HR Nicholls Lunch Time Forum How can the Labour market Help the SA Economy?

1. 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

2. 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

3. 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 & import-competing firms • Must undergo meaningful structural adjustment • Includes lowering real wages • Strong economies e.g. Germany gains • Lower ER than otherwise benefits exports & import-competing firms via enhanced competitiveness

4. 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

5. 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

6. 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

7. National Minimum Wages • High by international standards at $641/week • 56% of national AWEs • Junior 17 yo = 57.8% of minimum wage

8. 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%

9. 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

10. Projected National WW by State

11. 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