The global recession doesn’t seem to have hit hard here in Australia, for now. Still, there is a lot of media commentary and pre-positioning for the downturn expected later in the year.
There are a few interesting arguments being tossed around in the media here. Under the headline, “Welfare groups call for ‘serious investment’ in social services”, the ABC reports:
Welfare groups say the economy needs more than just a cash injection from the Federal Government if Australia is to survive the worsening global economic crisis.
Representatives from social and community organisations are meeting in Sydney with Deputy Prime Minister Julia Gillard.
The president of the Australian Council of Social Service, Lynne Hatfield-Dodds, says the Government needs to look at measures such as increasing the minimum wage to ease the plight of workers.
The general call for improved social services makes sense if you think unemployment is rising. But increasing minimum wages? That can see more firms considering layoffs as a way to survive. If anything, you need a framework that allows wages to adjust down in response to lowered demand, to help stave off layoffs. Its a crappy thing to point out, but labor market rigidities can actually exacerbate layoffs in a downturn.
Indeed, in The Australian, Lenore Taylor and David Uren report that there may be something of a good old-fashioned corporatist deal in the works, with a suggestion that low-income tax cuts be put on the table in an effort to persuade the Fair Pay Commission that only small increases in the minimum wage are required.
And by the way, this is an interesting wrinkle on the standard corporatist argument. Union density in Australia is now down to about 10-15% or so in the private sector (ABS estimated the rate to be 14% in August 2007). The standard argument is that high union density coupled with a Labor government can deliver wage restraint in a downturn, so as to bolster the impact of Keynsian counter-cyclical pump-priming by the state on employment. Take away the unions, and that part of the argument disappears. Ah-hah, but perhaps institutions generating centralized wage fixing like the Fair Pay Commission play a functionally equivalent role.
The other interesting argument is the status of income tax cuts, which (from memory) didn’t play a role in the standard corporatist argument.
Last thought on this for the day, coming after a quick conversation with USSC CEO Geoff Garrett here at USyd: monetary policy in Australia still has considerable room to move (downwards), whereas the US Fed has no more room to play in. Hence, the US stimulatory story is all fiscal, whereas Australia has more weapons on the table for the time being. Lower cash rates here couldn’t help an already weak Australian dollar (trading around 0.66 USD for a while now), but perhaps isn’t crazy in terms of stimulating demand for Australia’s commodity exports. With so many Australians on variable rate home mortgages, lower interest rates certainly help at the margin when, say, overtime dries up or workers get bumped over to part-time, reduced hours, etc.