Sydney Morning Herald
9/11/98

Economists condemn
US-style jobs scheme

By Mike Seccombe,
Stephanie Peatling and AAP

Leading economists yesterday condemned a confidential Government-commissioned report that suggests 900,000 jobs could be created by slashing wages and deregulating the labour market, saying such reforms would increase inequality in Australia.
Mr Michael Keating, a former head of the Prime Minister's department, said to claim that simply by adopting a US-style labour-market system Australia could create an extra 900,000 jobs was "a very heroic assumption".
"We put a lot of weight on equity, which is not a feature of the United States system," he said.
"Income distribution in the US is much more unequal than it is here, and getting worse."
The report, prepared by consultant Mr Des Moore, director of the Institute for Private Enterprise, at the behest of the Minister for Employment and Workplace Relations, Mr Reith, endorses the idea of providing tax credits for the low-paid to compensate for reduced wages.
This idea was part of the Labor tax package at the last election, and also featured in another, less radical, plan to create employment, put forward recently by five of the nation's leading economists, including Mr Keating.
The "Five Economists" plan, however, only advocated replacing future cost-of-living wage increases with tax credits.
Another of the authors of that proposal, the director of Access Economics, Mr Chris Richardson, said the Moore proposals might lead to greater employment in low-skilled occupations, such as the wholesale/retail sector, transport, construction and some manufacturing industries. But that was not the area which had driven the huge job growth in the US in recent years.
"And the Government could not afford much by way of tax credits, so it would be extremely difficult to fully compensate people whose wages had fallen," lie said.
The Leader of the Opposition, Mr Beazley, also savaged the plan, saying the tax credits idea should not be used as an excuse for "murdering wages".
"To introduce a tax-credit system to compensate for the impact of suppressing minimum wages, while you're at the same time imposing a GST, would be an obscenity," he told Channel 7.
Mr Moore said in his report that Australia's welfare system bad made the need for a minimum wage safety net and a centralised industrial relations system irrelevant.
If Australia had the same proportion of its working-age population employed as in America, an extra 900,000 people would be in work.
Mr Reith said the report had been commissioned because the Labour Ministers Council felt there was a need for greater discussion about the deregulation of the labour market. But it was not policy, and neither he nor the Government agreed with all aspects of it.
"It is a very strong report to the Government, it is not the Government's policy," Mr Reith said.
"He would have no minimum wages for young people. We are saying we ought to retain the existing system of award rates for young people set by the commission.
"I am not in favour of reducing people's pay."
The report found an unlikely ally in Australia's peak welfare group, the Australian Council of Social Service (ACOSS).
ACOSS president Mr Michael Raper told ABC radio any proposal to reduce unemployment was worth exploring.
"But you have to be cautious," he said. "We'd need to be certain that this proposal isn't just another round of industrial relations reform dressed up as a king-bit solution to unemployment - especially as the link between lower wages and creating more jobs is by no means proven."