NSW Doctors deserve a medal, not a pay cut.


Two weeks ago, we reported that the NSW Government was considering a wage freeze for public sector workers but that the NSW Treasurer has stated that frontline health workers such as doctors and nurses would be excluded from the freeze.

This week the NSW Government told public sector Unions that all public sector workers will have their 1 July pay increase taken away. The logic put forward for this is that public sector workers must share the economic burden.

However as economists Jim Stanford and Troy Henderson show in a recent report this rationale lacks economic logic.

Not only will the freeze have ongoing costs for public sector workers well beyond six months, the freeze will be a serious drag on post-crisis growth - reducing economic activity at time when the economy needs all the growth it can get.

The authors show that a wage freeze is not made up in later years resulting in a permanent reduction in the nominal wage base. So, workers continue to incur income losses long after the wage freeze has been lifted.

This is because the forgone wage freeze is never caught up. If you freeze 2.5% wage growth for one year, the government won’t give a 5.1% pay rise in a year’s time to make up for the lost year. So, you are always that one year of 2.5% growth behind.

Freezing public sector income not only acts against efforts to use public spending to boost the economy, it also hurts future private-sector wage growth.

Henderson and Stanford note that the public-sector wage restraint that occurred after the GFC “led the way” in “ushering in a more serious and lasting downturn in wage growth ... that started about three years after the GFC hit”.

NSW Labor leader Jodi McKay said that the NSW Government has an "ideological obsession" with the public service, and that Labor will not support this attack on frontline workers Ms McKay said. "These workers deserve a medal, not a pay cut."

In an earlier report False Economies - The Unintended Consequences of NSW Public Sector Wage Restraint, Troy Henderson and Dr Jim Stanford looked at the unintended consequences of the NSW Government’s Wages Policy. They found five unintended, harmful side-effects of the ongoing wage cap, including:

  1. Over the five years from 2011 through 2016, the state’s public-sector wage suppression reduced consumer spending in the state by a cumulative total of some $3.4 billion, harming businesses large and small.
  2. Australia’s national GDP was reduced by an estimated cumulative total of almost $8 billion over the 2011-16 period.
  3. The NSW government’s wage austerity therefore reduced its own revenue (through that reduction in GDP) by an estimated $1.2 billion over the 2001-16 period.
  4. Each public-sector worker’s “workload” increased by 7.5 percent in the last five years – yet the wages policy in fact suppresses true productivity growth in the public sector.
  5. The NSW government’s extraordinary interventions, removing normal wage bargaining rights from a significant and influential section of the state labour market, have contributed to the unprecedented stagnation of wages in the overall state labour market – one that the government itself admits is hampering both economic growth and fiscal well-being.

The longer the wage cap remains in place, the larger will these costs (of foregone consumer spending, offsetting reductions in state revenues, and the spill over impact onto private labour market outcomes) become.

ASMOF not only opposes any wage freeze, the Unions will continue to campaign for:

  • The removal of the wages cap
  • Making the Industrial Relations Commission independent again with sufficient resources to run applications in a timely and just manner
  • Allowing agencies like NSW Health and the Union to collectively bargain and to agree on outcomes that encapsulates work value/productivity and work health and safety issues
  • Abolishing the Efficiency Dividend (which at its current level means a 3% finding cut to all agencies).