the book's contributors, who contend that there has been a structural shift in workers' bargaining power.

It advocates a reform agenda involving new forms of regulation, few of which are likely to be supported by employer associations or business lobby groups.

In common with the ACTU, the book advocates an end to the "near-exclusive orientation around enterprise-level bargaining" with greater scope for industry-level collective bargaining and pay settlements.

This is certain to be vehemently opposed by business groups who argue it could undermine productivity and flexibility that arises from agreement-making tailored to specific firms.

The editors acknowledge that industry bargaining "raises many important and complex issues" but argue that, in the short term, the existing enterprise bargaining system could be complimented by a new stream of industry-level bargaining where the Fair Work Commission "is satisfied that there are practical constraints on the ability of employees and their employers to bargain at the enterprise level".

Governments should lead the way to bigger pay rises

The book calls for the "ending of wage suppression by government", the largest employer in the country, with strong influence also on the wages paid in various sectors that rely on government funding or contracts for their earnings.

"The contradiction between the hand-wringing of political leaders over the disappointing trajectory of wages, and their own conscious actions to directly suppress wage growth within such a large and important section of the labour market, is both galling and counterproductive."

Ways to stop companies dodging or outsourcing "employment responsibilities" by hiring people in sham contracting arrangements or categorising them as self-employed small business people are also canvassed in the book.

It says the definition of "employee" should be broadened by legislation so that "anyone who agrees to provide their personal labour should be presumed to be an employee unless there is clear evidence that they have a genuine independent business of their own".

"Any policy response needs to be multi-faceted," the book acknowledges.

"There is no silver bullet that can restore 'normal' wages growth on its own."

Stephen Long was a participant in a seminar at Adelaide University earlier this year, which gave rise to the book.