No trade-off needed between superannuation and wage growth

By Grace Ormsby

November 21 2019
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The very real issue of record-low wage growth would not be fixed by canning planned increases to compulsory superannuation contributions by employers, a new study has indicated.

In a new research paper from the director at the Australia Institute’s Centre for Future Work, Dr Jim Stanford outlined that “the assumption of a one-to-one trade-off between superannuation contributions and wage growth is not credible”.

Dr Stanford, who is also an economist, began by critiquing arguments against the scheduled superannuation guarantee increases, which are expected to gradually move towards 12 per cent in five annual stages beginning 1 July 2021.

Former prime minister Paul Keating, the man behind the advent of Australia’s compulsory superannuation scheme, has previously publicly slammed a number of politicians who voiced opposition to such increases.

Dr Stanford argued that “proponents of this view are exploiting widespread concern over the current historically low pace of wage growth, to argue that workers should forgo promised improvements in superannuation to supplement their (disappointing) current incomes”.

Cancelling planned increases to the superannuation guarantee would not shift income from employers to workers, he indicated.

Instead, it would almost certainly lead to “even further reduction in overall labour compensation relative to GDP”.

The paper drew its conclusions from economic statistics, and found that on average, wages are more likely to accelerate and grow at a faster rate when the superannuation guarantee rate was increased.

“More realistically, when wages are understood as the outcome of normal and ongoing regulatory, institutional and bargaining processes (rather than determined by competitive market clearing), there is no reason to expect any automatic trade-off between wages and superannuation contributions,” the report said.

This is when Dr Stanford made the statement that “record-low wage growth will not be ‘fixed’ by giving up planned increases in compulsory superannuation”.

Instead, he pointed out that Australians who are concerned by the real issue of weak wage growth should support measures that would directly tackle that problem.

On this issue, the economist called for a higher minimum wage, an expanded mandate for Modern Awards, the revitalisation of collective bargaining, and the alignment of fiscal policy with the goal of stronger wages.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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