Four-day working week a 1970s echo

I’ve been banging on about the Centre for Independent Studies’ 50th year being an echo of our founding year, 1976. And now we get a 1970s-style Middle East oil shock!

The twin energy price shocks of the 2020s following Russia’s invasion of Ukraine and now the one set off by the US-Israel bombing of Iran probably won’t be as damaging as the 1974 and 1979 oil price disruptions from OPEC and then the Iranian revolution.

But they do expose the economic self-harm from wrong-headed policies at home. I’d be very surprised if the Reserve Bank isn’t forced into its second 2026 cash rate rise at its March board meeting on Tuesday.

The basic problem is that bigger government has pushed overall demand in the economy beyond its capacity to produce more.

Treasurer Jim Chalmers welcomed the latest 2.6% annual GDP growth number as the economy’s fastest expansion in three years. But weak productivity growth means Australians can’t increase their production of goods and services by much more than 2% without hitting supply constraints — which is why CPI inflation has kicked up to an above-target 3.8% even before the Iran war.

The new petrol pump price shock threatens to raise people’s already-elevated expectations of price inflation. The longer the Iran war continues, the more the oil price shock will feed into business input costs and then selling prices.

This echoes what happened in the 1970s. Unlike many other developed economies, Australia actually got a boost from the second oil shock because it sparked a coal export boom  in Queensland and NSW.

But that prompted the militant metal workers union to spearhead strike action over demands for a 35-hour week, leading to a reduction in the standard work-week from 40 hours to 38 hours. Paul Keating later blamed the metal workers for the loss of 100,000 jobs during the subsequent recession.

This is mirrored in this week’s ACTU demand to reduce the standard work week to 35 hours and to give workers the right to request four-day work weeks with no loss of pay. This is feeding into a parliamentary inquiry initiated by the Labor government into the National Employment Standards.

The ACTU’s Orwellian rationale is that forcing business to pay workers more to do less would boost productivity by boosting their mental wellbeing!

Rather than a Labor-endorsed parliamentary push to regulate improved wages and conditions, workers really need an increase in profit-driven business investment that would give them better tools to work with. That would boost their productivity and allow business to sustain Australia’s high-wage economy.

This is under threat from the Whitlam-lite ratcheting up of the less-productive government-funded care economy. Now Labor is seeking to increase taxes on capital to help pay for it — further undermining the economy’s growth potential.

Echoing the early spread of computers and automation in the 1970s, the spread of AI will become a rallying cry to front-load the hoped-for productivity gains to workers. But, in a reversal of the 1970s, attempts to decarbonise the economy have led to the loss of Australia’s cheap energy advantage that helped underwrite its high-wage labour force in the first place