Work in the construction industry is drying up fast, and there is evidence over a million labourers and tradies are hurting, unable to secure higher pay.
- More than a million workers across the country are in a “weak wage bargaining position”, the council says
- Many businesses are still holding out on pay rises to the point that wage growth has stalled
- Some small businesses owners say they’re in no position to hand out pay increases
Apartment construction activity, for example, is now contracting at the fastest pace in six years after a record-breaking boom, according to a widely watched survey conducted by the Australian Industry Group and Housing Industry Association.
After years of booming employment in the residential construction sector, the latest Performance of Construction Index showed employment at a reading of 44.4 — well below the 50-point level that indicates expansion.
“Sector-wide employment was lower in January having held up amid shrinking activity in recent months,” the AiGroup’s head of policy Peter Burn said.
“In construction, certainly, there are a lot of contractors, and people that employ others, that are going to be in exactly the same boat,” said Peter Strong, chief executive of the Council of Small Business Organisations of Australia (COSBOA).
He also believes that more than a million other workers around the country are now in the same weak wage bargaining position as those in construction.
“You’re going to find it in a lot of retail, you’re going to find it in a lot of businesses in the motor industry,” he observed.
“The bottom line is, say you’ve got to find another $3,000 a year for wages, that $3,000 will come from you.
“It doesn’t come from your profit, because the profit of a small business is their income, it’s their wage.
“So that means I’ve got to give someone, or the business person has to give other people, $3,000 and they don’t get it back.
“So it impacts upon their capacity to go on a holiday, or pay for food on the table, or put their kids through school, and I think a lot of people forget that.”
COSBOA has called on workers to be grateful for what they have.
“So step back and say: ‘OK, am I happy with what I’ve got and will it help me live the lifestyle I’m used to? Am I happy with that? And if I am, as much as I’d like more money, I should be happy that I’ve got a job’,” Mr Strong argued.
RBA counts on rising wages to offset falling house prices
Reserve Bank governor Philip Lowe commented earlier this week that businesses were reporting finding it difficult to secure workers with the necessary skills, so workers should be in a strong position to bargain for higher pay.
National Australia Bank confidentially surveys a large number of businesses every month.
Its latest quarterly report showed that while the Reserve Bank was right about high demand for workers, many businesses were still holding out on pay rises to the point that wage growth stalled again.
The bank’s chief economist Alan Oster blamed the recent collapse in the construction sector for the widespread wage freeze.
“They’ve had a couple of very good years, and now they’re on the downside, and that’s part of the house price cycle,” he explained.
‘We are worrying way too much’
There is a counter-argument here though.
Deloitte Access Economics partner Nicki Hutley said businesses were worrying too much about the economy and it was not helping them or their workers.
“We are worrying way too much,” she argued.
“And just because we’re not growing as strongly as we might have been, doesn’t mean we’re not growing, and there’s a nuance there.”
It is not just about less teeth-grinding and finger-tapping; Ms Hutley believes small businesses still have plenty to smile about.
“The low interest rate environment that we have is supportive of a growing economy,” she said.
“We are seeing tax cuts come into the fore.
“We have seen healthy growth in employment for two years now.
“We’ve actually see the rate of growth in business credit start to tick up and that’s a healthy thing for the economy as well.”
Credit squeeze biting both businesses and consumers
But many business owners disagree.
Joe Moussa runs a small construction business where he employs eight tradies building bathrooms and kitchens.
He says getting a line of credit from a bank has become mission impossible thanks to the fallout from the banking royal commission.
“Put it this way, a year ago, banks were just handing out money like it was going out of craze,” he observed.
“Any Joe would just walk up to the bank and say, ‘hey listen, I want to build a house, I need $100,000’, and the bank would approve him no questions asked.
“In the last four to five months, the banks have put a tight squeeze on it.
“It’s very hard for you to go to a bank for a loan at the moment.”
Mr Moussa said he was in no position to hand out any pay increases.
“I’m guilty of that. I don’t normally hand out pay rises to any of my workers,” he admitted.
“A lot of these guys that I’ve got working with me, if they had to leave me to go get another job, they’ll struggle to find another job somewhere else.”
That is backed up by the research from National Australia Bank.
“We also see that the level of slack in the labour market is more than you might think,” Mr Oster said.
“I don’t think a lot of employers want to give a pay rise, and [they] probably won’t.”
Mr Moussa agrees with COSBOA on wage growth, adding that his workers need to understand any pay rises will have to come out of his pocket and he has his own family to worry about.
Mr Moussa said he did hand out a pay rise before Christmas, but it was only $20.
Mr Oster said that the headwinds for businesses, especially in the construction sector, had become so strong, that its workers were now starting to batten down the hatches in a storm hurting just about everyone.
“They’re going to be worried, they’re anxious in terms of their own budgets and that means that means 55 per cent of the economy is not great,” he said, referring to the importance of consumer spending to GDP — the nation’s economic output.
That is not what Dr Lowe and his colleagues at the Reserve Bank want to hear as they try to spark inflation and life into an increasingly listless economy.
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