Falling real wages and the stimulus

If you are an economist who looks at things from the demand side, then this is a puzzle:

Most Australians have not had a pay rise in real terms in years in the face of an assault on wages which has policy makers, unions and business groups worried. The typical Australian family takes home less today than it did in 2009, according to the latest Household Income and Labour Dynamics survey released this week. Just on Friday the Reserve Bank cut its economic growth forecasts by half a percentage point for the rest of this year after confirming wages remain at their lowest share of total income in half a century.

I won’t dwell on the obvious – at least the obvious to those who look at these matters from the supply side – but the starting date for this bit of analysis should give you a clue. The GFC was the start but the stimulus was the actual cause. A stimulus that does not add to value-adding output will pull an economy backwards and ultimately slow real wages growth. What are we to do with this?

The mining boom and Rudd/Gillard government’s multi-billion-dollar stimulus spending may have helped shield the economy from the worst of the GFC.

But since 2012 and 2013, Australian workers have felt stuck in a holding pattern of slow wages growth. Wages for the whole economy increased by 1.9 per cent in the year to March just in line with inflation.

No idea of cause and effect. Come along on Tuesday for a different way of looking at these things. No classical economist would be surprised.

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20 Responses to Falling real wages and the stimulus

  1. Bruce of Newcastle

    Perhaps it has something to do with productivity?

    Graph

    Oh how amazing, productivity has been flat since 2014! Could it be something to do with the economy being strangled by red and green tape and its veins sucked by oodles of Lefty vampires?

    Nah. If that was the reason then Turnbull would be doing something instead of rasing taxes and electricity prices and chasing the Waffen SSM vote.

  2. cui bono

    And the productivity bone is attached to the industriy relations bone which is attached to the collectivist bone.

  3. Roger

    Could it be something to do with the economy being strangled by red and green tape and its veins sucked by oodles of Lefty vampires?

    +10

    And just wait until electricity costs fully impact the economy with business closures.

    Alvey Reels in Brisbane one recent example.

  4. Rabz

    Wage slaves need to realise there are other ways to supplement their income.

    Before Tits Peanuthead removes them all.

  5. Gbees

    1.9% wages growth for whole economy. What was the public service wages growth vs private sector? What’s the average salary public service vs private sector?

  6. EvilElvis

    You’re onto Gbees. The private sector is stagnant, the public servants are cleaning up.

    Whatever happened to lower wages for these tenured positions?

  7. Could this alarming wage stagnation have anything to do with our obscene immigration intake of almost 250,000 people each and every year? You know, more people competing for those jobs.

    Nahhhhhhh. Immigration is beneficial for an economy! /sarcasm.

  8. Fisky

    It’s more than likely, Adam!

    Time to shut down the immigration scam!!

  9. Fisky

    Australia’s wealth will explode like never before, once we shut down the immigration scam. People will be so rich, they won’t know what to do all day. A golden age of prosperity awaits us, so long as we shut the door to immigration now!

  10. John constantine

    Those at the bottom of the Population Ponzi scheme now starting to realise they will never make it to a higher level of the Pyramid before they are swamped.

    Albania was the last country to transform their entire economy into a Ponzi scheme the way Australia has.

    Austrabania, wait for the rage as the full weight of their crumbling pyramid comes down on the shoulders of the proles making up the base.

    No wonder disarming those to be crushed is at the forefront of public policy.

  11. Combine Dave

    Fisky
    #2460326, posted on August 6, 2017 at 2:27 am
    Australia’s wealth will explode like never before, once we shut down the immigration scam. People will be so rich, they won’t know what to do all day. A golden age of prosperity awaits us, so long as we shut the door to immigration now!

    Alas this will never happen.

    What is on the cards is that skilled migrants will be massively reduced (cutting competition for plum government and contractor to gov work) while those in the lower income/skills bands in the private sector will be absolutely destroyed by a huge influx of unskilled economic migrants posing as refugees.

    The welfare state will also need to expand with the middle class crushed between joblessness and massively high taxes to find the above.

    Meanwhile piperpoint elites = happy

  12. Ray

    Yes demand side economics has been an abject failure. High marginal tax rates create massive distortions which affect investment / consumption and work / leisure decisions while excessive regulations impact the risks and returns to business and hence restrict investment.

    However, supply side economics has failed each time it has been attempted. The notion that tax cuts will pay for themselves is nothing short of ludicrous as both Reagan and Bush W discovered.

    Reagan oversaw a massive blowout in the budget deficit which was not redressed until Clinton, partly via increases in tax rates. The Bush W introduced a new round of tax cuts pushing the budget deficit higher again. The problem is that large budget deficits must be paid for, raising the prospects of Ricardian equivalence or, in the modern open economy, exchange rate crowding out.

    There is no magic potion which can be applied to the economy, either from the demand side or the supply side. Expansionary fiscal policies will not make the economy grow, now will expansionary policies dependent upon tax cuts. Indeed, if there were an easy way forward it would have been implemented long ago.

    Instead what is required is a lot of hard decisions aimed at balancing the budget, lowering marginal tax rates, streamlining the regulatory burden and raising consumption levels. That means government will continue to play a significant role in the economy via taxation, transfers and regulation. What we need to ensure is that the distortionary impacts of this involvement are minimized, accepting that we cannot remove all of the excess burden.

    For an economy to function optimally it must be in equilibrium at all levels. Similarly, the economic debate should be balanced. So rather than responding to weak policies devolving from Keynesian dogma with equally weak policies based upon classical ideology, it would preferable to return to the micro foundations to be found in neoclassical economics.

  13. H B Bear

    Increased taxes on profitable sectors of the economy with those resources being tipped into the black holes of health and education.

  14. Tel

    The typical Australian family takes home less today than it did in 2009, according to the latest Household Income and Labour Dynamics survey released this week.

    Is that “takes home” meaning after tax?

    https://tradingeconomics.com/australia/government-revenues

    Government revenue has increased almost double since 2009, that’s in simple terms so you can adjust that back a bit for inflation if you like, but officially inflation has been quite low. One simple explanation is that government just takes a larger share than it used to do. Australia’s GDP has actually been falling since 2011 (end of mining boom mostly) so government revenue has increased at a time when the overall pie was shrinking… obviously that money comes from somewhere thus not surprising “take home” pay has been impacted by that.

  15. Tel

    Hmmm I was looking at Australian GDP measured in USD which might be unfair comparison. Here’s GDP measured in AUD:

    2008: 1178810.00
    2009: 1259280.00
    2010: 1297510.00
    2011: 1410440.00
    2012: 1491740.00
    2013: 1527530.00
    2014: 1589940.00
    2015: 1617020.00
    2016: 1654580.00

    From this site … https://www.measuringworth.com/datasets/australiadata/

    So government revenue has shown something like a 90% increase since 2009 in nominal terms, while NGDP has shown a 28% increase over the same time also in nominal terms (i.e. apples-with-apples comparison).

    However you look at it, government are taking more out of the economy than what growth is putting in.

    It’s even worse when you look at government spending and the consequences of large debt-to-GDP ratio and the damage that is doing to the country.

  16. Diogenes

    Gbees,
    For the NSW PS, 2.5% pa, unless conditions are traded off

  17. Combine Dave

    So the wages of the private sector are being surpressed by immigration and their take home pay further eroded by massive public theft to fund even more welfarism for Australians new and old alike.

    This won’t end well.

    Immigration excluding rich investors (more the fool them!) must be halted until our infrastructure has caught up to our population, our houses become affordable again and our wages begin to climb…

    Anything else and we are looking at a Venezuela eat the rich scenario and KZ for successful and ultimately innocent ethnics!

  18. mh

    Slo-Mo’s budget projections show a modest surplus in 2021, but that surplus is reliant on strong wage growth resulting in more tax revenue.

  19. John constantine

    We see the State switching from planning to grow the economy’s productivity and tax profit, to running the population Ponzi scheme that lets the State tax gross consumption and capital instead.

    More and more we see importing mass numbers of house occupiers boosting capital prices, and this capital taxed to fund State consumption.

    The aboriginal war reparations tribunals will be funded by taxes on property values.

    Shorten has prior history and aspergers talent for making his enemies fund his mercenaries.

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