HR Nicholls Lunch Time Forum
How can the Labour market Help the SA
Economy?
Bert Kelly Research Centre
Adelaide
22 October 2014
Presenter: Malcolm Bosworth
Introduction
• SA faces difficult economic challenges
– Industry assistance is no answer
• Maintaining protected industries e.g. cars has failed for
both SA & the nation
• SA must attract efficient industries non-reliant
on protection
– Shipbuilding needs to compete without depending
on defence procurement preferences
• Privatisation/maximum (transparent) preference
margins possible reforms
Economic Framework
• The plight of Club Med economies in the
Eurozone provides parallels to Australia
– Losing competiveness with no ER to maintain it
• Higher ER in Euro than otherwise hurts exports & importcompeting firms
– Must undergo meaningful structural adjustment
• Includes lowering real wages
• Strong economies e.g. Germany gains
– Lower ER than otherwise benefits exports & importcompeting firms via enhanced competitiveness
Australian Situation
• Single currency has similar effects
– Weaker states e.g. SA, TAS higher ER than if they
had their own currency
– Stronger states e.g. WA, NSW have lower ER
• Highlights the plight of weaker states trying to
compete internationally & domestically with
stronger states
– Weaker states must (and be able to) economically
adjust
Enabling States to Compete
• Uniformity among states in many areas make sense
e.g. transport BUT
• In some areas its problematic & hampers weaker states
from competing with stronger states & adjusting
structurally to compete
– especially where nationally policies reflect capacities &
performances of stronger states
• State competition must be healthy not distorting
– Avoid competing with state subsidies, incentives etc
• Recent focus by SA Government largely aspirational
– marginal effects & distract from needed reforms
Policy Response
• SA Government should focus on deregulation
to enable businesses to better compete
• Labour market key, especially minimum wages
– Economic case for minimum wages weak
– Trade off higher unemployment for higher wages
• Any national minimum wage should be
– Not too high to distort labour market
– Differ across states to reflect economic conditions
• initially state minimum wages
National Minimum Wages
• High by international standards at $641/week
– 56% of national AWEs
– Junior 17 yo = 57.8% of minimum wage
National Minimum Wages
• State impact varies widely due to varying
AWEs
– MW as % of AWE highest for TAS (66% & SA 64%)
– Lowest for ACT at 45%
Policy Reform
• Strong economic argument to
– Reduce overall national MW as a share of AWE
– Vary MWs to reflect lower AWEs in weaker states e.g.
SA
• Recommended by CA
– Reduce real national MW until it reaches 44% of
national AWE over 10 years
– Lower real state MW to reach national level or, if
lower, 44% of state’s AWE by 2023
– National MW estimated to be by 2023 $722 in ACT,
NSW, WA & NT; $681 in VIC, $702 in QLD, $637 in SA,
& $622 in TAS
Projected National WW by State
Conclusion
• Deregulation of labour market could play an
important role in re-vitalising SA economy
– Australia & states becoming a high cost economy
– Reforming national MW could ease wage
pressures nationally & in SA if allowed to vary
between states to reflect economic conditions
• Such reforms offer more sustainable potential
growth opportunities than failed protection