Wages, prices, profits and interest rates

For labour movement activists this article by Greg Jericho in today's Guardian online is a very useful description of some of what is going on in the interplay between wages, profits, interest rates and prices. The ACTU claim for a 5.5% increase in all minimum wages is fully justified.

I have 4 observations about it for your consideration.

First, to its credit, the description suggests that the purpose, or effect, of the interest rate decisions by the Reserve Bank, is to protect profits at the expense of wages. At last, we have a mainstream commentator at least trying to explain why profits are king. Although this is a step forward, he still does not nail the character of the relationship. Wages-profit shares of GDP are useful but are not as useful as the rate of exploitation. The rate of exploitation, profits relative to wages, is high and rising. This is better because workers are not onstrained by a sense of responsibility to employers in shaping their wages and other demands.

Second, bringing in the sales - wages relationship is illuminating. But, why not also the sales - profits relationship? More on this in another post.

Third, mainstream commentators are puzzled that the law of the market, supply and demand, is not working when it comes to wages. Demand for labour is high but wages are not rising. The puzzle is explained by a failure to recognise, or probably endorse that wage levels are determined by 3 main interacting factors. Yes, demand for labour is one of them: that’s why usually the employers want and need a reserve workforce willing to work for less than what they are currently paying. But there are 2 others. One is the legal framework and how effectively it prevents workers from using collective action to bargain for a better deal for both wages and conditions. That is the "broken rules" of the Fair Work Act 2009. The third is the most subjective: the combativeness of union members and whether this flows to non-members. In the main, union members are not very combative at the present time, despite important mini outbreaks here and there, as we see now, for example, with some public sector workers, aged care and child care workers.

Fourth, significantly, not entirely, decisions union leaders make about the strategy to raise wages also shape combativeness. Those decisions are shaped by, and also reveal, their understanding of how the economy/society really works. The first big decision is: should we comply or defy (break) the "broken rules"? The modern labour movement complies with the legal framework by embracing the rules of competitive bargaining, usually justified by a historically low union density, or the penal costs of breaking them. The embrace of enterprise bargaining is an entrenched addiction still. This pushes aside how a mindfully crafted defiant class-based strategy might raise union density. Parliamentary rescue trumps a new industrial strategy based on the core rationale for unionism: to take wages and conditions and safety out of competition. Yet, industrial defiance from a minority, not compliance, created mass unionism.

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