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 & 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

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