Scott Morrison says low unemployment will cause wages to rise. He’s wrong. Here’s why.

Will low unemployment automatically cause wages to increase, as Prime Minister Scott Morrison claimed this week?

Don’t count on it, says economist Jim Stanford.

Prime Minister Scott Morrison set tongues wagging this week with a confident pledge that Australia’s unemployment rate could have “a 3 in front of it” this year. It’s a theme that will loom large in his campaign for reelection later this year.

For almost a decade now, Australia’s wage growth has stagnated far below normal benchmarks. Annual wage growth since 2013 has averaged barely 2% per year — barely half the traditional pace. Real wages have hardly grown at all during this time, despite rising labour productivity and strong business profits.

As Jim Stanford points out: “Wages are not the automatic outcome of supply and demand forces.” This means that low unemployment doesn’t cause higher wages. Rather, wages increase (or decrease) because of factors like job (in)security, collective bargaining and (worsening) cost of living. What does this mean? To deal with wages growth, we need to deal with job insecurity and fix the broken collective bargaining system.

Every year since the Federal Liberal government was elected in 2014, they have predicted that wages would increase rapidly. They’ve been wrong for 8 years in a row. And that’s no accident. The Federal Liberal government has said that low wages growth is a deliberate part of their “economy architecture”. Scott Morrison and his government don’t want higher wages and they’ve spent the last eight years helping big business to suppressing wages.

The best way to get a pay rise is to join your union, not hope that wages will magically increase as Scott Morrison says.