“Wage growth is stuck in the doldrums”

UPDATE/POSTDATE: How bizarrely out of it economics has become is triple underscored by the front-page story in The Oz: Peril for budget in wages slump. This is seen as a problem, which it is, but not as a cause and effect which in large part it also is:

Workers in the private sector are going backwards financially as ­increases in their pay fall further below inflation, highlighting the risk to the government’s budget forecasts, and leaving only public sector workers making gains.

Overall wages growth remains stuck at a record low of 1.9 per cent, saved from falling further only by the success of public sector­ unions in winning wage increase­s that have averaged 2.4 per cent. Private sector growth fell to 1.8 per cent.

The unfortunate fact is that public spending – you know, Keynesian-type stimulus spending plus other 25-watt brainwaves from the PM – is making us poor. We are being sunk under a sea of waste – see the NBN for further details. That the vaudeville team of Malcolm and Morrison, along with their Treasury advisors, cannot understand what’s wrong is par for the course. When productivity falls so do real wages, at least for those in the market economy. It’s not the deficit per se that matters but the way governments blow money at outrageous rates. Unless that stops we will just continue to go nowhere but at increasingly faster rates.

Now back to the original post.

The fact of the matter is that no one using modern economic theory could explain this: PAY GAP: Australian wages growth is stuck at record lows, and running behind inflation. Certainly you don’t find an explanation in the story which has only this:

With wages currently growing at an annual pace of less than 2%, and given evidence that it’s been hard to stoke wage pressures in other developed nations even with recent improvements in labour market conditions, it’s little wonder that some remain sceptical about a sharp turnaround in wages, particularly to levels back above 3%.

“The fact that wage growth is stuck in the doldrums comes as little surprise given the deterioration in Australia’s labour market, with the jobless rate climbing from 5.7% to 5.9%,” said Tom Kennedy, economist at JP Morgan, following the release of the report.

“We expect wage growth to remain unimpressive for some time given significant slack remains in the labour market.”

The problem has been obvious for almost a decade but only for those who have been classically trained. And that they would even want “to stoke wage pressure” just shows how far off the beam they are.

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15 Responses to “Wage growth is stuck in the doldrums”

  1. teddy bear

    What is the wage growth after removing all public sector wages, all wages where unions have an influence, plus people on the minimum wage as that gets legislated increases?

  2. danger mouse

    A. *Very* unimpressive.

  3. Ray

    Wages growth is the mechanism by which increased economic growth flows through to the majority of people and therefore is the means by which standards of living rise. As a result, we should ball be looking at ways in which we can “stoke” wages growth, at least those of us who have any concern for the welfare of the people in this country and subsequent generations.

    Wages growth is largely correlated with output prices in the economy or the GDP deflator. Generally when we have strong economic growth, the rate of wage increase rises and low growth results in a declining rates. The difference between the GDP deflator and unit labour costs is the relative share of the rise in output prices going to capital and labour. When the economy is growing strongly, then we see capital taking a greater share of the rise in the GDP deflator and when the economy is sluggish, labour then takes a greater share. In other words, unit labour costs lag the GDP deflator in a strong economy and outperforms the GDP deflator when the economy is weaker. This is what we are seeing today.

    The problem then is not poor wages growth, but a stagnant economy which has not displayed any growth for the past five years, with real GDP per capita declining 0.4% per annum over that time.

    The solution is, of course, to cease the anti-capitalist crusade emanating out of Canberra. Politicians and Bureaucrats have for years been destroying the productive capacity of this country via excessive taxation, choking regulations and a highly centralized industrial relations system. Is is any wonder that our economy responds by going backwards.

  4. Baldrick

    “There’s never been a more exciting time to be an Australian wage earner and taxpayer.” – Michael Trumble

  5. Bear Necessities

    I thought the primary aim Gillard’s and Shorten’s Fairwork Act was to protect wages?

    Seems as though it has failed.

  6. John Comnenus

    Inflation 2.1% private sector wage growth 1.8%, public sector wage growth 2.2%.

    That’s all you need to know. The country is being run for the benefit of the public service and government.

  7. Zipster the leftoid torturemeister

    “to stoke wage pressure”

    Go earn some taxes you bludgers!

  8. Chris M

    Public sector disparity aside this is good, inflation is a crock.

    If you look at products and services from the private sector the prices for the most part have been either flatlining or falling. The only area of true inflation is government costs and those private sectors where government has a controlling regulatory input such as utilities.

  9. candy

    Public servants are the elite of workers.

    For the rest of us the low wage growth is just sucking the oomph out of the economy and yet the government wants to close down coal mines and tax the banks, and build inland rail and very fast rail and submarines that will be obsolete before they are ready.

  10. John Carpenter

    Low growth in real GDP is a feature of most developed economies.There are two opposing forces.The endogenous i.e. within system, force is deflationary and caused by a number a well documented long wave factors like technology,pervasive disintermediation,deleveraging,Chinese over-investment.The exogenous i.e. outside system,is inflationary and caused by massive central bank money and credit creation.Without this central planning by the central banks the CPI would be negative effectively resulting in a tax free pay increase for wage earners and higher “real” income growth.The central banks for years now have interfered with the economies natural adjustment process.It seems their real role is to create,inflate and re-instate asset bubbles.

  11. H B Bear

    When you continue to tax profitable sectors of the economy and dump it into the black holes of health and education what do you expect?

    And that is before you consider the impact of red tape, green tape, renewables​,IR law and every other productivity destroying element that is a daily fact of doing business in Australia.

  12. ned

    What matters is not the nominal wage, but the real wage, what that wage can buy.

    What Makes Wages Rise
    What makes wages rise and renders the material conditions of the wage earners more satisfactory is improvement in the technological equipment. American wages are higher than wages in other countries because the capital invested per head of the worker is greater and the plants are thereby in the position to use the most efficient tools and machines. What is called the American way of life is the result of the fact that the United States has put fewer obstacles in the way of saving and capital accumulation than other nations. The economic backwardness of such countries as India consists precisely in the fact that their policies hinder both the accumulation of domestic capital and the investment of foreign capital. As the capital required is lacking, the Indian enterprises are prevented from employing sufficient quantities of modern equipment, are therefore producing much less per man-hour and can only afford to pay wage rates which, compared with American wage rates, appear as shockingly low.
    There is only one way that leads to an improvement of the standard of living for the wage-earning masses, viz., the increase in the amount of capital invested. All other methods, however popular they may be, are not only futile, but are actually detrimental to the well-being of those they allegedly want to benefit.


  13. Tator

    I was looking at the Trading Economics page on corporate profitability after some muppet claimed corporate profits had climbed 64%. The analysis on the page read as follows

    , as profit surged for financial and insurance (108.9 percent vs -40.1 in Q3), real estate (11.3 percent vs -0.5 percent) and information and telecommunications (4.9 percent vs -4.1 percent). Also, profits rose further for: professional, scientific and technical (31.1 percent vs 7.6 percent) and other services (20.2 percent vs 21.4 percent). In contrast, profits fell for: retail trade (-2.9 percent vs 6.5 percent), accommodation and food (-14.4 percent vs 19.5 percent), transport and warehousing (-0.8 percent vs 5.9 percent), administrative and support services (-13.7 percent vs -13.5 percent) and arts and recreation (-15.8 percent vs -8.6 percent).

    which indicates to me that the areas with highly qualified and skilled but relatively small employee bases are going gang busters whilst the areas that are struggling are large employers of generally unskilled labour which would be the downward pressure on wages in the private arena.

  14. mh

    Some in the public service have been doing very well:

    One of Australia’s most senior tax officials has been embroiled in a major fraud investigation involving his son in which $165 million was allegedly stolen from the Commonwealth.

  15. Steve Kates

    Ned – I couldn’t agree more but with one addition. This is from your quote:

    There is only one way that leads to an improvement of the standard of living for the wage-earning masses, viz., the increase in the amount of capital invested. All other methods, however popular they may be, are not only futile, but are actually detrimental to the well-being of those they allegedly want to benefit.

    The addition is that the capital must be value adding, which is the bit M&M don’t seem to get, which means capital formation must be driven by private sector firms without govt subsidy, which you no doubt agree with yourself. But I think the point needs to be made explicit.

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