This article was originally written for the members of the NSW Nurses & Midwives Association, and published in The Lamp on May 25, 2020.
Not only is it pretty nasty to suggest a freeze to the wages of nurses, midwives and other healthcare workers while they are on the frontline of dealing with COVID-19, it will also harm economic recovery and be bad for the rest of NSW.
We are deep in a recession in Australia. Things were already looking shaky after the bushfires, but protecting people from contracting COVID-19 has meant shutting down whole sections of the economy. At the moment 22% of Australians are either unemployed or aren’t working as much as they need. Sadly, things will likely get worse before they get better.
As a response to this situation, governments are telling public servants they have to share the economic burden and defer wage rises or take a wage cut. The Commonwealth and Queensland Governments have already announced they are putting promised wage rises on hold, and the NSW Government says it wants to follow suit. Because inflation pushes the cost of living up over time, even though it is relatively low at the moment, this is in effect a wage cut.
But is a wage freeze really in the interests of all Australians, sharing the economic burden of COVID-19?
While it might seem logical to spend less on some things when you suddenly have to spend more on others, an economy is not a household. In a deep recession, increased government spending has to be the engine of our economic recovery. The government must stimulate growth because the private sector can’t. And each dollar the government spends creates more than one dollar of economic growth for the nation. This is what British economist John Maynard Keynes termed the ‘fiscal multiplier’. He argued that governments need to spend money in a recession to help an economy improve, and to help a country head back to full employment.
Our wages also help stimulate the economy. Each week we spend our wages on goods and services, which are the building blocks of other people’s wages. When you pay for groceries, purchasing those items pays the wages of the supermarket cashiers, the packers and cleaners in the store, the drivers who transported the goods, the people who designed and made the packaging, and the farm workers who grew and picked the vegetables. They then take their wages and buy other things, paying more people’s wages. If wages are cut there is less money circulating in the economy, and less to buy items and pay those people’s wages.
Wage rises in the NSW public sector are already capped at a fairly low rate of 2.5%. According to Philip Lowe, Reserve Bank Governor, this was a problem even before this crisis. Lowe has campaigned for higher wage growth for several years and said public sector wage caps are a problem.
Further, when public sector wages are stagnant or not growing much, it is not just a problem for the public employees who get less money in their bank account. Historically, economists have found that the wages in the public sector tend to influence everyone else’s wages. This means a wage freeze for nurses, firefighters, and government administrative workers will likely flow on to the private sector and dull economic growth. This is the exact opposite of what we need.
You might have read in the newspaper, or heard the government say, that we have to cut wages or spending because we can’t let the budget go into deficit. Keynes was very clear on this, he said governments had to go into deficit in the bad times to be that economic engine of recovery. When the economy returns to good times, it can return to surpluses. Journalist Greg Jericho has argued that the announcement of public sector wage freeze is not really about good economics, but a sop to certain political interests and ideologues.
