Job cuts and wage cuts
I was on Steve Austin’s radio program today, talking about my critique of Campbell Newman’s claim that Queensland was on the verge of the kind of debt crisis we have seen in Greece and Spain. At the end, Steve threw me a question I hadn’t prepared for, about a couple of claims made by Newman in the last day or so. These were
* Job cuts would not be needed if the unions would agree to a wage freeze
* Every 0.1 per cent wage increase implies the loss of 800 jobs.
Newman didn’t spell out his reasoning, but it seems clear that he is assuming a fixed fund available to pay wages. Given this assumption, any increase in wages implies a proportionately equal reduction in employment. So, we can easily check his arithmetic, starting from an estimate supplied by his own office that Queensland currently has just under 200 000 (full-time equivalent) public servants (using the term in the broad sense to cover teachers, firefighters and so on, in addition to administrative workers).
Looking at the second claim first, 0.1 per cent of 200 000 is 200, so Newman appears to be out by a factor of four here, or maybe a little less if part-time employees are taken into account. The first claim is a little harder to assess, but the announced cut of 20000 jobs amounts to 10 per cent of the existing total, so an offsetting wage freeze would need to hold wages constant over a period during which they would otherwise increase by 10 per cent. That would at least 2-3 years, assuming steadily increasing real wages, more like 4 years relative to an outocme that maintained the value of real wages. In practice, it’s very rare to sustain a comprehensive wage freeze for so long. Good staff start leaving and are hard to replace, morale is poor and so on. Then again, the alternative offered by the government isn’t doing much for staff retention or morale.
The big problem, as I said last time, is that long-term problems are being addressed with short-term panic responses. Although he is happily ditching promises made to public sector workers, Newman cites vague language about the ‘cost of living’ to rule out any re-examination of tax poloicy, even though most of QUeenland’s low tax effort reflects concessions to business rather than households.