tag:theconversation.com,2011:/global/topics/wage-growth-26848/articlesWage growth – The Conversation2023-12-13T03:58:07Ztag:theconversation.com,2011:article/2196112023-12-13T03:58:07Z2023-12-13T03:58:07ZThere’s a glimmer of hope in the mid-year budget update, but inflation is still a big challenge<p>The federal government knows people are doing it tough. Inflation and interest rate pressures have put the cost-of-living at the forefront of voters’ minds. </p>
<p>As the <a href="https://theconversation.com/the-7-charts-that-show-australians-struggling-as-saving-falls-to-near-zero-218924">national accounts data shows</a>, disposable income has fallen. Households have been forced to run down their savings. The household savings ratio has hit its lowest level in 16 years. </p>
<p>The <a href="https://budget.gov.au/content/myefo/index.htm">mid-year budget</a> update released on Wednesday confirms this. The Mid-Year Economic and Fiscal Outlook (MYEFO) estimates the economy is expected to expand by a low 1.75% in 2023–24. It also notes inflation – although moderating – is still too high. The outlook attributes that mainly to global oil prices.</p>
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<p>There is a small glimmer of hope. The update predicts the economy will grow more strongly in 2024-25 due to rising real incomes and charts a decline in real income growth turning around in future years. </p>
<p>Hopefully that will happen. It is the only way Australian households will be able to cope with the cost of living.</p>
<h2>A key challenge for the government</h2>
<p>The challenge facing the government is that it can’t splash cash on easing cost-of-living pain without adding to inflation. Higher inflation would cause the Reserve Bank to raise its interest rate targets even further, making things worse. </p>
<p>There are ways to address the problem. Initiatives in the May budget, including measures to reduce energy and childcare costs, aimed to help households without putting pressure on inflation. The outlook notes these are still being rolled out.</p>
<p>But there are only a limited number of initiatives like this available to governments. Some are tempted to spend budget money instead. Treasurer Jim Chalmers has avoided that temptation. There’s no extra cost-of-living assistance package in this update. Instead, there is determination to rein in debt and deficit.</p>
<h2>The fine line between surplus and deficit</h2>
<p>The MYEFO 2023-24 budget balance is A$1.1 billion. That’s line ball between surplus and deficit. The balance is the difference between two much larger numbers: $685 billion in receipts and $686 billion in payments. </p>
<p>What’s more, these are estimates, not actuals. We won’t know how they turn out until the final budget outcome is released in October next year. In the meantime, we can expect another round of estimates updates in the May 2024 budget. </p>
<p>No self-respecting economist would claim it matters whether Australia has a surplus or deficit. What makes a difference to our national financial sustainability is how a government responds to the economic pressures it faces.</p>
<h2>There are challenges but overall, the outlook is ok</h2>
<p>On that measure, this is a responsible document. The revenue estimates have improved since the May budget, mainly due to global commodity prices. The government has spent little of this windfall. </p>
<p>Chalmers’ MYEFO media release says the government has returned 92% of upward revisions to revenue since the May budget. He says this means the government “will avoid $145 billion over 12 years to 2033-34 in interest costs on the debt we inherited”. </p>
<p>As a result, the forward estimates for the Australian government’s debt and deficit are lower at this point than at budget. Gross debt as a share of GDP is expected to peak at 35.4% of GDP in 2027-28, before declining.</p>
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<p>There is an estimated $9.8 billion in savings, including already announced reductions in infrastructure spending. That was a good measure, because in addition to improving the budget bottom line it will have a direct impact on lowering building costs.</p>
<p>Offsetting those savings are a raft of new spending measures arising from decisions taken since the budget. They include defence support for Ukraine, aged care reform, additional money for ongoing COVID responses, new pharmaceutical benefit scheme listings, national water grid, housing and several hundred more. Many have already been announced. </p>
<p>The report gathers them together and adds them up. They add $1.1 billion to spending in 2023-23, $2.7 billion in 2024-25.</p>
<h2>There are big announcements ahead …</h2>
<p>Sadly, in a blow for budget transparency, there is still a line for decisions taken but not yet announced. We don’t know what decisions these are, but they are significant – the estimates start at $270 million in 2023-24 and rise to $1.8 billion in 2026-27. </p>
<p>It is <a href="https://theconversation.com/16-billion-of-the-myefo-budget-update-is-decisions-taken-but-not-yet-announced-why-budget-for-the-unannounced-173654">impossible to tell</a> what this spending is for. If the government were to reverse those decisions between now and the next budget update, we will never know. </p>
<p>On the plus side, this mid-year report has been released at roughly the mid-point of the financial year. Some previous reports have come out at different times – ranging from mid-October to late January (the latest it can be released under the Charter of Budget Honesty Act).</p>
<p>Chalmers has in the past expressed his desire to move back to a more regular and predictable budget processes. A MYEFO in December is normal and regular. </p>
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<a href="https://theconversation.com/budget-update-forecasts-deficit-of-1-1-billion-this-financial-year-219799">Budget update forecasts deficit of $1.1 billion this financial year</a>
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<p class="fine-print"><em><span>Stephen Bartos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The economy is expected to grow and there are other positive signs ahead but the mid-year economic update has revealed the government will need to keep inflation in check.Stephen Bartos, Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2078072023-06-18T20:08:27Z2023-06-18T20:08:27ZTired of shrinking pay? The real drain on Australians’ productivity is falling wages<figure><img src="https://images.theconversation.com/files/532183/original/file-20230615-19-45iygu.png?ixlib=rb-1.1.0&rect=25%2C250%2C1750%2C911&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>When was the last time you got a pay increase? Was it anywhere near the rate of inflation? </p>
<p>If it feels as if your wage is shrinking and cost of living pressures are growing, you’re in good company. And it might just be harming productivity. Here’s why.</p>
<p>Labor productivity (measured as gross domestic product per hour worked) has been shrinking for a year now, after decades of reasonable, albeit declining, productivity growth throughout the 1980s, 1990s and the first two decades of the 2000s.</p>
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<p><a href="https://theconversation.com/we-know-how-to-boost-productivity-and-lift-wages-but-it-will-take-time-and-much-tougher-tax-reform-207609">All sorts of reasons</a> have been suggested. One is working from home. Commonwealth Bank chief Matt Comyn has ordered staff to <a href="https://www.afr.com/work-and-careers/workplace/cba-orders-staff-back-to-the-office-20230518-p5d9l6">return to the office</a> saying there are “certain types of work that are done more effectively in person”.</p>
<p>Reserve Bank research says it might be a resurgence in the proportion of wages set by industry awards rather than workplace agreements, meaning there’s less scope for rewarding performance. </p>
<p>Another is weak wage growth itself.</p>
<h2>Shrinking real wages are demotivating</h2>
<p>We must also look at wages. Wages are falling in inflation-adjusted (“real”) terms.</p>
<p>Adjusted for inflation, Australians are being paid less than they were in 2020.</p>
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<p>Shrinking real wages are demotivating. While this is hardly a new insight, a bemusing number of people seem shocked by the idea that someone might be less keen to work when the real value of what they are paid is falling.</p>
<p>Research on executive compensation established this <a href="https://linkinghub.elsevier.com/retrieve/pii/0304405X7690026X">as long ago as the 1970s</a>. </p>
<p>The whole field of compensation contract theory is based on the insight that a person’s sense of wellbeing goes up with money but down with perceived effort and risk. Money can induce people to work in ways they otherwise would not.</p>
<p>Company boards have long used <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4400226">incentives</a> to encourage otherwise-cautious executives to take risks. They even <a href="https://doi.org/10.1016/j.jfineco.2016.01.022">tailor compensation contracts</a> to executives’ behavioral traits. </p>
<h2>How do workers produce less?</h2>
<p>Consciously or otherwise, workers whose real wages are falling might care less about their jobs. They might work more slowly, or they produce worse-quality goods or services. And their attitude might permeate to other workers and to clients, undermining productivity more broadly.</p>
<p>If this happens at enough corporations – and certainly real wages are falling at enough corporations – it will harm GDP per hour worked throughout the entire economy. </p>
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<a href="https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532129/original/file-20230615-17-r1j4vp.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Poorly paid workers watch the clock.</span>
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<p>Sluggish wage growth can also affect the number of observed hours worked. </p>
<p>When wage growth and incentives are strong, ambitious workers will work more than their contracted hours, and won’t claim for it. </p>
<p>They might work on weekends and nights, easing staff scheduling and time zone issues, helping the firm do what it needs to do. </p>
<p>Uncounted extra hours don’t increase the “hours” in GDP per hour, but they do increase the GDP, increasing measured productivity. </p>
<p>When people stop doing unpaid overtime, while their recorded hours mightn’t much change, the GDP they produce declines. </p>
<p>There are reasons to believe Australian workers are no longer going above and beyond to produce more to the extent that they used to.</p>
<p>One is an increase in the number of Australians holding multiple jobs.</p>
<p>Over the past five years, the proportion of Australian workers holding more than one job has climbed from 6% to 6.7%, which appears to be an all-time high.</p>
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<p>These official figures understates the extent to which Australians are turning their focus away from their main jobs for three reasons:</p>
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<li><p>they exclude side hustles not counted as “jobs”</p></li>
<li><p>they exclude jobs in the cash economy </p></li>
<li><p>they exclude workers whose “new” second job is spending time with their family rather than working overtime.</p></li>
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<p>The rise in multiple job holders is likely to both increase the total number of hours worked, and reduce the effort workers put into their main jobs.</p>
<p>And, as these second jobs are often more junior, it can mean highly-skilled workers producing less per hour than they would have had they put the hours in their main job.</p>
<p>The overall picture is one of a demotivated workforce realising there is no longer much point in “going the extra mile”, “going above and beyond”, or buying into whatever the latest euphemism is. </p>
<h2>Returning to the office might make things worse</h2>
<p>Although returning to the office might is touted as a way to boost productivity by <a href="https://www.afr.com/policy/economy/banks-push-for-office-return-amid-productivity-woes-20230601-p5dd1u">building collaboration</a>, it might well do the reverse.</p>
<p>There is <a href="https://dx.doi.org/10.1080/13504851.2014.922663">ample evidence</a> to show that workers hate commuting. In capital cities, commuting can consume two hours per day driving, parking and allowing time for unexpected delays.</p>
<p>It is also costly. Workers will tolerate it if there is no other choice or it is a clear path to more money. </p>
<p>But if companies reinstate a two-hour commute and associated costs without paying more money, they are likely to further demotivate their workers, further undermining their willingness to “go above and beyond”, produce more, and be more efficient.</p>
<h2>What’s needed are incentives</h2>
<p>A straightforward solution is to create incentives that make it clear that workers who care more will get cared for more.</p>
<p>The incentives need to be in addition to standard raises. Using them as a cynical ploy to hold wages constant unless employees work ever harder will backfire.</p>
<p>The incentives must also be credible. It isn’t enough to create the vague possibility of promotions. Employers have to demonstrate that if their workers produce more they will be paid more. And the extra pay needs to be enough to matter.</p>
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Read more:
<a href="https://theconversation.com/dont-blame-workers-for-falling-productivity-theyre-not-holding-it-back-207594">Don't blame workers for falling productivity: they're not holding it back</a>
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<p>An even better solution would be job-hopping.</p>
<p>Australians have long been <a href="https://theconversation.com/australias-great-resignation-is-a-myth-we-are-changing-jobs-less-often-170784">lethargic</a> about changing jobs, allowing themselves to be hit with a “loyalty tax” for staying put.</p>
<p>The most recent Bureau of Statistics survey, for the year to February 2022, shows an overdue uptick in the proportion of workers switching jobs, from 7.5% to 9.5%.</p>
<p>The <a href="https://www.abs.gov.au/statistics/labour/jobs/job-mobility/latest-release">2023 update</a> will be released at the end of this month.</p>
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<p>The importance of job-hopping (switching jobs to get better reward) as a means of incentivising both workers and employers makes Labor’s proposed expansion of <a href="https://www.dewr.gov.au/secure-jobs-better-pay/resources/cooperative-workplaces-bargaining-stream">industry-wide enterprise bargaining</a> a bad idea.</p>
<p>If employers set wages together, they are unlikely to set them differently.</p>
<p>In any event, there is little sign that employers are interested in motivating their workers to produce more. It’s easier to blame workers and make a case for low pay rises.</p><img src="https://counter.theconversation.com/content/207807/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Humphery-Jenner does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Adjusted for inflation, Australians are being paid less than they were in 2020. These 4 charts show what’s changed in how we work – and the growing gap between your pay and what you can afford to buy.Mark Humphery-Jenner, Associate Professor of Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2051922023-05-07T12:57:34Z2023-05-07T12:57:34ZView from The Hill: Budget ‘centrepiece’ will be $14.6 billion cost-of-living package<figure><img src="https://images.theconversation.com/files/524773/original/file-20230507-27-cet8aw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">original</span> </figcaption></figure><p>A $14.6 billion four-year cost-of-living package will be the centrepiece of Labor’s second budget, which seeks to balance spending restraint with its election commitment to not leave people behind. </p>
<p>The latter days of preparing the budget – which was printed at the weekend – have seen mounting pressure, including from outspoken members of the Labor caucus, for greater help for the disadvantaged. </p>
<p>A strong revenue flow, including from a pick-up in wages, appears to have made it possible for the government to do somewhat more on welfare payments than it originally intended. </p>
<p>There was speculation at the weekend, which the government refused to confirm or deny, of a possible modest across-the-board rise in JobSeeker. Earlier, the JobSeeker assistance was expected to be confined to those 55 and over.</p>
<p>At the same time the budget is tipped to see a surplus this financial year, although Treasurer Jim Chalmers constantly stresses the pressure it will be under in later years. </p>
<p>The government says its cost-of-living plan, which includes already flagged relief on power bills and cheaper medicines, will not be inflationary but will directly lower price pressures and the CPI in 2023-24. </p>
<p>On Sunday Chalmers, who did a round of media interviews, said more than five million households would get help with their electricity bills, as would about a million small businesses. </p>
<p>Asked the maximum price relief on energy bills, Chalmers said, “people will be getting several hundred dollars if they’re on pensions and payments or a small business.” </p>
<p>The government has struck deals with states and territories and the relief will vary in different parts of the country.</p>
<p>There will also be investments in energy efficiency. </p>
<p>About 40% of the upgrade in revenue comes from strong employment growth and a pick-up in wages growth. Some 20% is from higher commodity prices, and the rest comes from other sources including higher company profits in the non-mining and finance sectors.</p>
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Read more:
<a href="https://theconversation.com/budget-shows-real-wages-expected-to-start-growing-early-next-year-and-promises-effort-to-shift-the-needle-in-disadvantaged-communities-205133">Budget shows real wages expected to start growing early next year and promises effort to 'shift the needle' in disadvantaged communities</a>
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<p>The Treasurer said the budget would be “in the best Labor tradition – help for the vulnerable with cost-of-living pressures, an eye on the future, and responsible economic management”. It would have substantial savings, substantial spending restraint, and “modest but meaningful tax changes”.</p>
<p>Among the tax changes will be an extension of the petroleum resource rent tax that will mean the offshore LNG industry pays more tax, earlier. Deductions will be limited under the changes. This will increase receipts by $2.4 billion over the forward estimates. </p>
<p>The Australian Petroleum & Exploration Association reacted benignly. </p>
<p>APPEA chief executive Samantha McCulloch said: “The changes aim to get the balance right between the undeniable need for a strong gas sector to support reliable electricity and domestic manufacturing for decades to come and the need for a more sustainable budget”. She said the announcement would “provide greater certainty” for the industry.</p>
<p>Meanwhile Opposition Leader Peter Dutton faces fresh pressure with another byelection looming, following the weekend announcement by former minister Stuart Robert that he will quit parliament soon. </p>
<p>Robert, who is shadow assistant treasurer, holds the Gold Coast seat of Fadden. He said he wanted to spend more time with his family. </p>
<p>Robert has suffered some bad publicity relating to various controversies, and was one of the ministers with oversight of Robodebt, on which a royal commission report will come down mid year. He admitted to the commission his serious doubts about the scheme – which was found to be illegal – but argued he had to defend it because of cabinet solidarity,</p>
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Read more:
<a href="https://theconversation.com/government-to-spend-11-3-billion-over-four-years-to-fund-15-pay-rise-for-aged-care-workers-204919">Government to spend $11.3 billion over four years to fund 15% pay rise for aged care workers</a>
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<p>Though spooked by the loss of the Victorian seat of Aston at a byelection, the Liberals would be confident of holding Fadden, which is on a margin of more than 10%. Queensland is a strong state for the Coalition and Dutton’s home state. </p>
<p>Nevertheless Dutton at the weekend stressed the importance of getting a local as the Fadden candidate. One – though not the main – factor in the Aston loss was that the Liberal candidate came from another part of Melbourne. </p>
<p>“We’ll preselect somebody who understands that part of the Gold Coast, and we should be in that seat, frankly, preselecting somebody who can be a future cabinet minister or a leader of our party. So, we will work hard with the LNP in Queensland to make sure that we do win,” Dutton said.</p>
<p>There is also an expectation that former prime minister Scott Morrison will resign from parliament before long.</p><img src="https://counter.theconversation.com/content/205192/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A strong revenue flow, including from a pick-up in wages, appears to have made it possible for the government to do somewhat more on welfare payments than it originally intendedMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1954362022-11-28T05:39:31Z2022-11-28T05:39:31ZLabour’s share of national income has been remarkably consistent since the 1860s<figure><img src="https://images.theconversation.com/files/497513/original/file-20221128-27-504fa2.jpg?ixlib=rb-1.1.0&rect=0%2C538%2C4992%2C2522&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Inflation and <a href="https://www.abc.net.au/news/2022-08-22/wages-versus-profits-as-inflation-soars/101350882">sluggish wage growth</a> have raised concerns that wages and salaries are becoming an increasing smaller share of national income. </p>
<p>Australian Council of Trade Unions head Sally McManus has said labour’s share of income is at <a href="https://www.abc.net.au/news/2022-08-23/fact-check-sally-mcmanus-labour-s-share-of-gdp/101357044">its lowest point since 1960</a> – “a shameful situation for us to be in as a country”.</p>
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Read more:
<a href="https://theconversation.com/theres-an-obvious-reason-wages-arent-growing-but-you-wont-hear-it-from-treasury-or-the-reserve-bank-122041">There's an obvious reason wages aren't growing, but you won't hear it from Treasury or the Reserve Bank</a>
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<p>To get a perspective on this, we looked at how the labour share has evolved in Australia since the 1860s. </p>
<p>Our results show labour’s share of national income has indeed declined since the 1970s, but there is no sense of any permanent trend. Over the past 160 years, despite massive growth and social change, labour’s share seems to have been remarkably resilient. </p>
<h2>How we calculated labour’s share</h2>
<p>In 1860 the Australian economy revolved mainly around the production wool, wheat and gold. In the 1850s, Victoria produced <a href="https://www.nma.gov.au/defining-moments/resources/gold-rushes">more than a third</a> of the world’s gold. So our data effectively covers the entire history of Australia since the birth of modern manufacturing. </p>
<p>Our graph shows labour income divided by national income, which we refer to as “labour’s share of income”. </p>
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<p>Labour income is defined as employee compensation and imputed wages of the self-employed. National income is defined as gross domestic product minus capital depreciation, indirect taxes and imputed income from owner-occupied housing. </p>
<p>The ratio of these two values is the proportion of income being paid to labour, with the remainder being earned by land rents and returns to capital, such as retained profits or dividends. </p>
<p>The proportion can exceed 100% when profits are negative, as they did in the Great Depression in the 1930s. </p>
<p>The graph shows labour’s share peaking in the mid-1970s, and declining since. Before then, the impression is that labour’s share of income has cycled around a constant value – about 80% – with no clear trend or shift. </p>
<h2>Remarkable constancy</h2>
<p>This constancy is remarkable when considered against the massive social and economic changes that have occurred over the past 160 years. </p>
<p>In that time, Australia has experienced the industrial revolution and the information revolution; major depressions in the 1890s, 1921 and 1930s; two world wars; massive postwar migration; the rise of the female workforce; and globalisation.</p>
<p>Yet none of these technological, economic or institutional changes appears to have any significant permanent effect on the distribution of income between labour and capital. </p>
<p>Labour’s share of Australia’s economic growth over the past 160 years of economic growth has been more or less constant. When there has been productivity growth and GDP growth, wages have grown in tandem.</p>
<p>However, there have been significant changes at medium-term frequencies of ten to 20 years. These cycles generally reflect major recessions.</p>
<p>One explanation for this is that in a recession, when sales fall, employers cannot easily shed labour or reduce wages. Consequently, dividends and other payments to the owners of capital fall faster than the wage bill. </p>
<p>Paradoxically, therefore, a high labour share could be bad news for labour in the sense that it is associated with periods of high unemployment.</p>
<p>This provides a caution that increasing the share is not itself an objective, and there may be good reasons not to be too concerned about a decline in the share going to labour, depending on the cause.</p>
<h2>What’s driving the recent trend</h2>
<p>Labour’s declining share since the 1970s is part of a <a href="https://www.economist.com/finance-and-economics/2021/09/18/labours-share-in-national-income-is-both-over-and-under-explained">global trend</a>. Some attribute this to an inevitable consequence of economic growth, capital accumulation, technical change and automation. </p>
<p>In Australia’s case is has been attributed to two main changes: cycles in the mining sector, and the changes in financial services.</p>
<p>Mining is very capital-intensive, so capital’s share of income tends to rise and fall along with energy and resource prices. This is a cyclical effect that will likely reverse itself in time. </p>
<figure class="align-center ">
<img alt="Mining is capital-intensive, so a lower share of income goes to labour" src="https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/497549/original/file-20221128-22-18lqw5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Mining is capital-intensive, so a lower share of income goes to labour.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<p>Labour’s falling share of income in financial services potentially represents a more permanent change, with, for example, the labour-intensive system of suburban branch banks rendered redundant by digital technology. </p>
<p>In theory, automation and ongoing labour-saving technological change could continue to reduce labour’s income share in this way. There is <a href="https://cepr.org/voxeu/columns/trying-account-decline-labour-share">some evidence</a> this has been occurring globally across many sectors in recent years. </p>
<p>However, when viewed against the backdrop of 160 years of growth, we see no evidence that the massive labour-saving technologies of the past had any permanent effect of labour share. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-concept-of-class-is-often-avoided-in-public-debate-but-its-essential-for-understanding-inequality-187777">The concept of class is often avoided in public debate, but it's essential for understanding inequality</a>
</strong>
</em>
</p>
<hr>
<p>The past does not necessarily predict the future. But it does suggest that labour’s share of income is remarkably robust to many types of institutional and economic change in the longer term. </p>
<p>Shocks have caused changes in the distribution of incomes in the short to medium term, but these have been self-correcting.</p><img src="https://counter.theconversation.com/content/195436/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jakob Madsen receives funding from The Australia Research Council.</span></em></p><p class="fine-print"><em><span>Peter Robertson receives funding from The Australia Research Council</span></em></p>Labour’s share of national income has declined since the 1970s, but there is no sense of any permanent trend.Jakob Madsen, Professor of Economics, The University of Western AustraliaPeter Robertson, Professor, The University of Western AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1927092022-11-09T10:40:10Z2022-11-09T10:40:10ZStrikes: why soaring CEO pay could help explain UK’s recent industrial action<figure><img src="https://images.theconversation.com/files/492322/original/file-20221028-61541-8q7gv4.jpg?ixlib=rb-1.1.0&rect=0%2C2%2C1000%2C663&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Lower earners are counting the cost of a growing wage gap.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/compare-wage-gap-tax-differences-equal-1997565632">Andrey_Popov / Shutterstock</a></span></figcaption></figure><p>The pay gap in UK business is eye-watering. Bosses of the largest UK companies earn <a href="https://www.financialfairness.org.uk/en/media-centre/media-centre-news-article/pay-ratios-2022#:%7E:text=Across%20the%2069%20companies%20that,2021%2C%20at%2034%3A1.">around 100 times more</a> than the lowest-paid employees in their organisations, according to some estimates. This year, chief executives from the top 100 UK companies saw their pay rise by nearly a quarter on average, <a href="https://www.pwc.co.uk/press-room/press-releases/executive-pay-at-ftse-100-firms-recovers-to-pre-pandemic-levels.html">research from PwC</a> shows. This is at a time when many employees are being offered <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/averageweeklyearningsingreatbritain/october2022#:%7E:text=The%20rate%20of%20annual%20pay,outside%20of%20the%20pandemic%20period.">below-inflation pay rises</a>.</p>
<p>The sense of unfairness about this among workers is intensifying. We have seen this during the “<a href="https://speakerpolitics.co.uk/strikes-set-to-continue-as-unions-meet-at-tuc-congress/">summer of strikes</a>” this year, which has continued into the colder months and does not look likely to let up <a href="https://www.theguardian.com/uk-news/2022/nov/05/nurses-across-uk-vote-to-strike-in-first-ever-national-action">any time soon</a>.</p>
<p>The average gross salary in the UK at the moment is £38,131 for a full-time role, according to data from the <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/annualsurveyofhoursandearnings/latest">Office for National Statistics</a>. Not bad, you might think. But this figure obscures the dramatic variations in pay among UK workers in different industries and at various company levels. Indeed, the UK has <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-7484/#:%7E:text=International%20comparisons,than%20in%20the%20United%20States.">a higher level of income inequality</a> than many other developed countries.</p>
<p>The size of the pay gap varies with firm size. For the largest UK companies, such as those listed in the FTSE 100, the median CEO-to-employee pay ratio in 2020/21 was 67:1, while CEOs earned <a href="https://www.financialfairness.org.uk/en/media-centre/media-centre-news-article/pay-ratios-2022#:%7E:text=Across%20the%2069%20companies%20that,2021%2C%20at%2034%3A1.">93 times more</a> than employees on the lowest levels of pay.</p>
<h2>A growing gap</h2>
<p>As stark as these ratios are, they might actually understate the magnitude of pay inequality. </p>
<p>First, the figures above fail to account for low-paid workers such as contractors or staff on zero hour contracts. A recent <a href="https://www.financialfairness.org.uk/docs?editionId=1ed52299-9fee-4245-b20f-ac2b47c87bce">High Pay Centre</a> analysis of 69 company reports in the first quarter of 2022 calculates that a CEO at the average UK company earns 117 times more than their lowest-paid employees when these so-called “indirectly employed” workers are taken into account.</p>
<p>Second, the above analysis reveals that median CEO to employee pay ratios almost doubled from 34:1 to 63:1 between 2021 and 2022. This indicates a significant pandemic rebound in top-level pay is widening the gap further. But even before the pandemic, the gap was widening, if at a slower pace. During the ten-year period to the end of the 2021 financial year, median incomes for the poorest fifth of the UK population have <a href="https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2021#:%7E:text=Median%20household%20disposable%20income%20in,(ONS)%20Household%20Finances%20Survey">stayed broadly the same</a>, versus a 9.1% increase in average pay for the richest fifth of the population.</p>
<p>Interestingly, the size of the gap is not constant across the spectrum of wages (or the income distribution) paid to people in the UK. It is wider towards the top, which means a very small fraction of individuals are earning a disproportionately large fraction of total pay in the UK.</p>
<p><strong>Annual UK full-time gross pay by occupation, April 2022</strong></p>
<iframe height="603px" width="100%" src="https://www.ons.gov.uk/visualisations/dvc2189/beeswarm/index.html"></iframe>
<h2>Why is the pay gap so wide?</h2>
<p>There are a number of reasons why we see such large and persistent differences in pay within UK companies, particularly at this upper end. First, an <a href="https://www.jstor.org/stable/1830810#metadata_info_tab_contents">economic theory</a> called tournament models argues that “winner-takes-all” pay arrangements – where CEO pay exceeds all other employees (including the next highest paid executive) by a large multiple – create the strongest incentives for leaders. This is the same principle used to justify offering massive lottery jackpots rather than multiple smaller wins.</p>
<p>Second, variable pay structures such as bonuses and options linked to company share prices, are more common for company executives. Established <a href="https://www.sciencedirect.com/science/article/pii/0165410185900266">corporate governance</a> codes <a href="https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-uk-corporate-governance-code-final.pdf">recommend</a> that salaries with large variable elements – typically, a low salary paired with a large performance-related component such as a bonus – incentivise performance. </p>
<p>But this means executives bear additional pay risk (that they may not make much of a bonus one year), and so are compensated for that with higher expected pay when performance conditions are met. In other words, when pay is directly linked to performance via a bonus, your level of remuneration will typically be higher.</p>
<p>Other factors could reinforce disproportionately high pay for senior executives, such as weak (too easy) performance conditions in executive pay contracts. Also, the labour market for executive talent tends to be more competitive than for other employees because it draws on a smaller talent pool. Pay is driven up when companies have to compete harder to attract potential candidates. </p>
<p>These competitive effects are magnified because consultants tend to advise that CEOs must receive above-median pay to be competitive, which leads to <a href="https://www.jstor.org/stable/4166216#metadata_info_tab_contents">pay ratcheting</a>. The <a href="https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/bulletins/genderpaygapintheuk/2022">gender pay gap</a> may also play a role: men consistently earn more than women (even when holding roles constant) and men are disproportionately <a href="https://www.bbc.com/worklife/article/20220222-proof-verus-potential-problem">more likely</a> to hold senior executive positions.</p>
<figure class="align-center ">
<img alt="A cardboard sign held up at a strike says: " src="https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=518&fit=crop&dpr=1 754w, https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=518&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/492319/original/file-20221028-44561-ostww3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=518&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Workers in many UK industries have been striking for pay rises recently.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-29th-july-2020-nhs-1787843108">John Gomez / Shutterstock</a></span>
</figcaption>
</figure>
<p>It is often said that sunlight is the best disinfectant. And with this in mind, UK companies with more than 250 employees have been subject to rules on pay ratio reporting <a href="https://www.gov.uk/government/news/new-executive-pay-transparency-measures-come-into-force#:%7E:text=Pay%20ratio%20regulations%20will%20apply,relate%20to%20wider%20employee%20pay.">since January 2019</a>. This means that pay inequity is now more visible and so the debate should now be more informed. </p>
<p>But a potential consequence of a more informed debate is more conflict with employees. In the prevailing economic climate this could fuel pressure for strikes. But it’s hard to argue that keeping the scale of pay inequity in the shadows to reduce strike pressure is a better alternative. Increased conflict (in the form of debate) is almost certainly a necessary step on road to change.</p><img src="https://counter.theconversation.com/content/192709/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Young receives or has previously received funding from the Economic & Social Research Council, Finance Reporting Council, Financial Conduct Authority, CFA Society UK, Pensions & Lifetime Savings Association, Institute of Chartered Accountants in England & Wales, The Leverhulme Trust, The European Commission, and RailPen. </span></em></p>The pay gap is growing in UK, which has seen increased strike activity this year.Steven Young, Professor of Accounting, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1885372022-08-14T04:51:09Z2022-08-14T04:51:09Z‘It’s important not to overreact’: top economists on how to fix inflation<figure><img src="https://images.theconversation.com/files/478696/original/file-20220811-23-37tbw1.png?ixlib=rb-1.1.0&rect=347%2C0%2C3293%2C1994&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Australia’s top economists are divided about how to tackle ballooning inflation of <a href="https://theconversation.com/inflation-hasnt-been-higher-for-32-years-what-now-187452">6.1%</a> that’s forecast to climb to a three-decade high of <a href="https://theconversation.com/the-chalmers-graphs-7-75-inflation-plunging-real-wages-weak-growth-187851">7.75%</a> by the end of the year.</p>
<p>Three of the 48 leading economists surveyed by the Economic Society of Australia and The Conversation say Australia should be able to tolerate an inflation rate of 8% or higher. </p>
<p>Seven expect inflation to fall back to an acceptable level without the need for any further action other than Reserve Bank adjustments to interest rates.</p>
<p>That view was lent weight by news from the United States last week that annual inflation slid from 9.1% to 8.5% in July, after inflation of <a href="https://twitter.com/WatcherGuru/status/1557378804481507328">zero</a> over the month.</p>
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<p>Asked how high an inflation rate Australia should be prepared to tolerate, most nominated a rate at the top of or above the Reserve Bank’s 2-3% target band. </p>
<p>Twelve nominated a rate well above the target band.</p>
<p>Ten said the step-up in inflation was primarily caused by events overseas not within Australia’s power to control. </p>
<p>The economists polled are recognised as leaders in their fields, including economic modelling and public policy. Among them are former Reserve Bank, Treasury and OECD officials, and a former member of the Reserve Bank board.</p>
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<h2>Beyond rate rises, what could be done?</h2>
<p>There are three kinds of actions governments can take to bring consumer price inflation down</p>
<ul>
<li><p>actions that suppress consumer spending (“<a href="https://www.investopedia.com/terms/d/demand.asp">demand</a>”)</p></li>
<li><p>actions that boost the supply of goods and services (“<a href="https://www.investopedia.com/terms/q/quantitysupplied.asp">supply</a>”)</p></li>
<li><p>actions that directly restrain prices</p></li>
</ul>
<p>Invited to choose from a <a href="https://cdn.theconversation.com/static_files/files/2241/August_2022_National_Economic_Poll_Inflation_-_Google_Forms.pdf">menu</a> of options, and add options to the menu, the panel placed slightly greater weight on measures to restrain demand than measures to boost supply, and greater weight on both than measures to directly restrain prices.</p>
<p>The most popular measure, backed by 37% of those surveyed, was winding back government spending. Almost as popular, backed by 33%, was a super-profits tax on fossil fuel producers, with the proceeds used to reduce cost of services.</p>
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<p>Another tax measure – increased income taxes with the proceeds used to reduce cost of services – was backed by 17%. Two of those surveyed wanted to abandon the legislated <a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3 tax cuts</a> for higher earners due to take effect in 2024.</p>
<p>But several of those who advocated winding back government spending or boosting tax did so without enthusiasm, believing that while the government should be prepared to assist the Reserve Bank in suppressing consumer demand, suppressing demand wouldn’t tackle the main reasons prices were climbing.</p>
<h2>The risks of doing too much</h2>
<p>The Australian National University’s Robert Breunig said much of the inflationary pressure had come from things such as oil prices that were beyond the power of Australians to influence, making it “important not to overreact”.</p>
<p>Melbourne University banking specialist Kevin Davis said what appeared to be high inflation might actually mainly be a series of short-term supply-induced price rises, making it hard to see how choking demand could do much good. </p>
<p>Australia’s current <a href="https://theconversation.com/3-5-unemployment-australias-jobless-rate-at-its-lowest-since-1974-186917">ultra-low unemployment rate</a> was an achievement that should be celebrated, rather than put at risk without a good reason. </p>
<p>If high inflation did stay for a while and spread to wages, a welcome side effect would be more affordable housing.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-rba-is-hiking-rates-because-its-scared-it-cant-contain-inflation-188011">The RBA is hiking rates because it's scared it can't contain inflation</a>
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<p>Curtin University macroeconomist Harry Bloch made the point that while measures to suppress demand in Europe and the United States would indeed have an impact on global energy and food prices, that wasn’t true of measures to suppress demand in Australia, which is too small to influence global prices.</p>
<p>Consulting economist Rana Roy disagreed, saying the fact that high inflation wasn’t primarily caused by excess demand was no reason not to treat it by containing demand. Whatever the cause, containing demand would contain inflation.</p>
<p>Mala Raghavan from the University of Tasmania and Leonora Risse from RMIT University suggested winding back or delaying spending in two areas where it was clear the government was contributing to domestically-driven higher prices: subsidies for, and spending on, construction and infrastructure.</p>
<h2>Withholding gas, boosting immigration</h2>
<p>The most popular ideas for boosting the supply of goods and services to take pressure off inflation were reserving a portion of Australian gas and other commodities for domestic use, and boosting immigration, supported by 33% and 29% of the economists surveyed.</p>
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<p>Reserving a portion of Australian east coast gas for use in Australia would help decouple Australia’s east coast gas prices from <a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">sky-high international prices</a> as has happened in Western Australia, which reserves 15% of its gas for domestic use.</p>
<p>Boosting immigration would take pressure off costs by easing labour shortages.</p>
<p>Federation University’s Margaret McKenzie suggested investigating blockages in supply chains and offering diplomatic and industry support to bust them. </p>
<h2>Subsidising childcare, subsidising fuel</h2>
<p>The most popular idea for directly restraining prices was increased subsidies for childcare, supported by 25% of the economists surveyed, several of whom suggested it could also boost the supply of workers who had previously been prevented from working by unaffordable childcare.</p>
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<p>Other ideas that would directly restrain some prices included pushing for below-inflation wage rises in the Fair Work Commission and extending the six-month cut in fuel excise <a href="https://images.theconversation.com/files/478555/original/file-20220810-16-x8gzjd.JPG">due to expire in September</a>.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inflation-hasnt-been-higher-for-32-years-what-now-187452">Inflation hasn't been higher for 32 years. What now?</a>
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<p>Former Reserve Bank board member Warwick McKibbin warned against pursuing low inflation for its own sake, saying when the economy was weak or in recession a high rate of inflation could be more easily justified than at other times. </p>
<p>He said the Reserve Bank should stop targeting inflation and instead target the rate of growth in national spending, an idea he will be putting to the independent <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/review-reserve-bank">review</a> of its operations.</p>
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<p><em>Detailed responses:</em></p>
<p><iframe id="tc-infographic-727" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/727/31a707c4f4bdf3af0aebb2c2d4fa43148f40f58e/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/188537/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked how high an inflation rate Australia should prepare to tolerate, three of the 48 economists nominated 8% or higher. Seven expected inflation to fall without the need for further action.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1843192022-06-02T06:50:43Z2022-06-02T06:50:43ZPolitics with Michelle Grattan: Tony Burke advocates on wages and arts<p>Tony Burke is the minister for employment and workplace relations and minister for the arts, as well as the leader of the House of Representatives. </p>
<p>One of his first tasks is the government’s new submission for the minimum wage case, which will say these workers should not be left behind, as inflation has spiked. </p>
<p>If the Fair Work Commission gives a 5.1% rise, in line with inflation, is there a case for it not flowing through to awards, or all awards? </p>
<p>“I can’t imagine a situation where there was no flow-through at all. The commission always has the capacity to work out how the flow-through might happen.” He notes one option floated has been a flat dollar increase so the flow-through happened differently. </p>
<p>“The commission will work that through. But certainly there are many awards that are not far from the minimum wage. </p>
<p>"And when we talk about the heroes of the pandemic a lot of those people are on those awards. So while the focus has been specifically minimum wage, I tend to use the term low-paid workers.” </p>
<p>On reforming parliament, Burke says he is not trying to get rid of the anger. He doesn’t want to turn parliament into “a quiet, polite dinner party”. </p>
<p>“The debate is fierce and passionate and real. I think that matters and I think it’s good for democracy.”</p>
<p>Nor is he in favour of scrapping “dorothy dixers”, because the government needs the opportunity to tell the house what it is doing. </p>
<p>But there will be more questions for the larger crossbench, and he flags the government won’t so routinely shut down opposition moves for debates. </p>
<p>“Standing Orders say there’s one question from the crossbench. With a crossbench as large as what we’re now facing, that’s just not sustainable.”</p>
<p>Without changing that, “you’re effectively telling a very large number of Australians that because they didn’t vote for a major party, their voice is going to be heard less.”</p>
<p>Burke says he has a passion for the arts – he was briefly arts minister at the end of the last Labor government – and laments a lack of a cultural policy in recent years.</p>
<p>“In cultural terms, what the arts, events, entertainment sector do matters to who we are as Australians. And that affects your education policy, your health policy, your trade policy, your foreign affairs policy. Nor has there been any guidance that these are serious industries and these are serious jobs.”</p>
<p>The arts are really important in giving people a capacity to imagine and create, Burke says. They are “really important for us as a nation. I don’t think we’ve had an arts minister see it as a priority in that sense for a long time, and I really want to bring that back”.</p><img src="https://counter.theconversation.com/content/184319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan speaks with Tony Burke the minister for employment and workplace relations and minister for the arts, as well as the leader of the House of Representatives.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1829532022-05-12T12:20:54Z2022-05-12T12:20:54ZGrattan on Friday: It’s Albanese’s to lose, as Morrison looks for some momentum<p>The Liberals have used John Howard extensively during this campaign. These days, they celebrate their party hero as the great winner. He was, however, the last Liberal prime minister to take his party into the wilderness. </p>
<p>There are comparisons and contrasts between 2007 and 2022. In each election the Coalition government was “old” – in 2007 it was seeking a fifth term; now it’s asking for a fourth. </p>
<p>People were “over” Howard, as they’re “over” Scott Morrison. But the feeling against Howard was that he’d had his time – it’s visceral against Morrison. </p>
<p>Kevin Rudd was a fresh face, plugged into the rising issue of the times, climate change. Anthony Albanese often projects more as old Labor than future Labor. </p>
<p>Oh, and interest rates went up by 25 basis points during each campaign – to 6.75% (an 11 year high) in 2007 and to 0.35% in 2022 (still at rock bottom). </p>
<p>Despite Albanese’s campaign hiccups, at the end of this penultimate week, based on the objective evidence, the election appears his to lose. </p>
<p>The Australian newspaper’s <a href="https://www.theaustralian.com.au/nation/federal-election-2022-labor-to-win-modest-majority-with-80-seats-yougov-poll-predicts/news-story/84c4634d4fd3671e5194a2c5739b3e2c">YouGov poll</a>, which surveyed almost 19,000 people across all lower house seats between April 14 and May 7, had Labor on track to majority government. </p>
<p>This is not predictive – it’s a snapshot. Both sides know the final campaign days provide risks and opportunities. </p>
<p>A sizeable number of voters have yet to firm up their decisions. In particular, how will soft Liberal voters who are put off by Morrison break? Between those who opt to swallow hard and stick with the government and those who can’t stomach the PM any longer? </p>
<p>But to state the obvious, Morrison has a short time in which to try reduce a big margin. Last minute scare campaigns can play effectively; unexpected developments can change the dynamics. But that’s only if enough voters in the right seats retain an open mind.</p>
<p>The Liberals have left their launch, to be held in Brisbane on Sunday, until the last moment. New policy will be announced. Morrison needs to garner some momentum from it for the home run. </p>
<p>Next week will see the release of important economic data, on unemployment and wages. The government will be hoping the unemployment figure, most recently 4%, will have a three in front of it. That would be good news for the Coalition’s economic pitch. </p>
<p>The wages number could play to Labor. </p>
<p>Wages growth was 2.3% in the year to December. Any increase on that for the year to March would be expected to be small. The Reserve Bank has forecast wage growth of 2.7% in the year to June, indicating it doesn’t anticipate much in March. </p>
<p>If next week’s figure is modest, Labor will be able to use it to highlight its case that many people are going backwards in real terms, given the 5.1% inflation rate. </p>
<p>One skill in politics is to be able to turn a negative into a neutral, or a positive, and Albanese did this in the argument over wages and inflation this week. </p>
<p>He initially slipped up, when he embraced the desirability of the minimum hourly wage being increased by 5.1%, to match inflation. The reasons he should not have been so precise have been well canvassed.</p>
<p>But when subsequently he translated such a rise into “two coffees a day”, the proposition would look to many voters more than reasonable (regardless of some counter economic arguments). </p>
<p>Morrison jumped on Albanese’s wages position as evidence the opposition leader did not understand economic matters, with the derogatory put down that “Anthony Albanese is a loose unit on the economy.” But that meant the prime minister was advocating a real wage cut for the lowest paid workers. </p>
<p>The Albanese-as-risk claim is about the best attack line the government has got, but when the debate is about wages, the government is fighting on Labor’s preferred turf. </p>
<p>If Albanese’s campaign has had mistakes and glitches, Morrison’s is undermined by the very obvious fact he’s leading a divided party. </p>
<p>Hardly any Liberals would have heard of Katherine Deves before she shot to prominence as Morrison’s captain’s pick for Warringah. Now her views on transgender issues, which the PM thinks will work for him among some ethnic voters, are causing the Liberals serious internal and external angst. </p>
<p>In a video, former prime minister Tony Abbott, who lost Warringah to independent Zali Steggall in 2019, has urged reluctant Liberal members in the seat to get behind Deves. </p>
<p>“The more I see of Katherine Deves the more impressed I am with her courage, with her common sense, with her decency and with quite frankly her capacity to win this seat back for the Liberal Party,” Abbott says. </p>
<p>Voters’ disgruntlement with Abbott’s high profile campaign against marriage equality was a factor in his defeat in 2019. His words about Deves suggest he remains tone deaf to the views of many in the party and the public within his old seat. </p>
<p>While Abbott lavishes praise on Deves, treasurer Josh Frydenberg, fighting for his political life against a teal candidate in Kooyong, was again distancing himself from Morrison’s defence of her. </p>
<p>“I myself have been very clear in rejecting what Katherine Deves has been saying. Her comments have been insensitive, they’ve been inappropriate,” he reiterated on the ABC. </p>
<p>Morrison has said that in his “captain’s pick” candidates for various NSW seats he was anxious to run women. </p>
<p>A <a href="https://giwl.anu.edu.au/research/publications/election-22-glass-cliff-candidates">study</a> by the Australian National University’s Global Institute for Women’s Leadership, released Thursday, of candidates from the major parties found only about 20% of female Coalition candidates are running in safe seats. This compares with 46% of male candidates. More than half (51%) of Coalition women candidates are running in marginal seats – under 6% – compared with 25% of male candidates.</p>
<p>Some “80% of female candidates in the Coalition are […] running in seats they are unlikely to win, or that are precarious to hold. The equivalent proportion of men running in these seats is 54%,” the study says.</p>
<p>If the Liberals lose this election, addressing the women problem will be among many issues confronting a shattered party. </p>
<p>Meanwhile women present a major obstacle in Morrison’s attempt to pull this election out of the fire. </p>
<p>The female teal candidates will be attractive to women voters in those seats. More generally, Morrison is significantly more unpopular with women than with men. Women voters could be in the vanguard if May 21 delivers him a mortal blow.</p><img src="https://counter.theconversation.com/content/182953/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Despite Albanese’s campaign hiccups, at the end of this penultimate week, based on the objective evidence, the election appears to be his to lose.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1772182022-02-17T19:03:56Z2022-02-17T19:03:56ZVital Signs: Unemployment steady at 4.2%, but it will need to go lower still to lift wages<figure><img src="https://images.theconversation.com/files/446957/original/file-20220217-21-o5q38f.png?ixlib=rb-1.1.0&rect=605%2C145%2C1989%2C1202&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.datawrapper.de/_/IlK82/">ABS/Shutterstock</a></span></figcaption></figure><p>Thursday brought news that Australia’s official unemployment rate in January remained at a historically <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jan-2022">low 4.2%</a>. In parliament, Prime Minister Scott Morrision boasted of the nation being on track to achieve a rate “with a 3 in front of it” this year. </p>
<p>It’s entirely possible the unemployment rate will drop further. The Reserve Bank of Australia’s <a href="https://www.rba.gov.au/speeches/2022/sp-gov-2022-02-02.html">central forecast</a> is 3.75% by the end of 2022. Some economists <a href="https://theconversation.com/unemployment-below-3-is-possible-if-australia-budgets-for-it-176025">have suggested</a> it could be driven down below 3%.</p>
<p>With economic management is a key issue at any election, it is clear the state of the labour market will be a big part of the Coalitions re-election narrative. </p>
<p>But the story on wages is not impressive.</p>
<p>Real wages (that is, wages adjusted for inflation) have <a href="https://www.rba.gov.au/publications/confs/2019/pdf/rba-conference-2019-andrews-deutscher-hambur-hansell-discussion.pdf">not grown strongly</a> in recent years. From 2013 to 2018 they grew at 0.5%, compared with 0.8% from 2008 to 2012, and 1% from 2001 to 2007.</p>
<p>Australia is not alone in this respect. Growth in real wages has been sluggish since 2013 in many advanced economies. For the average American worker they <a href="https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/">haven’t budged in 40 years</a>.</p>
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<p><strong>Annual growth in real wages</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/446941/original/file-20220217-25-11zt3ea.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">12-month growth in total hourly rates of pay excluding bonuses minus growth in consumer price index.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">ABS Wage Price Index, Consumer Price Index</a></span>
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<p>There are many reasons for this. Labour-saving technologies are reducing demand for all sorts of human workers, from <a href="https://theconversation.com/vital-signs-the-end-of-the-checkout-signals-a-dire-future-for-those-without-the-right-skills-129894">truck drivers and cashiers</a> to junior lawyers and accountants. Globalisation and international trade have increased competition for less-skilled labour. </p>
<p>What <a href="https://www.aeaweb.org/articles?id=10.1257/0022051026976">economists call</a> “skill-biased technical change” – new technologies requiring workers to have more skills – has increased wage inequality. The question is what to do about all of this. </p>
<h2>Market forces prevail</h2>
<p>The first-order policy response should be recognition that a tighter labour market than in the past is now needed to drive wages growth. That is, to get wages up we need to get unemployment down even further – and keep it there.</p>
<p>There is some resistance to this idea. </p>
<p>One argument is that Australia’s labour market isn’t all that competitive – that it’s full of all sorts of regulatory institutions such as the award system and enterprise bargaining that obscure or even break the relationship between unemployment and wages growth.</p>
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<strong>
Read more:
<a href="https://theconversation.com/why-theres-no-magic-jobless-rate-to-increase-australians-wages-176538">Why there's no magic jobless rate to increase Australians' wages</a>
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<p>This has never been a persuasive argument. At most these institutions mean there will be lags in adjustment – with the Fair Work Commission reviewing awards <a href="https://www.fairwork.gov.au/newsroom/news/annual-wage-review-2021">once a year</a> and enterprise agreements typically negotiated every three years.</p>
<p>Yet even these lags are less important than they used to be, now the percentage of private-sector workers covered by enterprise agreements is <a href="https://www.ag.gov.au/industrial-relations/publications/historical-trends-data-current-quarter">just 10.9%</a> compared with nearly a quarter in 2010.</p>
<h2>What governments can and can’t do</h2>
<p>The reality is that the majority of Australian workers have their pay determined by market forces, mediated by individual agreements. Supply and demand in the labour market is the key determinant of wage outcomes.</p>
<p>Understanding this helps frame what governments can and can’t do about wages.</p>
<p>They certainly can enact policies that drive unemployment down and hence wages up. On this count the Morrison government gets high marks and deserves due credit.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-wages-growth-desultory-unemployment-stunning-161099">Vital Signs: wages growth desultory, unemployment stunning</a>
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<p>They can also help provide workers with better skills, which lead to higher wages. One of the central lessons from economics is that <a href="https://www.theatlantic.com/science/archive/2019/02/green-new-deal-economic-principles/582943/">people basically get paid for their skills</a>.</p>
<p>Australia’s major political parties could do a much better job of formulating a comprehensive education and training policy.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/446943/original/file-20220217-19-1uwyjtn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Apprenticeship schemes are tinkering.</span>
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<p>On the Labor side, announcing a few new apprenticeships is fine but really just tinkering. On the Liberal side, whining about postmodernism isn’t going to provide students with more human capital.</p>
<p>Governments could also encourage schemes to give workers a stake in the profits of the enterprises they work for – through employee share ownership or worker ownership schemes. Rosalind Dixon and I have proposed a “<a href="https://theconversation.com/introducing-shadow-equity-a-fresh-idea-to-escape-the-low-wage-trap-113362">shadow equity</a>” scheme as one way to implement this.</p>
<p>What governments can’t do is turn back the tide of globalisation and pretend automation won’t continue to replace or reduce demand for human labour.</p>
<p>It is futile, for example, to seek to resurrect Austrlia’s car manufacturing industry. Sure, let’s talk about developing new manufacturing industries, such as in battery technology, but a 1970s-style industry policy won’t bring back the jobs.</p>
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Read more:
<a href="https://theconversation.com/an-unemployment-rate-below-4-is-possible-but-for-how-long-175618">An unemployment rate below 4% is possible. But for how long?</a>
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<p>To get wages growth moving again we need lower unemployment, and to ensure it stays low. That won’t happen effectively by just mandating higher wages. It will happen by ensuring workers have the skills the market values, and by keeping macroeconomic policy settings tuned for low unemployment.</p>
<p><iframe id="cccqr" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/cccqr/3/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/177218/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President of the Academy of the Social Sciences in Australia.</span></em></p>A tighter labour market than in the past is now needed to drive real wages growth.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1765382022-02-08T19:09:41Z2022-02-08T19:09:41ZWhy there’s no magic jobless rate to increase Australians’ wages<figure><img src="https://images.theconversation.com/files/444934/original/file-20220208-25-s4n5th.jpg?ixlib=rb-1.1.0&rect=0%2C535%2C5410%2C2782&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>With the <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">official unemployment rate</a> now 4.2% – the lowest since 2008 – Prime Minister Scott Morrison has <a href="https://www.afr.com/politics/federal/morrison-sets-unemployment-goal-not-seen-for-50-years-20220201-p59ss9">predicted</a> a rate “with a 3 in front of it this year”. The Reserve Bank of Australia <a href="https://www.rba.gov.au/publications/smp/2022/feb/pdf/statement-on-monetary-policy-2022-02.pdf">agrees</a>, forecasting unemployment below 4% in coming months.</p>
<p>Many economists have been surprised at how quickly employment has rebounded from the effects of COVID-19. Now they are scratching their heads for another reason. </p>
<p>With unemployment so low, why aren’t wages growing more quickly?</p>
<h2>Real wages falling</h2>
<p>If something is in short supply, its price is supposed to rise. That’s according to conventional economics, which treats the price of labour (wages) much like any other commodity, from pork bellies to rapid antigen tests. </p>
<p>But there is little sign of that happening. </p>
<p>Since 2013, growth in nominal wages (not accounting for inflation) has been weaker than any time since the 1930s, with the <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#data-download">average annual rate of 2.1%</a> growth half the typical rate of earlier years. </p>
<p>After grinding to a halt during the lockdowns, wage growth has rebounded – but only to those anaemic pre-pandemic rates (up just 2.2% in the past 12 months). Nominal wages are now lagging well behind consumer prices. Real wages (accounting for inflation) are therefore falling – the opposite of what free-market theory predicts when unemployment is low.</p>
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<strong>
Read more:
<a href="https://theconversation.com/unemployment-below-3-is-possible-if-australia-budgets-for-it-176025">Unemployment below 3% is possible – if Australia budgets for it</a>
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<p>This outcome puzzles those economists who focus on market forces to explain income distribution. But it’s not surprising to those who consider a broader array of structural, institutional and social determinants of wages. </p>
<p>Unemployment may matter to wage trends, although not necessarily for the same reasons assumed by market-focused theories. But many other factors – including minimum wages, collective bargaining, the award system, and even politics and culture – also explain who gets paid what.</p>
<h2>Market-based ideas driving policy</h2>
<p>A simple market-based understanding of wages has guided the policy stance of the government and the RBA for a generation. </p>
<p>Both still ascribe, for example, to the concept of a “non-accelerating inflation rate of unemployment” (or NAIRU).</p>
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<p><strong>The Non-Accelerating Inflation Rate of Unemployment (NAIRU)</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The non-accelerating inflation rate of unemployment (NAIRU)." src="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=483&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=483&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=483&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=607&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=607&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444936/original/file-20220208-12-1h8rv0k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=607&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">RBA</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>This refers the lowest unemployment rate achievable without causing wages to grow and inflation to rise. Both keep changing their estimates of its precise level, with the treasury’s <a href="https://treasury.gov.au/sites/default/files/2021-04/p2021-164397_estimatingthenairuinaustralia.pdf">most recent calculations</a> putting it at 4.5% to 5% in the years before the pandemic. </p>
<p>One reason the estimates shift is because the concept is impossible to measure. Many countries have abandoned this <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/3111/attachments/original/1573673492/Tolerate_Unemployment_but_Blame_the_Unemployed_Formatted.pdf?1573673492">widely criticised</a> concept. Yet it still underpins Australia’s fiscal and monetary policies. </p>
<p>A gentler approach acknowledges wages will accelerate gradually, instead of taking off suddenly, as unemployment approaches the estimated non-accelerating inflation rate of unemployment (NAIRU). </p>
<p>This relationship is expressed graphically in what is called the Phillips Curve. </p>
<hr>
<p><strong>The Phillips Curve</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="The Phillips Curve" src="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=530&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=530&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=530&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=665&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=665&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444930/original/file-20220208-21-13ze7pg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=665&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/education/resources/explainers/nairu.html?utm_source=twitter&utm_medium=social&utm_content=nairu&utm_campaign=explainer">RBA</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>As unemployment falls, wage growth should gradually gain steam. That allows policy makers, especially the RBA, to try to guide the economy to a “sweet spot” on the Phillips Curve: with wage growth consistent with the RBA’s inflation target. </p>
<h2>Nice in theory, not in reality</h2>
<p>Unfortunately for both theories, the expected automatic relationship between unemployment and wages isn’t visible in the real world. Australia’s unemployment rate has fallen through successive estimates of the NAIRU (first 6%, then 5%, now 4%) with no sign of inflationary take-off.</p>
<p>The Phillips Curve is also morphing, changing both its vertical position and its shape. The accompanying figure plots unemployment versus the annual rate of growth in wages. </p>
<hr>
<p><strong>Wage growth and unemployment, 2000-2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="alt" src="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=433&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=433&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=433&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=544&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=544&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444944/original/file-20220208-15-1y0rhi8.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=544&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">ABS wage price index and labour force data.</span>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Before 2013 only a weak relationship was visible between wages and unemployment. Since 2013 the curve has shifted down and flattened, with hardly any discernable connection between unemployment and wages.</p>
<h2>Other factors at play</h2>
<p>The only way to explain this seeming anomaly is to look at the broader, structural determinants of wages. </p>
<p>No economy simply sets the market loose to determine how much people get paid. </p>
<p>Regulations, institutions and processes mediate the distribution of income across classes, occupations and jobs. They can be used to create a more equitable distribution. Or they can be used to reward certain groups and suppress the incomes of others. Either way, it is institutions and policies – shaped fundamentally by politics and power – that determine how the economic pie gets divided.</p>
<p>Circumstances now provide a telling insight into how important those institutions are – and how dramatically they have changed. The accompanying table compares labour market outcomes and institutional parameters today, to those that prevailed the last time unemployment was below 4%. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Unemployment and wages indicators, 1972 vs 2022." src="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444975/original/file-20220208-23-pyrogd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Fifty years ago nominal wages were growing robustly, at more than 10%. Inflation was high (close to 6%) but real wages still rose. Now inflation is half that rate, yet wages are falling behind prices.</p>
<p>This is due to a night-and-day contrast between labour-market institutions then and now. </p>
<p>The minimum wage now is much lower relative to the average. The awards system has been restructured to serve only as a safety net, rather than leading improvements in wages and conditions. Unions and collective bargaining have been decimated, with strikes almost non-existent. Workers’ bargaining power has been further eroded by the spread of part-time work, casual jobs and other non-standard employment, including digital gigs.</p>
<p>Fifty years ago workers had institutional power to win decent wage increases – even when unemployment was relatively high. That power has been steadily and deliberately stripped away through privatisation, suppression of union activity and liberalisation of insecure employment.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-expect-rba-to-hold-rates-low-in-2022-as-real-wages-fall-175054">Top economists expect RBA to hold rates low in 2022 as real wages fall</a>
</strong>
</em>
</p>
<hr>
<p>Higher wages would strengthen household finances, support consumer spending and achieve a fairer distribution of income. But there’s no magic unemployment rate that will deliver that outcome. </p>
<p>If we want higher wages, we must win them through deliberate wage-boosting policies.</p><img src="https://counter.theconversation.com/content/176538/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>If we want higher wages, we must win them through deliberate wage-boosting policies.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1756182022-01-26T19:07:38Z2022-01-26T19:07:38ZAn unemployment rate below 4% is possible. But for how long?<p>It would be nice to think Australia’s low unemployment rate – now 4.2%, the lowest since August 2008 – is here to stay.</p>
<p>We’ve been waiting a long time to see this. In the decade before the onset of COVID-19 the jobless rate hardly moved. In March 2010 it was 5.4%. Ten years later, in March 2020, it was 5.3%. In between the lowest the rate was to 4.9% - and then just for two months. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph showing Australia's unemployment rate from December 2011 to December 2021." src="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442446/original/file-20220125-23-vbh20m.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>In 2021 the unemployment rate was under 5% in six out of 12 months.</p>
<p>A lower rate of unemployment makes us all better off. It means more of the nation’s productive resources are being put to work, and higher living standards for those extra people employed and their families.</p>
<p>Even with the effects of Omicron, there are good reasons to think the rate will fall further in 2022. </p>
<p>The bigger question is whether whatever lower rate we achieve can be sustained once all the effects of the pandemic are behind us. This will depend largely on how macroeconomic policy makers handle the transition. </p>
<h2>High job vacancies</h2>
<p>One reason to expect the rate to go lower in 2022 is recent employment growth – 365,000 in November, and 65,000 in December. With that pace of growth it’s likely there’s more to come, especially given the high level of job vacancies. </p>
<p>Had the vacancy rate at the end of 2021 been the same as before COVID-19, an extra 158,000 jobs would have been filled. Just half of those jobs going to the unemployed would have seen the December unemployment rate drop to 3.6%. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-has-record-job-vacancies-but-dont-expect-higher-wages-172146">Australia has record job vacancies, but don't expect higher wages</a>
</strong>
</em>
</p>
<hr>
<p>Uncertainties make it difficult to predict exactly how much lower the jobless rate could go, or for how long. That will depend on macroeconomic policy – the reason the unemployment rate is where it is now.</p>
<h2>Government action has been crucial</h2>
<p>The <a href="https://drive.google.com/file/d/1I0R68BHr9ozS8doqtqi53yuM4YArEgGp/view?usp=sharing">big reason</a> the unemployment rate has fallen is due to growth in the proportion of the population who are employed accelerating since mid-2021.</p>
<p>When you think about what changed in 2021 to make this happen, government policy has to be the main explanation.</p>
<p>Government spending on COVID-related programs has added considerably to gross domestic product, increasing employment. </p>
<p>Closed borders may also have added to GDP – by as much as 1.25% per annum, according to economist Saul Eslake – due to Australians redirecting spending from international travel to domestic consumption.</p>
<p>What follows is that a low rate of unemployment will depend on the policy makers being willing to continue to provide stimulus to economic activity.</p>
<h2>An opposing force</h2>
<p>One headwind blowing the unemployment rate higher may be faster growth in the labour-force participation rate, which measures the proportion of the population who want to work. </p>
<p>Before COVID-19 the participation rate had been increasing rapidly. With COVID-19 it slowed, due to reasons such as parents having to withdraw from the labour force to care for children.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="ABS labour force participatin rate, December 2021." src="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442448/original/file-20220125-13-p9rn2z.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>Should growth in the labour-force participation rate return to its previous pace once the impact of COVID-19 recedes, the rate of unemployment will be pushed back up.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/just-4-5-during-lockdowns-the-unemployment-rate-is-now-meaningless-167805">Just 4.5% during lockdowns? The unemployment rate is now meaningless</a>
</strong>
</em>
</p>
<hr>
<h2>Statistics for young workers</h2>
<p>Issues to do with measurement may also be temporarily making the rate of unemployment artificially low. </p>
<p>The strongest employment growth from March 2020 to December 2021 was for those aged 15 to 24 years. </p>
<p>Younger workers were hardest hit during the 2020 downturns associated with COVID-19. But by December 2021 the proportion of young people employed was 3.5 percentage points higher than in March 2020. This compares with the employment rate being 1.2 percentage points higher than before the pandemic for those aged 25-64 years, and 0.9 percentage points higher for those 65 years and older. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Percentage change in proportion of people employed, by age, since March 2020." src="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442655/original/file-20220126-19-wilsxv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>The strength of employment growth for the young – given all we know about the increasing difficulties they faced in the labour market in the 2010s – is surprising.</p>
<p>My guess is it may in part be due to young Australian permanent residents taking over jobs previously held by international students and working holiday makers, and being more likely to be captured in official surveys. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-economy-cant-guarantee-a-job-it-can-guarantee-a-liveable-income-for-other-work-153444">The economy can't guarantee a job. It can guarantee a liveable income for other work</a>
</strong>
</em>
</p>
<hr>
<p>In that case, total employment of the young may not actually have changed by much, but the statistics show it increasing because of who is doing the work.</p>
<p>Before COVID-19 we could reasonably have expected the rate of unemployment today to be 5%. Instead, we’re at 4.2% and looking ahead in 2022 to further falls in unemployment. What lies beyond that is less certain.</p><img src="https://counter.theconversation.com/content/175618/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeff Borland receives funding from the Australian Research Council. He is a Board member of the Committee for Economic Development of Australia.</span></em></p>There is enough momentum for Australia’s unemployment rate to go lower than 4.2% in 2022. Keeping it low is another matter.Jeff Borland, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1732452021-12-26T20:28:27Z2021-12-26T20:28:27ZLike songs, the best graphs tell stories. Here are my 10 favourites from 2021<figure><img src="https://images.theconversation.com/files/436251/original/file-20211208-141213-1demhsp.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">sheetmusicdirect</span></span></figcaption></figure><p>“One of the first things you have to decide on with a musical is why should there be songs.”</p>
<p>The person speaking is <a href="https://www.nytimes.com/video/players/offsite/index.html?videoId=1248069062358">Stephen Sondheim</a>, the writer of some of the best songs for musicals in the 20th century, who died in November aged 91.</p>
<blockquote>
<p>You can put songs in any story, but what I think you have to look for is, why are songs necessary to this story? If it’s unnecessary, then the show generally turns out to be not very good.</p>
</blockquote>
<p>I’m no <a href="https://www.abc.net.au/news/2021-11-27/stephen-sondheim-dies/100655760">Sondheim</a>, but as an editor I won’t put a graph into any story unless it is absolutely necessary to tell the story.</p>
<p>When I do, the picture can be worth at least the 800 words that accompany it.</p>
<p>So here are my 10 favourites from the business and economy stories I edited for The Conversation in 2021.</p>
<h2>Some of the best graphs remove doubt</h2>
<p>This graph, from the Bureau of Statistics, leaves no doubt about what happens to consumer spending when lockdowns end.</p>
<p>Released in November, with the national accounts, it uses <a href="https://theconversation.com/sure-the-national-accounts-show-gdp-going-backwards-but-look-at-whats-to-come-172950">bank account data</a> to show what happened to spending on clothes, furnishings, recreation, transport and restaurants and hotels. </p>
<hr>
<p><strong>Selected Victorian spending data</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Aggregated bank data. Index for May 2020 = 100.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/articles/impact-lockdowns-household-consumption-insights-alternative-data-sources">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>While the effect is clear, and beautifully illustrated, it can be interpreted in two ways. One is that lockdowns are to be avoided because they suppress ordinary life. </p>
<p>The other is that Victoria’s long lockdown was caused by the failure of the NSW government to lockdown <a href="https://www.abc.net.au/news/2021-12-02/policy-failures-caused-the-historical-decline-in-economic-growth/100664322">quickly enough</a> and hard enough as the Delta variant spread, meaning lockdowns are to be embraced, and quickly. </p>
<p>Another graph that removed doubt is this one showing what Australia’s July 2012 to July 2014 carbon price did to <a href="https://theconversation.com/vital-signs-marketing-is-getting-in-the-way-of-markets-that-could-get-us-to-net-zero-171602">greenhouse gas emissions</a>, excluding those related to land use and forestry that are subject to government directives.</p>
<hr>
<p><strong>Australian emissions excluding land use, land-use change and forestry</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=285&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=285&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=285&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=358&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=358&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=358&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Million tonnes of carbon dioxide equivalent per annum, updated quarterly.</span>
<span class="attribution"><a class="source" href="https://www.climatecouncil.org.au/wp-content/uploads/2019/04/Climate-Cuts-Cover-Ups-and-Censorship.pdf">Climate Council, Department of Industry</a></span>
</figcaption>
</figure>
<hr>
<p>Whatever else is said about the carbon price, its effect on emissions is clear. </p>
<p>Also clear, and enormous when you look at it, is what our current system of adjusting JobSeeker only in line with the consumer price index will do to it compared to the age pension, which is adjusted in line with wages.</p>
<p>The projections in this graph derive from the mid-year intergenerational report which looks forward 40 years. </p>
<p>After 40 years – unless there’s an extra increase, and one wasn’t allowed for in the intergenerational report – JobSeeker will be a <a href="https://theconversation.com/when-covid-is-behind-us-australians-are-going-to-have-to-pay-more-tax-164707">mere fraction</a> of the pension.</p>
<hr>
<p><strong>JobSeeker and age pension as projected in intergenerational report</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Payment for a single person, dollars per fortnight. JobSeeker, pension indexed to intergenerational report inflation projections.</span>
</figcaption>
</figure>
<hr>
<p>Also shrinking, with unfortunate consequences for <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">Australians with mortgages</a> and Australians trying to get them, has been wage growth.</p>
<p>The government has been forecasting a return to the 3-4% wage growth we once had in <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188">every budget</a> since 2012, save for the last two.</p>
<p>Right now public sector wages growth, which used to lead private sector growth, is well below 2%. Private sector growth has started to climb, but it is well short of where it was.</p>
<hr>
<p><strong>Wage price index</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Annual seasonally adjusted growth in total hourly rates of pay excluding bonuses.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/sep-2021">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>Up until the year 2000, buying a home cost between two and three times household after tax-income. </p>
<p>Then, after the headline rate of capital gains tax was halved and investors dived into the market, prices climbed to between three and four times income.</p>
<p>Six years ago they jumped again to between four and five times income, and in 2021 they climbed once again to more than <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">six times</a> disposable income.</p>
<hr>
<p><strong>Home prices as proportion of household disposable income</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf">Core Logic, ABS, RBA</a></span>
</figcaption>
</figure>
<hr>
<p>While low wage growth should make it harder to pay off a loan than it used to be, just at the moment ultra-low interest rates are making it <a href="https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959">easier to service</a> mortgages than it has been in decades.</p>
<p>But what the Reserve Bank calls <a href="https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959">housing accessibility</a> (to distinguish it from housing affordability) is much worse.</p>
<p>Astounding price growth and a decade of weak wages growth have pushed up the cost of an average first home deposit from 70% of income to more than 80%.</p>
<hr>
<p><strong>Average first home buyer deposit</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=238&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=238&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=238&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=299&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=299&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=299&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Owner-occupier; estimated as a share of average annual household disposable income using average first home buyer commitment size and assuming 20 per cent deposit. Seasonally adjusted and break-adjusted.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/submissions/housing-and-housing-finance/inquiry-into-housing-affordability-and-supply-in-australia/pdf/inquiry-into-housing-affordability-and-supply-in-australia.pdf">RBA, ABS</a></span>
</figcaption>
</figure>
<hr>
<h2>Other graphs surprise</h2>
<p>If we start building more houses, it stands to reason that we will get more houses.</p>
<p>That’ll doubtless be the case eventually, but if you are expecting it to happen any time soon, you will be disappointed.</p>
<p>In the space of a year, the number of Australian houses (not apartments) under construction has jumped from 56,060 to 88,445 — the most ever. </p>
<p>But bizarrely, as has been the case for half a century, the number of houses completed each quarter has <a href="https://theconversation.com/building-more-houses-quickly-is-harder-than-it-looks-australia-hasnt-done-it-in-decades-170223">barely moved</a>. </p>
<p>It’s as if homebuilding can’t scale up. </p>
<hr>
<p><strong>Houses under construction, houses completed, quarterly</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=321&fit=crop&dpr=1 600w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=321&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=321&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=404&fit=crop&dpr=1 754w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=404&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=404&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia/latest-release#data-download">Australian Bureau of Statistics</a></span>
</figcaption>
</figure>
<hr>
<p>Another surprising graph shows the disconnect between crime and our desire to lock people up.</p>
<p>Nonviolent crime has plummeted. Between 2000 and 2020, armed robberies fell from 9,480 to 4,746, unarmed robberies fell from 13,850 to 4,666, and motor vehicle vehicle theft fell from 138,915 to 48,056.</p>
<p>Violent crime is falling too. The Productivity Commission believes homicide gives the best read on crime because almost all homicides are reported. </p>
<p>It found that while homicide has plummeted, imprisonment has <a href="https://theconversation.com/more-prison-time-for-less-crime-our-swelling-prisons-are-costing-us-dearly-170792">doubled</a>. </p>
<hr>
<p><strong>Homicides and imprisonment per 100,000 Australians</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=314&fit=crop&dpr=1 600w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=314&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=314&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=395&fit=crop&dpr=1 754w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=395&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=395&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Number of prisoners per 100,000 population aged 18 years and over, number of homicides per 100,000 persons.</span>
<span class="attribution"><a class="source" href="https://www.pc.gov.au/research/completed/prison-dilemma">Productivity Commission</a></span>
</figcaption>
</figure>
<hr>
<p>Another surprise is that the “<a href="https://theconversation.com/australias-great-resignation-is-a-myth-we-are-changing-jobs-less-than-ever-before-170784">great resignation</a>” – the jump in the proportion of workers quitting their jobs in the United States – hasn’t been seen here.</p>
<p>It seems to be a real phenomenon in the US, where low vaccination rates have made public-facing jobs dangerous, but not here where resignations have been falling for decades.</p>
<p>Australians seem increasingly resigned to staying in the jobs they are in.</p>
<hr>
<p><strong>Proportion of Australians who changed jobs in the past year</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/job-mobility/feb-2021">Australian Bureau of Statistics</a></span>
</figcaption>
</figure>
<hr>
<h2>The very best graphs tell an entire story</h2>
<p>When COVID took off in the first half of 2020 there was concern that many more people would die as a result of COVID than were recorded as COVID deaths.</p>
<p>Some of these “<a href="https://www.economist.com/graphic-detail/coronavirus-excess-deaths-tracker">excess deaths</a>” would be COVID deaths that were not classified as COVID; some would be extra deaths caused by measures such as lockdowns; and some would be caused by crowded medical facilities turning away patients. </p>
<p>Worldwide, there have been <a href="https://ourworldindata.org/excess-mortality-covid">millions</a> of excess deaths.</p>
<p>But not in Australia. In several months Australia’s excess deaths have been <a href="https://www.economist.com/graphic-detail/coronavirus-excess-deaths-tracker">negative</a>, with more deaths avoided than usual, in part because better health practices prevented deaths from the flu.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/you-cant-fix-it-if-you-cant-see-it-how-the-abs-became-our-secret-weapon-156637">You can't fix it if you can't see it: how the ABS became our secret weapon</a>
</strong>
</em>
</p>
<hr>
<p>To track excess deaths the Bureau of Statistics has <a href="https://www.abs.gov.au/statistics/health/causes-death/provisional-mortality-statistics/jan-2020-aug-2021">graphed</a> the number of doctor certified deaths actually recorded each week against the number that would be expected for that week given the average over the past five years.</p>
<hr>
<p><strong>Weekly deaths vs 2015-2019 average</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=214&fit=crop&dpr=1 600w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=214&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=214&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=269&fit=crop&dpr=1 754w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=269&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=269&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Doctor certified deaths.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/health/causes-death/provisional-mortality-statistics/jan-2020-aug-2021">ABS Provisional Mortality Statistics</a></span>
</figcaption>
</figure>
<hr>
<p>What is apparent is that in most weeks Australian deaths have been little more than would be expected given five-year averages, and in many weeks less.</p>
<p>If COVID has been killing people in ways we can’t see, the effect has been offset by the measures we have taken to combat COVID – saving lives in other ways we can’t see.</p>
<p>It’s an important finding, not at all foreseeable, and illustrated beautifully.</p><img src="https://counter.theconversation.com/content/173245/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Conversation’s best graphs have removed doubt, surprised, and told entire stories.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1721462021-11-24T19:05:42Z2021-11-24T19:05:42ZAustralia has record job vacancies, but don’t expect higher wages<figure><img src="https://images.theconversation.com/files/433596/original/file-20211124-17-2o6402.jpg?ixlib=rb-1.1.0&rect=0%2C450%2C5375%2C2703&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Job vacancies in Australia are at a record level. The Australian Bureau of Statistics’ <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/job-vacancies-australia/aug-2021">job vacancy rate</a>, measuring the proportion of available jobs currently unfilled, is now more than 2.5% – the highest level since the series started in the late 1970s. </p>
<p>This statistic gives weight to all the anecdotal talk about labour shortages in Australia. When employers have difficulty finding workers to hire, job vacancies stay unfilled longer and the vacancy rate increases. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/433619/original/file-20211124-23-9ssscc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>In normal times a high vacancy rate would indicate economic trouble. It would be evidence of a major underlying problem in the Australian labour market, such as workers not having the right skills for new jobs being created.</p>
<p>But these are not normal times. This record job vacancy rate seems largely explained by the impact of COVID-19, rather than signalling a problem with how the labour market is operating.</p>
<p>The pandemic has made a roller-coaster of employment numbers. Shutdowns have brought rapid job losses, which have then been regained almost as quickly. Employment in Australia has never grown as quickly in any 12-month period as it did in <a href="https://drive.google.com/file/d/1zimUon2yB_MO_kFVTm4EqwmiQYpj5bd3/view">the year to May 2021</a>, as the economy recovered from the initial shutdown in 2020.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/433604/original/file-20211124-13-j4azj1.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<p>The high job vacancy rate <a href="https://drive.google.com/file/d/1mQn5yF30gkeHL9OFmc1Z9d494YsgVskj/view">primarily reflects this</a> fast pace, and the difficulty of hiring new workers in a short time. Hiring always lags new vacancies being created. With the bounceback from shutdowns, the lag has become pronounced. </p>
<h2>Migration effects</h2>
<p>Pandemic-related limits on international migration - especially temporary migrants, such as international students and working holiday makers – have also contributed to the labour shortages.</p>
<p>At the last <a href="https://www.abs.gov.au/statistics/microdata-tablebuilder/available-microdata-tablebuilder/australian-census-and-temporary-entrants-integrated-dataset">census</a> (in 2016), the jobs most reliant on temporary migrants in were hospitality (18.3%); food trades and preparation (20.4%); and cleaning and laundry (19.3%). </p>
<p>By May 2021 (after a year of recovery and prior to the latest shutdowns in NSW and Victoria), the vacancy rates for these occupations were more than double their averages for 2019.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/433618/original/file-20211124-28-1ayseuc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<hr>
<p>As the effects of COVID-19 on the labour market dissipates, Australia’s vacancy rate should fall. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/local-training-is-the-best-long-term-solution-to-australias-skills-shortages-not-increased-migration-170376">Local training is the best long-term solution to Australia's skills shortages – not increased migration</a>
</strong>
</em>
</p>
<hr>
<h2>Effect on wages</h2>
<p>In the meantime, there is natural interest in whether labour shortages will kick-start wage growth. </p>
<p>There some evidence that recent wage growth (over the year to the September quarter 2021) has been strongest in industries with the largest rises in job vacancy rates. Notable examples are professional, scientific and technical services (3.5%), construction (2.6%) and accommodation and food services (2.6%).</p>
<p>However, it is unlikely the COVID-related labour shortages are enough to make a permanent difference to wages. </p>
<p>Even now, while shortages exist, much of the recovery in employment seems to be happening without big wage increases. In June 2021, when the rate of unemployment rate fell below 5% for the first time since in more than a decade, wage growth was still just a modest 0.44% for the quarter.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-chill-this-weeks-news-on-wages-points-to-anything-but-hyperinflation-171840">Vital Signs: Chill, this week's news on wages points to anything but hyperinflation</a>
</strong>
</em>
</p>
<hr>
<p>One reason for the lack of significant wages growth is revealed in the <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">latest labour force statistics</a> from by Australian Bureau of Statistics. The majority of the COVID-19-related changes in employment involve workers being laid off during shutdowns and then returning to their old job. </p>
<p>During the national shutdown from March to May 2020, for example, more than 60% of workers on Job Seeker payments retained an attachment to their job. These workers accounted for the entire increase in employment from May to September 2020. </p>
<p>For employers, rehiring former workers has removed the need to offer higher wages to attract new staff.</p>
<p>For higher wages growth over longer term we will have to rely on policy makers, with the government and the Reserve Bank working together to get the unemployment rate down to 4% or lower.</p><img src="https://counter.theconversation.com/content/172146/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeff Borland receives funding from the Australian Research Council.</span></em></p>Even now much of the recovery in employment seems to be happening without big wage increases.Jeff Borland, Professor of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1718402021-11-18T19:06:19Z2021-11-18T19:06:19ZVital Signs: Chill, this week’s news on wages points to anything but hyperinflation<p>Suddenly people are talking about inflation, even hyperinflation, in a way they haven’t since the 1980s. </p>
<p>In October the United States posted its highest annual consumer price index increase in 30 years, <a href="https://www.bls.gov/cpi/">with inflation up 6.2%</a> and “core” (excluding volatile prices) inflation of 4.6%.</p>
<hr>
<p><strong>US underlying inflation</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431841/original/file-20211114-27-ncun3x.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">US consumer price index for all urban consumers, all items less food and energy, city average.</span>
<span class="attribution"><a class="source" href="https://fred.stlouisfed.org/graph/?g=rocU">US Bureau of Labor Statistics, St Louis Fed</a></span>
</figcaption>
</figure>
<hr>
<p>Former US Treasury Secretary Larry Summers – arguably the finest policy economist of his generation – contends that what’s happening is not transitory.</p>
<p>He says soon inflation could soon climb to double digits, where it hasn’t been for 40 years.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1460235085937053700"}"></div></p>
<p>There are plenty of other leading economists, including Nobel Prize winner <a href="https://www.nytimes.com/2021/11/11/opinion/inflation-history.html">Paul Krugman</a>, who argue that what’s happening is just temporary, part of the adjustment to post-pandemic life, akin to the tyres of a car <a href="https://www.nytimes.com/2021/05/27/opinion/us-economy-growth.html">spinning uselessly</a> before they gain traction.</p>
<p>Closer to home, the data are less alarming.</p>
<p>Only <a href="https://theconversation.com/top-economists-see-no-prolonged-high-inflation-no-rate-hike-next-year-171731">12</a> of the 55 top economists surveyed by the Economic Society of Australia and The Conversation saw a serious risk of prolonged above-target inflation.</p>
<hr>
<p><strong>US and Australian underlying inflation</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=301&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=301&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431846/original/file-20211114-17-1mqluxo.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=301&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release">Australian Bureau of Statistics, US Bureau of Labor Statistics</a></span>
</figcaption>
</figure>
<hr>
<p>On Tuesday, in an address entitled <a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-11-16.html">Recent Trends in Inflation</a>, Reserve Bank Governor Philip Lowe said in most economies inflation was expected to be lower next year rather than higher, with inflation rates generally clustered around 2%.</p>
<p>That’s RBA-talk for “chill, folks”.</p>
<h2>Many wages are barely moving</h2>
<p>The Bureau of Statistics reported on Wednesday that the wage-price index climbed <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">2.2%</a> over the year to September, up from 1.8% over the year to June.</p>
<p>It’s an improvement, but some wages are barely moving. Public sector wages were up just 1.7% and the bureau reported the private sector increase was partly inflated by <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release#spotlight-frequency-of-wage-increases-c-">changes in timing</a>, with fewer September quarter increases than normal last year during lockdowns and a more typical proportion this year.</p>
<p>Four out of ten Australian workers haven’t had an increase for more than a year, compared to 21% at the same time in 2019, before COVID.</p>
<h2>Price growth is weaker than it seems</h2>
<p>Consumer price inflation appears to be well above wages growth at 3%, but much of this is due to the unwinding of the free childcare available a year ago. Averaged over the past two years, annual headline inflation is just <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/latest-release#data-download">1.5%</a>.</p>
<p>The official underlying rate of inflation is <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumer-price-index-australia/sep-2021">2.1%</a></p>
<p>This doesn’t sound like the <a href="http://scihi.org/hyperinflation-weimar-republic/">Weimar Republic</a> to me.</p>
<p>Is it difficult to renovate a home in Sydney right now? Sure. Is it expensive to buy a car in the US at the moment? Yes it is. But ask yourself why. </p>
<p>Since living through this pandemic, many of us realised we might need and want to spend more time at home and decided to invest in homes better suited to that. And in the US, which is less vaccinated than Australia, many commuters now prefer to drive to work rather than take their life in their hands by catching public transport.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-see-no-prolonged-high-inflation-no-rate-hike-in-2022-171731">Top economists see no prolonged high inflation, no rate hike in 2022</a>
</strong>
</em>
</p>
<hr>
<p>Any debate that sees former US Treasury Secretary Larry Summers on one side and current Treasury Secretary Janet Yellen as well as Paul Krugman on the other has got to be legitimate.</p>
<p>But it’s been joined by “<a href="https://noahpinion.substack.com/p/inflation-is-up-but-the-inflation">inflation "truthers</a>”, conspiracy theorists who claim the US government – in cahoots with corporate interests – have been cooking the books on inflation, something that hasn’t been happening.</p>
<p>While there is always room for debate about the “<a href="https://theconversation.com/whats-in-the-cpi-and-what-does-it-actually-measure-165162">basket</a>” of goods and services used to calculate the consumer price index, in the US the method hasn’t changed for years.</p>
<hr>
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<hr>
<p>The Massachusetts Institute of Technology <a href="http://www.thebillionpricesproject.com">Billion Prices Project</a> has trawled through massive quantities of daily data and arrived at much the same conclusions about inflation as the official data.</p>
<p>Australia’s underlying inflation rate has been below the centre of the Reserve Bank’s target band for a record seven years. Too little inflation runs the risk of causing people to delay buying things, sending the economy backwards, which means it has been important to get inflation back up.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/whats-in-the-cpi-and-what-does-it-actually-measure-165162">What's in the CPI and what does it actually measure?</a>
</strong>
</em>
</p>
<hr>
<p>Doing it, as we are beginning to, ought to be seen as a policy success.</p>
<p>Yes, we have to be careful not to push inflation too high. But we should also be careful to avoid not finishing the job of getting inflation (and wages growth) back to where they should be. We’ve got some way to go.</p>
<p><iframe id="5ETFV" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/5ETFV/12/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/171840/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia.</span></em></p>True wages growth, and true price growth, is probably less than the official figures suggest – meaning there’s no need for alarm about inflation in Australia.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1661622021-08-19T04:27:03Z2021-08-19T04:27:03ZVital Signs: 4.6% unemployment rate hints at what’s possible, but it’s not the real thing<p>This week provided a first tiny glimpse into the labour-market fallout from Australia’s recent lockdowns.</p>
<p>Australian Bureau of Statistics published the <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/jun-2021">wage price index</a> for the June quarter yesterday, showing sluggish wages growth, below forecasts. The <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jul-2021">labour force figures</a> for July, out today, is an impressive 4.6%, but tempered by the number of people who have stopped looking for work and a higher underemployment rate.</p>
<p>These numbers tell us how the labour market is recovering from last year’s massive pandemic hit. It’s also a sneak peak into how it might be affected by the current lockdowns.</p>
<p>The Greater Sydney lockdown officially began on June 26 – right at the end of the June quarter (the virus had been circulating in Sydney since mid June). So the June quarter figures give us a baseline for the labour market before the big hit from what looks like several months of lockdowns in Sydney, NSW and maybe beyond. We also have a glimpse of the first two weeks of the “self-lockdown” in Sydney, where people pull back on economic activity due to the virus circulating.</p>
<h2>Annual wages growth of 1.7%</h2>
<p>The wage price index — measuring wages growth — increased by 0.4% in the June quarter. This was below consensus forecasts of 0.6%, and put the annual rate at 1.7%. This just above the 2020 low of 1.4%.</p>
<hr>
<p><strong>Wage price index, annual growth</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/416887/original/file-20210819-23-cot88j.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Total hourly rates of pay excluding bonuses, seasonally adjusted. Change from corresponding quarter of previous year.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/jun-2021">ABS Wage Price Index</a></span>
</figcaption>
</figure>
<hr>
<p>All that anecdotal chatter about how it has been impossible to get workers in this industry or that certainly didn’t make its way into the aggregate data.</p>
<p>There were sectoral differences in wage pressures. Three sectors recorded annual increases in wages above 2% — construction (2.2%), professional services (2.5%) and other services (2.6%). The smallest increases were in rental, hiring and real estate services (1.1%), administrative and support services (1.0%) and arts and recreation services (0.9%).</p>
<h2>Unemployment rate hits 4.6%</h2>
<p>Thursday’s <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">labour force figures</a> came on the back of a stunningly good June rate of 4.9%. July’s rate is stunning again. Kind of.</p>
<p>The monthly unemployment rate dropping to 4.6% represented 39,900 fewer unemployed persons and a slight increase in employed persons, by 2,200 to 13,156,400.</p>
<hr>
<p><strong>Unemployment rate, seasonally adjusted</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/416890/original/file-20210819-13-5enx56.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/jul-2021">ABS Labour Force, Australia</a></span>
</figcaption>
</figure>
<hr>
<p>Less positive was that the 4.6% rate also reflected a drop in labour force participation, from 66.2% to 66.0%, and that the official underemployment rate jumped from 7.9% to 8.3%.</p>
<p>The fuzzy demarcation between what makes one unemployed versus underemployed as well as the effect of people leaving the labour market is why I always focus in all jobs figures on the “total hours worked”. </p>
<p>This remained effectively steady in July, at 1.778 billion hours.</p>
<p>Overall, therefore, these figures represent very good news. Perhaps the most important implication is that all the naysayers who suggested we could never get unemployment down to or below 4% look — at least so far — wrong.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/vital-signs-the-rba-wants-to-cut-unemployment-and-nothing-not-even-soaring-home-prices-will-stand-in-its-way-160171">Vital Signs: The RBA wants to cut unemployment, and nothing — not even soaring home prices — will stand in its way</a>
</strong>
</em>
</p>
<hr>
<h2>The immigration illusion</h2>
<p>Speaking of folks being wrong, the jobs data also bear on Reserve Bank of Australia governors Philip Lowe’s recent statements about the effect of immigration and wages. </p>
<p>In <a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-07-08.html">a speech in early July</a> Lowe suggested high levels of immigration in recent years was an important reason for low wages growth.</p>
<p><a href="https://www.rba.gov.au/publications/confs/2019/pdf/christian-dustmann.pdf">Others</a>, including myself, think this view is not supported by the data. Low wages growth since 2013 has a lot more to do with global shifts in technology, the phenomenon of “secular stagnation”, and the fact the Reserve Bank kept interest rates too high, for too long, until finally giving into pressure to cut them in 2019.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-rba-is-not-a-law-unto-itself-an-external-review-would-do-it-good-165816">The RBA is not a law unto itself — an external review would do it good</a>
</strong>
</em>
</p>
<hr>
<p>The latest data — if looking at the data is your thing — show that, with effectively zero immigration wages, growth remains low. It’s barely moving even in the sectors where immigration is meant to play the biggest role, such as services and construction.</p>
<p>Moreover, even with unemployment falling to 4.6%, there’s relatively little upward pressure. This suggests getting unemployment down to or below 4% not only might be achievable but necessary to get inflation back into the RBA’s target band of 2–3%.</p>
<h2>Lockdown impacts still to come</h2>
<p>That said, this might be the last good news for a while.</p>
<p>The next quarter’s figures will capture the effect of lockdown for perhaps the entire three months in Greater Sydney, as well as a signifcant amount of time elsewhere. Fiscal support measures such as JobSaver and the Disaster Payment definitely help but they will only stem a flow of bad labour-market numbers.</p>
<p>In the longer term, though, we can and should expect our policy makers — fiscal and monetary — to show us an unemployment number with a 3 in front of it in 2022 or 2023.</p><img src="https://counter.theconversation.com/content/166162/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is President-elect of the Academy of the Social Sciences in Australia.</span></em></p>The unemployment decline isn’t as impressive as it first appears, and wages growth remains sluggish.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1653942021-08-01T07:57:14Z2021-08-01T07:57:14ZTop economists say cutting immigration is no way to boost wages<figure><img src="https://images.theconversation.com/files/413917/original/file-20210730-13-qiyzoi.png?ixlib=rb-1.1.0&rect=65%2C0%2C3850%2C1994&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Australia’s top economists have overwhelmingly rejected cuts to either permanent or temporary migration as a means of restoring lost wage growth.</p>
<p>The 56 leading economists polled by the Economic Society and The Conversation include a former head of the Fair Pay Commission and a former expert member of the Fair Work Commission’s minimum wage panel.</p>
<p>Among the experts, selected by their peers, are specialists in economic modelling and the economics of labour markets from both the private and public sectors.</p>
<p>All but five rejected cuts in temporary migration as a means of boosting wage growth. All but three rejected cuts in permanent migration.</p>
<p>The results put the economists at odds with Reserve Bank Governor Philip Lowe, who last month drew a link between temporary migration and weak wage growth saying employers had been using overseas hires to fill gaps that would have been filled by locals, diluting “upward pressure on wages in these hotspots”. He said this might have <a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-07-08.html">spilled over</a> to rest of the labour market. </p>
<p>Cutting temporary and cutting permanent migration were the first two of ten options for boosting wage growth presented to the panel of economists. The panel rated them third last and second last. Only “holding back growth in female and older worker participation” was marked down more.</p>
<p>Each economist was asked to pick three of the ten options. The most popular, picked by 78.2%, was measures to boost productivity growth. The next most popular, picked by 50.9%, was measures to boost business investment.</p>
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<p>Michael Keane of The University of NSW said the idea that population growth and increased labour supply were constraining wage growth was “so naive as to not really be worthy of comment”.</p>
<p>Consultant Rana Roy said only a “cultivated amnesia” could ignore the near-uninterrupted growth in real wages in US, industrialised Europe and Australia amid record inbound immigration in the decades after the second world war.</p>
<p>Gabriela D'Souza of the Committee for Economic Development of Australia said the idea owed much to a “one dimensional view of the world” that took account of only the direct impact of immigrants on particular wages and not the impact of their demand for goods and services on a broader range of wages. </p>
<p>Dozens of studies had identified the overall impact as “near zero”.</p>
<h2>Productivity ‘almost everything’</h2>
<p>Robert Breunig of the Australian National University said immigrants appeared to add to productivity rather than detract from it, meaning slowing down immigration could slow down rather than add to productivity and growth.</p>
<p>Three quarters of the panel nominated productivity growth as the most important precondition for higher wages growth, endorsing the conclusion of Nobel Prize winning economist <a href="https://www.google.com.au/books/edition/_/awA0yp1V8c8C?hl=en&gbpv=1&pg=PA11&bsq=%22Productivity+isn%27t+everything%22">Paul Krugman</a> that “productivity isn’t everything, but in the long run it is almost everything.”</p>
<p>Krugman famously added that a country’s ability to improve its standard of living
over time depended “almost entirely on its ability to raise its output
per worker”.</p>
<hr>
<p><strong>Wages growth is way below the Reserve Bank’s +3% target</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/413909/original/file-20210730-15-1o6fk2j.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Total hourly rates of pay excluding bonuses, seasonally adjusted. Change from corresponding quarter of previous year.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/mar-2021">ABS Wage Price Index</a></span>
</figcaption>
</figure>
<hr>
<p>Ian Harper, a former head of the Howard government’s Fair Pay Commission and a current member of the Reserve Bank board, said that without productivity growth, any boost in wages growth that was delivered was likely to be nominal — matched by inflation — rather than real, delivering higher living standards. </p>
<p>One of the best tools for lifting production per worker was business investment.</p>
<p>One of the five economists who thought immigration hurt wages growth, Macquarie University’s Geoffrey Kingston, said it seemed to do it by thinning investment per worker. In the 1980s, under Prime Minister Bob Hawke, increased immigration helped push down real wages for five years in a row.</p>
<p>Several of those surveyed said wage growth needed investment in more than machines. Griffith University’s Fabrizio Carmignani said what also mattered was investment in “human capital” via education and research and development.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/exclusive-top-economists-back-unemployment-rate-beginning-with-4-159989">Exclusive. Top economists back unemployment rate beginning with '4'</a>
</strong>
</em>
</p>
<hr>
<p>Adrian Blundell-Wignall, a former division chief at the Organisation for Economic Co-operation and Development, said reforming the education system and getting rid of elitism had to be part of the plan. </p>
<p>“That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy,” he said. “The entitlement and club economy that comes with this permeates politics, business, and who gets the best jobs after completing school.”</p>
<p>Former Rudd and Gillard government minister Craig Emerson said while measures to boost productivity growth were essential, even if implemented soon, they would take years to flow through into higher wages.</p>
<h2>It’s how you divide the pie</h2>
<p>Saul Eslake said whether or not higher productivity growth actually delivered higher real wages would depend on the division of the fruits of that growth between wages and profits. </p>
<p>John Quiggin said nearly every reform of Australia’s industrial relations system since 1975 had acted to reduce the bargaining power of unions. All ought to be reviewed with a “presumption in favour of repeal”.</p>
<p>Mala Raghavan of the University of Tasmania said wage growth had become uneven. Wages for a small number of managers had soared while wages for others — especially casual workers — had barely moved.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/top-economists-want-jobseeker-boosted-100-per-week-tied-to-wages-150364">Top economists want JobSeeker boosted $100+ per week, tied to wages</a>
</strong>
</em>
</p>
<hr>
<p>The Australian National University’s Emily Lancsar saw a triple benefit from reforming the industrial relations system to support higher wage decisions: it would increase wages directly, it would put money that would have been paid out as profits in the hands of people likely to spend it, and the increases would flow through to workers not directly affected by the decisions.</p>
<p>Labour market specialist Jeff Borland added that there was a case for strengthening the ability of unions to obtain gender pay equity in female-dominated occupations.</p>
<p>None of those surveyed were optimistic about the prospect of quickly lifting wages growth. The Reserve Bank said in July it wasn’t planning to lift interest rates until aggregate growth exceeded <a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-07-08.html">3%</a>.</p>
<hr>
<p><em>Detailed responses:</em></p>
<p><iframe id="tc-infographic-600" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/600/ca64844362ba8fd936ad5de919fadcc88cd66b20/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/165394/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Only five of the 56 economists surveyed believed lower immigration would boost wage growth. The rest backed measures to lift productivity and investment and changes that boosted the power of unions.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1628482021-06-17T20:06:08Z2021-06-17T20:06:08ZVital Signs: Why has growth slowed globally? It has something to do with technology<p>Even before COVID-19 hit, Australia was experiencing slow growth in GDP per capita and real wages.</p>
<p>There has been a distinctly lower rate of both economic and real wages growth since the financial crisis of 2008-09.</p>
<p>Advanced economies around the world have, to varying degrees, witnessed the same trends. If anything, Australia has done slightly better than other countries.</p>
<p>Why has growth slowed globally? That’s a real question.</p>
<h2>What theory tells us</h2>
<p>Basic economic theory tells us GDP per capita is driven by technological progress. </p>
<p>The so-called “neoclassical growth model”, developed in the 1950s by
American Robert Solow and Australian Trevor Swan, saw technological progress as exogenous – attributable to an external cause. In a sense, the idea was that innovations just drop from the sky at some fixed rate.</p>
<p>In the early 1990s Philippe Aghion, Peter Howitt, and Paul Romer pioneered “endogenous growth theory” – that the causes are internal to the economic system. In particular their theory emphasised the development of ideas as crucial to technological progress. </p>
<p>Romer’s <a href="https://www.journals.uchicago.edu/doi/abs/10.1086/261725">contribution</a> was to highlight that producing ideas has large set-up costs but potentially low marginal costs of replication. Think pharmaceutical development, where R&D is very expensive but producing extra pills is cheap. </p>
<p>To make the development of new pharmaceuticals viable, therefore, some degree of monopoly power is required, so others who didn’t invest in developing them can’t simply copy the product. This suggests a crucial role for government policy, such as intellectual property rights and subsidies for basic research.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406945/original/file-20210617-27-4k9xan.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Developing pharmaceuticals is expensive, while making them is cheap.</span>
<span class="attribution"><span class="source">Zhang Yanlin/AP</span></span>
</figcaption>
</figure>
<p>Aghion and Howitt highlighted the role of “<a href="https://dash.harvard.edu/bitstream/handle/1/12490578/A%20Model%20of%20Growth%20through%20Creative%20Destruction.pdf">creative destruction</a>”. Innovation can render old technologies obsolete. </p>
<p>Thus innovations come with externalities – costs or benefits for other parties. </p>
<p>Romer’s research emphasised the positive externalities – namely that ideas are non-rivalrous. For example, we can all use Pythagoras’s Theorem now it has been discovered.</p>
<p>The Aghion-Howitt framework emphasised the negative externalities. New ideas can render old ideas obsolete, thereby deterring innovation in the first place – why invest in R&D now if future R&D will render it all obsolete? But market power protects the rents earned by innovators.</p>
<p>This means, as Aghion and Howitt put it, the average growth rate “depends on the size and likelihood of innovations resulting from research and also on the degree of market power available to an innovator”.</p>
<p>What does this mean for wages?</p>
<p>Since wages are the returns to labour from economic value created economy-wide, technological progress is needed to drive real wage increases.</p>
<hr>
<p><strong>Real wage growth, per cent, 2003-2021</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=231&fit=crop&dpr=1 600w, https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=231&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=231&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=291&fit=crop&dpr=1 754w, https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=291&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/406956/original/file-20210617-27-gbzewj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=291&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Annual real wage growth = annual growth in total hourly rates of pay excluding bonuses minus annual growth in underlying consumer price index.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/mar-2021">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>As Paul Krugman <a href="https://books.google.com.au/books?redir_esc=y&id=awA0yp1V8c8C&q=%22Productivity+isn%27t+everything%22#v=snippet&q=%22Productivity%20isn't%20everything%22&f=false">put it in 1994</a>:</p>
<blockquote>
<p>Productivity isn’t everything, but, in the long run, it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.</p>
</blockquote>
<p>Or, to paraphrase legendary American political strategist James Carville: “It’s the productivity, stupid!”</p>
<h2>Enter the Productivity Commission</h2>
<p>Yesterday Australia’s Productivity Commission published its “<a href="https://www.pc.gov.au/research/ongoing/productivity-insights/recent-developments-2021/productivity-insights-2021-recent-developments.pdf">second annual Productivity Insights</a>” report.</p>
<p>In the foreword, chairperson Michael Brennan writes:</p>
<blockquote>
<p>The decade ending 2019-20 was the worst decade of growth in 60 years, and even if the last year of growth is excluded then this nine-year period still compares unfavourably to past decades. This mainly reflects a global productivity slowdown and the end of the mining investment boom, which has subdued investment and, through lower terms of trade, reduced the purchasing power of Australian incomes.</p>
</blockquote>
<p>That’s a pretty good summary of the concerning trends documented in the rest of the report.</p>
<p>Let’s take Brennan’s second observation first. </p>
<p>The end of the mining boom – you have to squint a little to ignore the current iron-ore price – has seen the Australian dollar drop from about parity with the US dollar to the range of 75-80 US cents. This makes buying goods largely denominated in US dollars – from mining equipment to point-of-sale terminals to computers – more expensive for Australian businesses and households.</p>
<p>It is a good reminder that the oft-mentioned claim a lower Australian dollar is good for exports, while true, ignores the fact we buy lots of capital equipment and consumption goods from overseas. A weaker dollar is bad news for buyers of those goods.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-productivity-growth-stalled-in-2005-and-isnt-about-to-improve-159706">Why productivity growth stalled in 2005 (and isn't about to improve)</a>
</strong>
</em>
</p>
<hr>
<p>Now to Brennan’s first observation – that the productivity slowdown is a global phenomenon.</p>
<p>It has been clear for many years that we live in an age of “secular stagnation” – a term former US Treasury head Larry Summers <a href="https://theconversation.com/secular-stagnation-its-time-to-admit-that-larry-summers-was-right-about-this-global-economic-growth-trap-112977">popularised in 2013</a>.</p>
<p>Simply put, there is a huge volume of global savings chasing fewer big investment opportunities.</p>
<h2>Desperately seeking investment opportunities</h2>
<p>Once capital was quite scarce. Now there are now massive sovereign wealth and retirement savings funds all looking to put their money to work. There are also many more billionaires with money to invest. </p>
<p>But where? Once it required huge amounts of capital to build the US railroads, or big oil and steel companies. Now some of the most valuable companies in the world have been created by brilliant students with a laptop in a dorm room.</p>
<p>An even more pessimistic view is that modern technologies are just not that revolutionary. </p>
<p>The leading proponent of this “techno-pessimism” is Robert Gordon of Northwestern University in Illinois. He argues in <a href="https://press.princeton.edu/books/paperback/9780691175805/the-rise-and-fall-of-american-growth">The Rise and Fall of American Growth</a> (Princeton University Press, 2017) that the information technolgy revolution is a footnote compared to the prosaic inventions of the second industrial revolution, such as electricity, motor vehicles and aircraft.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/tomorrows-new-collar-jobs-will-be-quite-old-fashioned-our-response-should-be-too-71563">Tomorrow's 'new collar' jobs will be quite old-fashioned, our response should be too</a>
</strong>
</em>
</p>
<hr>
<p>There are, also, techno-optimists who point to the revolutionary potential of machine learning and other innovations. </p>
<p>Wherever one lands on this spectrum, it’s hard to get away from the idea that to drive living standards upward we need to harness technologies to relentlessly improve productivity.</p>
<p>The Productivity Commission is on the case. Now we just need Australia’s policy makers to embrace the type of economic reforms pulled off in the 1980s and 1990s, under governments of both political stripes.</p>
<p><iframe id="K8xpM" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/K8xpM/5/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/162848/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is president-elect of the Academy of the Social Sciences in Australia.</span></em></p>To drive living standards upward we need new technologies to relentlessly improve productivity.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1618732021-06-01T04:36:18Z2021-06-01T04:36:18ZPaying off a home loan used to be easier than it looked. It’s now harder<figure><img src="https://images.theconversation.com/files/403710/original/file-20210601-21-9xzh3n.jpg?ixlib=rb-1.1.0&rect=609%2C261%2C2610%2C1543&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">bmphotographer/Shutterstock</span></span></figcaption></figure><p>So you think it’s the right time to dive in and buy a home.</p>
<p>I can’t tell you you’re wrong. I can tell you it would have been better to do it before prices began soaring, and that if they keep soaring it will get worse still.</p>
<p>When the year began, the typical Sydney price was <a href="https://www.corelogic.com.au/news/corelogic-december-home-value-indices">$872,000</a>. Five months later at the start of June it is <a href="https://www.corelogic.com.au/news/australias-housing-boom-rolls-national-home-values-lifting-another-22-may">$970,000</a>. </p>
<p>That’s a jump of almost $100,000 in a matter of months — an awfully big price for procrastinating.</p>
<p>In Melbourne the typical price has climbed from $682,000 to $740,500. In Perth it has climbed from $471,000 to $521,500, and so on.</p>
<p>And banks are beginning to withdraw the cheapest of their still-very-cheap mortgage rates, at this stage mainly the fixed four-year rates which had been below <a href="https://www.domain.com.au/news/house-hunters-facing-rising-fixed-mortgage-rates-with-further-hikes-expected-1054965/">2%</a>.</p>
<p>So why on earth wouldn’t you dive in, cut your living expenses to the bare minimum and try and buy a home while it’s the least bit possible?</p>
<p>One (slight) reason to relax is mortgage rates. Despite the increases in fixed four-year rates, three-year rates have barely moved. That’s because the Reserve Bank has promised to hold the three-year bond rate <a href="https://www.rba.gov.au/media-releases/2021/mr-21-09.html">constant</a> at 0.1%.</p>
<h2>Buying has become a bigger commitment</h2>
<p>The three-year bond rate determines the cost to banks of their three-year fixed rate mortgages.</p>
<p>The Reserve Bank has said it does not expect to lift its 0.1% cash rate until “2024 at the earliest”. Movements in the cash rate determine movements in variable mortgage rates.</p>
<p>But there is another reason for proceeding with caution and taking stock.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/home-prices-are-climbing-alright-but-not-for-the-reason-you-might-think-158776">Home prices are climbing alright, but not for the reason you might think</a>
</strong>
</em>
</p>
<hr>
<p>For our parents, buying a home was an exceptionally good deal, not only because homes were cheaper — until the end of the 1990s homes typically cost between two and three times household after-tax income, they now cost closer to five — but also because over time the loan became easier to pay off.</p>
<hr>
<p><strong>Housing prices as proportion of household disposable income</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf">Core Logic, ABS, RBA</a></span>
</figcaption>
</figure>
<hr>
<p>That isn’t because mortgage rates were coming down — at times they were going up — it’s because during our parents’ times wages (and prices) were climbing.</p>
<p>It meant that even if someone of our parents’ generation just squeaked through one of the bank’s tests about their ability to make payments on a mortgage, a few years and lots of inflation and several big wage rises down the track those mortgage payments shrank compared to everything else.</p>
<h2>Once, wage rises took care of repayments</h2>
<p>Many of our parents paid off their mortgages early.</p>
<p>One way to look at this is that the bank’s ability-to-repay calculators were set too harshly. They failed to account for future hefty wage rises and inflation. </p>
<p>It’s probably also true that they were set more generously than they might have been in an implicit acknowledgement of what the assistant governor in charge of the Reserve Bank’s economic branch Luci Ellis calls “<a href="https://www.rba.gov.au/publications/rdp/2006/2006-12/global-trends.html">mortgage tilt</a>”.</p>
<p>The former governor, Glenn Stevens, used another term, “<a href="https://www.rba.gov.au/speeches/1997/sp-ag-081097.html">front-end loading</a>”.</p>
<h2>Mortgages were ‘front-end loaded’</h2>
<p>When inflation was high, and as a consequence interest rates were high, wages that climbed rapidly with high inflation made the servicing burden “most acute in the very early phase of a loan, falling over time”. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=679&fit=crop&dpr=1 600w, https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=679&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=679&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=853&fit=crop&dpr=1 754w, https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=853&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=853&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/bulletin/1997/oct/pdf/bu-1097-6.pdf">Reserve Bank of Australia, October 1997</a></span>
</figcaption>
</figure>
<p>On a graph (and the former governor presented a graph) the line showing payments as a portion of income tilts down over time.</p>
<p>In a world of lower inflation and interest rates, the tilt becomes flatter. </p>
<p>By now (Stevens published the graph in 1997) the line must be near horizontal.</p>
<p>If wage growth remains near the <a href="https://twitter.com/1petermartin/status/1399520798734389250/photo/1">record lows</a> the treasury is forecasting it will become scarcely any easier to make payments on a home loan over time.</p>
<p>Yet the banks are still handing out loans using the sort of formulas they used to.</p>
<p>If you get a loan you’ll be assessed as being able to (just) make the payments as always, but you’ll be denied the near certainty of being able to more easily meet the payments as time goes on.</p>
<h2>Now, we retire mortgaged</h2>
<p>This is a different from the risk you’ll also run of today’s ultra-low mortgage rates climbing (which banks do take into account in deciding whether to give you a loan).</p>
<p>The proportion of homeowners reaching retirement age while still paying off their mortgage has doubled in 20 years. Which might be why some banks ask for details of your super before granting you a loan. It isn’t an idle inquiry.</p>
<p>Might things get better? Maybe, if we can get wages moving again.</p>
<p>Evidence given to Tuesday’s post-budget Senate estimate hearing provides cause for hope, and despair.</p>
<h2>Super hikes will make things worse</h2>
<p>The budget forecasts for wage growth over the next four financial years are incredibly low — 1.5%, 2.25%, 2.5% and 2.75%</p>
<p>On Tuesday Treasury Secretary Steven Kennedy revealed that each would have been higher — 0.4 points higher — had the government not persisted with the five scheduled annual increases in compulsory superannuation contributions of 0.5% of salary starting in July.</p>
<p>The treasury believes each increase will slice 0.4 percentage points from wage growth, on the basis that employers, who are legally required to pay the contributions, will have to find the money somewhere. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=266&fit=crop&dpr=1 600w, https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=266&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=266&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=334&fit=crop&dpr=1 754w, https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=334&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=334&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://budget.gov.au/2021-22/content/bp1/download/bp1_bs1.pdf">Commonwealth budget, 2021-22</a></span>
</figcaption>
</figure>
<p>It’s the same conclusion reached by the government’s <a href="https://theconversation.com/that-extra-youre-about-to-get-in-super-most-of-it-will-come-from-you-but-dont-expect-the-ads-to-tell-you-that-154723">retirement incomes review</a>.</p>
<p>It’s cause for hope because it means that when those five increases stop (in mid-2026, or sooner if the government stops them mid-track) wages might be able to grow more strongly.</p>
<p>It’s cause for despair because if the treasury is right, we are denying ourselves wage rises we could use in return for super we will increasingly use to pay down our mortgages.</p><img src="https://counter.theconversation.com/content/161873/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Inflation and wage rises used to shrink the repayment burden. We’re being granted mortgages as if they still will.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1586222021-04-12T19:18:34Z2021-04-12T19:18:34ZResistance to raising the minimum wage reflects obsolete thinking<p>Fewer than <a href="https://www.fwc.gov.au/documents/wage-reviews/2020-21/submissions/ausgov-sub-awr2021.pdf">2% of Australian employees</a> work for the minimum wage (now $19.84 an hour). But the federal Fair Work Commission’s annual decision on how much to increase the minimum wage also helps determine pay rises for <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/3246/attachments/original/1585351299/CFW_Submission_to_FWC_Annual_Wage_Review_2020.pdf?1585351299">up to a third</a> of Australian workers. </p>
<p>The adjustment, which comes into effect <a href="https://www.fwc.gov.au/awards-and-agreements/minimum-wages-conditions/annual-wage-reviews#:%7E:text=Each%20financial%20year%20the%20Commission's,of%20the%20following%20financial%20year.">on July 1</a>, flows through to those paid under awards, many on individual contracts and even some enterprise agreements (whose wage increases effectively track the minimum).</p>
<p>Last year’s increase <a href="https://www.fairwork.gov.au/about-us/news-and-media-releases/website-news/the-commission-has-announced-a-1-75-increase-to-minimum-wages#:%7E:text=For%20anyone%20not%20covered%20by,or%20after%201%20July%202020.&text=on%20the%20Fair%20Work%20Commission's%20website.">of 1.75%</a> was the smallest in 12 years. </p>
<p>That modest increase, which was delayed several months for most workers, was justified by the dramatic fall-out of the COVID pandemic. But with employment now rebounding – the jobless rate in February was 5.8%, down from its peak of 7.4% in July 2020 – we should expect a stronger “catch-up” increase. </p>
<p>That’s what happened after the Global Financial Crisis, with no change in the minimum wage in 2009, followed by an almost 5% increase in 2010.</p>
<p>But many employer groups are <a href="https://www.theaustralian.com.au/nation/employers-urge-delaying-minimum-wage-rise/news-story/a0f8e0abb72622ff4730e50859009420">pushing for an outright freeze</a>. </p>
<p>The federal government has implicitly sided with them. Its <a href="https://www.fwc.gov.au/documents/wage-reviews/2020-21/submissions/ausgov-sub-awr2021.pdf">submission</a> to the Fair Work Commission last week warned a higher minimum wage could “dampen employment” and impose a “major constraint” on the post-COVID recovery. </p>
<p>But this argument is based on outdated economic ideas. The evidence from economic research over the past few decades suggests boosting wages back to a normal trajectory would strengthen aggregate demand and consumer confidence, help keep inflation on target, and bolster government revenues at a vital moment in the post-COVID recovery.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-kickstarting-small-business-exports-could-boost-stagnant-wages-95640">Why kickstarting small business exports could boost stagnant wages</a>
</strong>
</em>
</p>
<hr>
<h2>Consistently opposing increases</h2>
<p>The Australian Council of Trade Unions has argued for <a href="https://www.fwc.gov.au/documents/wage-reviews/2020-21/submissions/actu-sub-awr2021.pdf">a 3.5% increase</a>. This is well within the normal historical range. It also aligns with the historical view of Reserve Bank of Australia governor Philip Lowe, <a href="https://rba.gov.au/speeches/2018/sp-gov-2018-06-13.html">who in 2018 said</a> annual wage increases of about 3.5% were necessary to meet the bank’s 2.5% inflation target. </p>
<p>It’s not often the union movement and the central bank sing from the same hymn book.</p>
<p>As my colleague Alison Pennington (senior economist with the Centre for Future Work) has written, the Coalition’s position is consistent: it argues against wage increases “<a href="https://www.theguardian.com/commentisfree/2021/apr/07/a-rise-in-the-minimum-wage-wont-hurt-australias-recovery-it-will-help-it">whether the economy is weak or strong</a>”.</p>
<p>Long before COVID-19, Australia was already experiencing the weakest wage growth since the 1930s. Since end-2013, wage growth has averaged just <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/dec-2020">2.1% a year</a>. Rosy predictions of an imminent rebound, issued with <a href="https://d3n8a8pro7vhmx.cloudfront.net/theausinstitute/pages/2982/attachments/original/1554217579/Budget_Night_2019.pdf?1554217579">each federal budget</a>, have never come to pass.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Quarterly change in the Australian Bureau of Statistics' wage price index, seasonally adjusted." src="https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394424/original/file-20210412-13-vqbrie.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<hr>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/so-much-for-consensus-morrison-governments-industrial-relations-bill-is-a-business-wish-list-151668">So much for consensus: Morrison government's industrial relations bill is a business wish list</a>
</strong>
</em>
</p>
<hr>
<h2>A redundant economic orthodoxy</h2>
<p>The federal government seems captive to an anachronistic belief that lifting the minimum wages will undermine job creation and competitiveness. This idea has been disproven by important developments in both economic theory and international comparisons.</p>
<p>The old economic orthodoxy, typically conveyed via simple supply and demand charts, argued unemployment was inevitable any time governments imposed a minimum wage above the natural “market-clearing equilibrium”. </p>
<p>In the past two decades, however, this conventional wisdom has been turned upside down. Starting with <a href="https://press.princeton.edu/books/paperback/9780691169125/myth-and-measurement">groundbreaking US studies</a> of minimum wages and employment in the fast food industry, studies have found higher minimum wages do not generally destroy jobs – and in certain conditions may actually boost employment. </p>
<p>Reasons for this include:</p>
<ul>
<li>higher labour force participation and productivity among low-wage workers</li>
<li>better job retention and lower turnover, reducing costs of job search and training</li>
<li>reducing the “monopsony” power of very large employers to suppress wages</li>
<li>more money in workers’ pockets, leading to more consumer spending.</li>
</ul>
<h2>Once a leader, now a laggard</h2>
<p>The <a href="https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-06.pdf">Reserve Bank agrees</a> recent minimum wage increases have had no visible negative effect on employment. </p>
<p>So the government’s submission to the Fair Work Commission is invoking a discredited shibboleth by suggesting an unavoidable trade-off between wages and employment. </p>
<p>It also ignores how much Australia’s minimum wage has been eroded in recent decades. Australia was once a world leader in minimum wage policy. This is no longer true. </p>
<p>The best way to measure the labour market impact of the minimum wage is by its “bite” – the ratio of minimum wages to overall labour compensation (best measured by the median wage). </p>
<p>Australia’s minimum wage is now 54% of median wages. In 1992 it was 65%. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/theres-an-obvious-reason-wages-arent-growing-but-you-wont-hear-it-from-treasury-or-the-reserve-bank-122041">There's an obvious reason wages aren't growing, but you won't hear it from Treasury or the Reserve Bank</a>
</strong>
</em>
</p>
<hr>
<p>That decline has been accompanied by the weakening of other wage-supporting policies (including collective bargaining and awards). </p>
<p>It’s no accident Australia has experienced weak wage growth and a falling labour share of GDP, alongside <a href="https://www.abc.net.au/news/2020-09-03/australia-recession-how-wages-have-slumped-while-profits-jumped/12623176">record business profitability</a>. That was the whole idea.</p>
<p>The fading ambition of Australia’s minimum wage policy is also evident internationally.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=436&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=436&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=436&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=548&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=548&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394335/original/file-20210409-19-108p37j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=548&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Australia’s ranking in OECD by minimum wage ‘bite’</span>
<span class="attribution"><span class="source">Centre for Future Work, from OECD data on minimum wages relative to median wages.</span></span>
</figcaption>
</figure>
<p>In 2002 Australia ranked third among OECD countries according to the minimum wage “bite”. </p>
<p>By 2019 we ranked 12th (out of 29 OECD countries with minimum wages). </p>
<p>As Australia treads water, other nations are acting on the new economic evidence and lifting minimum wages. In the US, the Biden administration wants to double the federal minimum wage.</p>
<p>The argument that lifting Australia’s minimum wage will necessarily cost jobs is outdated and unconvincing. After last year’s very modest increase, a more generous increase will strengthen Australia’s post-COVID recovery, not jeopardise it.</p><img src="https://counter.theconversation.com/content/158622/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jim Stanford is a member of the Australian Services Union.</span></em></p>A hike in the minimum wage could jeopardise Australia’s post-COVID recovery, says the Morrison government. That’s an outdated economic idea.Jim Stanford, Economist and Director, Centre for Future Work, Australia Institute; Honorary Professor of Political Economy, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1570582021-03-21T18:48:55Z2021-03-21T18:48:55ZIt’s great to want wage growth, but the way we’re going about it could stunt the recovery<figure><img src="https://images.theconversation.com/files/390552/original/file-20210319-24-o3ei8s.jpg?ixlib=rb-1.1.0&rect=1060%2C86%2C1769%2C1065&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Jirsak/Shutterstock</span></span></figcaption></figure><p>The Reserve Bank is going all out for wage growth “<a href="https://www.rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-03-02.html">sustainably above 3%</a>” — the kind of wage growth Australia hasn’t seen for the best part of a decade.</p>
<p>It has already committed itself to achieving an “<a href="https://theconversation.com/5-ways-the-reserve-bank-is-going-to-bat-for-australia-like-never-before-149311">actual</a>” inflation target, sustainably between 2% and 3%, saying it won’t lift its <a href="https://rba.gov.au/statistics/cash-rate/">cash rate</a> until that happens.</p>
<p>That’s a substantial hardening of its earlier target, which was to merely see “progress towards” an inflation rate of 2% to 3%. </p>
<p>In <a href="https://rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-03-02.html">board minutes</a> released this week it says that to get inflation to 2-3% it is likely wage growth will have to be “sustainably above 3%” — well above where it has been for the past seven years. </p>
<p>The bank received encouragement on Thursday with news of an extra <a href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/labour-force-australia/latest-release">88,700</a> Australians in work and a dive in unemployment rate from 6.3% to 5.8%, but its minutes say that for wages to climb to where it wants them, tightness in the labour market would need to be “sustained”. </p>
<hr>
<p><strong>Actual wage growth, low for years</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390557/original/file-20210319-17-1apsxu9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Wage price index, total hourly rates of pay excluding bonuses, private and public, annual.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>It means monetary policy (interest rates) is tied to a recovery in wage growth, something about whose timing we’ve little idea.</p>
<h2>Things aren’t as simple as the bank suggests</h2>
<p>For decades now macroeconomic policy in Australia (and elsewhere) has been built around the idea of a stable relationship between the level of unemployment and the rate of inflation of both wages and prices – the so-called <a href="https://www.investopedia.com/terms/p/phillipscurve.asp">Phillips curve</a>, named after the economist (and engineer) who first measured it. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=282&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=282&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=282&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=355&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=355&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390280/original/file-20210318-15-u6dvfq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=355&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>The target rate of unemployment, the “<a href="https://www.investopedia.com/terms/n/non-accelerating-rate-unemployment.asp">non-accelerating inflation rate of unemployment</a>” (NAIRU) is then defined as the rate of unemployment consistent with achieving an inflation target, in the case of Australia’s Reserve Bank, low and stable rate inflation of 2-3%.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=287&fit=crop&dpr=1 600w, https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=287&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=287&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=360&fit=crop&dpr=1 754w, https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=360&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/390283/original/file-20210318-19-1jk5sl4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=360&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>But (and this what the simple graphs don’t acknowledge and the Reserve Bank has been slow to acknowledge) the relationship changes over time.</p>
<p>Between 2011 and 2019 the bank persistently overestimated annual wage growth by about 1 percentage point as actual wage growth steadily declined from about 4% to around 2%, and now to <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">1.4%</a>.</p>
<p>Nevertheless, despite its poor forecasting record, bank staff continued to suggest that NAIRU had changed little and was close to <a href="https://www.rba.gov.au/publications/bulletin/2017/jun/bu-0617-2a.html">5%</a>.</p>
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Read more:
<a href="https://theconversation.com/josh-frydenberg-has-the-opportunity-to-transform-australia-permanently-lowering-unemployment-156175">Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment</a>
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<p>Then in mid 2019, the bank announced that it had been gradually revising down its estimate of NAIRU to <a href="https://www.rba.gov.au/speeches/2019/sp-ag-2019-06-12-2.html">4½%</a>.</p>
<p>There was a “two-thirds chance that the current NAIRU is between 4% and 5%, and a 95% it is between 3½% and 5½%”.</p>
<p>And most recently in a speech last week Governor Philip Lowe said it was “certainly possible that Australia can achieve and sustain an unemployment rate in the <a href="https://www.rba.gov.au/speeches/2021/sp-gov-2021-03-10.html">low 4s</a>, although only time will tell”. </p>
<h2>The relationship might barely exist</h2>
<p>To my mind, these changes are based on the definitional assumption that lower wage increases reflect a lowering of NAIRU.</p>
<p>But there are reasons to believe that much of the stagnation in wages growth is due to things other than the degree of slack in the labour market. </p>
<p>Lowe himself acknowledged in his speech “powerful structural factors at work”. </p>
<p>He cited</p>
<ul>
<li><p>increased competition in goods markets, which makes firms very conscious of cost increases</p></li>
<li><p>the trend towards more services being provided internationally</p></li>
<li><p>advances in technology, which have reduced the demand for some types of skills and increased the demand for others</p></li>
<li><p>changes to the global supply of labour and regulation of labour markets</p></li>
</ul>
<p>I agree, particularly with the last two points. But what the bank doesn’t seem to have accounted for is the way in which these structural factors have changed the distribution of income and the likely distribution of wage rises.</p>
<h2>Low wage rises for low earners hurt us</h2>
<p>Macroeconomic measures of the kind being talked about — interest rate and spending and tax adjustments — are indeed likely to accelerate wage growth, but much more for so for the (already higher earning) workers who have skills in demand.</p>
<p>And because high earners generally save more of what they earn than low earners, macroeconomic measures of the kind being talked about are likely to push up aggregate wage growth without boosting economic activity as much as is possible and without fully employing the population.</p>
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Read more:
<a href="https://theconversation.com/from-here-on-the-recovery-will-need-redistribution-150081">From here on the recovery will need redistribution</a>
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<p>Eventually, in response to what will be inadequate demand, the private sector investment is likely to sink. This will result in less innovation and therefore lower productivity growth, lowering what the economy is capable of.</p>
<p>It’s the sort of situation Australia (and other advanced economies) were in before the COVID recession. In the United States it was called “<a href="https://corporatefinanceinstitute.com/resources/knowledge/economics/secular-stagnation/">secular stagnation</a>”.</p>
<h2>We need to actively push up low wages</h2>
<p>To avoid it we will have to rely on more than standard measures to boost wages.</p>
<p>The best place to start would be to boost spending on education and training to improve the skills and earning power of people in middle and lower-level jobs, and better suit skills to needs. </p>
<p>This would boost both demand and the productive capacity of the economy, and without adding to inflation.</p>
<p>It would also help if the government stopped its resistance to wage increases, starting with the removal of <a href="https://www.abc.net.au/news/2021-02-24/wage-price-index-abs/13187102">public service wage freezes</a>.</p><img src="https://counter.theconversation.com/content/157058/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keating does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Without extra measures, aiming for wage growth in the aggregate will leave many Australians behind.Michael Keating, Visiting Fellow, College of Business & Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1525792021-01-18T19:02:15Z2021-01-18T19:02:15ZDespite appearances, this government isn’t really Keynesian, as its budget update shows<p>It is tempting to think the Australian government’s decision to spend big – bigger than ever before, an unprecedented <a href="https://budget.gov.au/2020-21/content/myefo/index.htm">33%</a> of GDP this financial year according to the budget update – marks an embrace of Keynesian economics after decades in which Australian authorities have looked the other way.</p>
<p><a href="https://www.investopedia.com/terms/k/keynesianeconomics.asp">Keynesian economics</a> – named after its founder, 20th century economist John Maynard Keynes – holds that when private spending is too weak to keep people in jobs the government should ramp up its own spending to fill the gap.</p>
<p>Conversely, when private spending is too strong, and pushing up inflation, the government should rein in its own spending to rein in inflation.</p>
<p>Taxes are the other side of the coin. When private spending is weak the government should cut taxes; when private spending is too strong it should push taxes up.</p>
<p>This will mean budget deficits when the private sector isn’t keen to spend (low <a href="https://www.investopedia.com/terms/d/demand.asp">demand</a>) and surpluses to restrain spending when the private sector is too keen. </p>
<p>Other things can help, such as ensuring wages grow quickly enough to boost private demand and ensuring incomes are distributed evenly enough to allow this to happen broadly.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/memories-in-1961-labor-promised-to-boost-the-deficit-to-fight-unemployment-the-promise-won-115376">Memories. In 1961 Labor promised to boost the deficit to fight unemployment. The promise won</a>
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<p>That’s pretty much how Australian governments of all types acted from the end of the World War II up until the mid-1970s, when a surge in the price of oil produced a combination of inflation and unemployment (“<a href="https://www.investopedia.com/terms/s/stagflation.asp">stagflation</a>”) that Keynesian economics couldn’t easily explain.</p>
<p>In its place came a new orthodoxy in which governments tried to rely mainly on so-called monetary authorities, such as the Reserve Bank, to stabilise the economy and kept budget deficits low.</p>
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<p>The past year’s dramatic switch back – a projected budget deficit of 9.9% of GDP, the biggest since World War II – has led many, including commentator <a href="https://www.smh.com.au/business/the-economy/evil-lord-keynes-flies-to-rescue-of-disbelieving-liberals-20201225-p56q5q.html">Ross Gittins</a>, to conclude Keynesian economics is back in favour with authorities because (most of the time) it works.</p>
<p>It’s an idea summed up in the subtitle of a book released 12 years ago after the global financial crisis – <a href="https://web.archive.org/web/20091021142435/http://www.penguin.com.au/lookinside/spotlight.cfm?SBN=9781846142581">Keynes: The Return of the Master</a>. </p>
<p>I’m more skeptical. Here’s why.</p>
<h2>Not Keynesian yet</h2>
<p>The reality is that with interest rates at rock bottom as we went into the coronavirus crisis, there was little the Reserve Bank could do to support the economy by cutting interest rates further. </p>
<p>It could, and did, buy government bonds. But that tends to support asset prices rather than employment. So the authorities have had little choice but to spend to support jobs, notwithstanding their qualms.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/big-budget-spending-isnt-new-its-a-return-to-what-worked-before-142370">Big budget spending isn't new: it's a return to what worked before</a>
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<p>They are, however, giving every sign of still being guided by the growth model they’ve been relying on since the mid-1970s.</p>
<p>That model assumes the medium-term growth path of the economy is determined by the rates of increase in the <a href="https://web.archive.org/web/20050719085334/http://www.treasury.gov.au/documents/313/PDF/21May2002.pdf">three Ps</a>: population; participation in employment; and productivity.</p>
<h2>MYEFO’s unkeynesian underpinning</h2>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/377869/original/file-20210110-15-1kq2cnc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>This was exactly the model used to draw up the <a href="https://budget.gov.au/2020-21/content/myefo/download/02_part_2.pdf">projections</a> in December’s Mid-Year Financial and Economic Outlook. These have potential economic growth “gradually returning to 2.75% towards the end of the medium-term projection period” in 2023-24.</p>
<p>The projection is <a href="https://budget.gov.au/2019-20/content/myefo/download/02_Part_2.pdf">unchanged</a> on the one published the previous year before the pandemic and recession.</p>
<p>The document assumes underlying productivity growth will “converge over a 10-year period to the average growth rate in labour productivity over the past 30 years of 1.5% per annum”. This takes no account of the more recent experience of the five years leading up to the recession, when productivity growth and real wage growth averaged only 0.7%. </p>
<p>That’s half the rate of productivity growth projected by the federal treasury. Yet there’s not a word of explanation in the document, despite Prime Minister Scott Morrison saying the <a href="https://www.rev.com/blog/transcripts/pm-scott-morrison-covid-19-briefing-australia-april-16">official advice</a> was “if we thought we could just grow the economy under the old settings then we need to think again”.</p>
<h2>To Keynesians, the distribution of income matters</h2>
<p>Keynesian economists, and “post-Keynesian” economists carrying forward the mantle, don’t believe medium-term economic growth is determined solely by “three Ps” that specify what can be supplied to the economy.</p>
<p>They believe it is also determined by what is demanded of the economy, creating an important role for changes both in the distribution of wages and in the proportion of national income distributed to wages.</p>
<p>Australia experienced dramatic increases in wage income inequality in the <a href="https://fbe.unimelb.edu.au/__data/assets/pdf_file/0009/1427409/1192CoelliBorland.pdf">1980s, 1990s and 2000s</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/from-here-on-the-recovery-will-need-redistribution-150081">From here on the recovery will need redistribution</a>
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<p>For the past half decade the proportion of national income devoted to profits has been climbing while the proportion devoted to wages <a href="https://images.theconversation.com/files/377870/original/file-20210110-23-1nz9ajx.png">has been falling</a>.</p>
<p>If the people who drew up the mid-year statement had really become Keynesian they would have acknowledged the structural changes affecting income distribution and produced less encouraging growth forecasts.</p>
<h2>Weak wage growth condemns us to weak economic growth</h2>
<p>A government that had fully adopted Keynesian policies would recognise it needs to support reasonable wage increases, rather than push for wage freezes as <a href="https://ministers.pmc.gov.au/morton/2020/commonwealth-freezes-wage-increases-public-servants">it has been doing</a>, noting the short-run alternative is continued budget deficits.</p>
<p>Over time the weakness in demand is likely to lead to lower investment, slowing the take-up of new technology and slowing growth in productivity.</p>
<p>In accordance with the models the government does use, this will cut Australia’s potential rate of economic growth, producing lower lower living standards (albeit with lower unemployment because of less productive workers) than we otherwise would have had.</p><img src="https://counter.theconversation.com/content/152579/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Keating does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Australian government’s spending is Keynesian, but its approach to wage growth is not.Michael Keating, Visiting Fellow, College of Business & Economics, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1337352020-04-28T10:12:03Z2020-04-28T10:12:03ZHow to boost UK productivity after coronavirus<figure><img src="https://images.theconversation.com/files/320595/original/file-20200315-50551-wfnla7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'Now, have I got the skills to fix this?'</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/male-model-red-overalls-fixes-pile-315655658">Shutterstock</a></span></figcaption></figure><p>The UK faces a highly uncertain economic future – with its recent withdrawal from the EU and the ongoing <a href="https://theconversation.com/uk-budget-2020-experts-react-133455">COVID-19</a> outbreak casting much into disarray. But one thing is clear: as part of its recovery, the UK economy will need to address some serious long-term issues around productivity. </p>
<p>Productivity is the output produced given the inputs employed, such as hired labour, capital and materials. It describes how efficiently a producer or service provider combines these inputs to deliver products or services. Crucially, productivity can turbo-charge economic growth – and ensure the survival and expansion of firms.</p>
<p>But while a productivity slowdown has put the brakes on many developed economies since the 2008 financial crisis, the UK has been particularly hard hit. This will almost certainly be exacerbated by the COVID-19 pandemic.</p>
<p><a href="https://www.theguardian.com/business/2020/feb/03/uk-productivity-slowdown-worst-since-industrial-revolution-study">UK productivity growth</a> has lagged behind that of other comparable economies since the 1970s and the country has suffered virtually zero growth in labour productivity since 2008, the latter known as the UK <a href="https://www.lbpresearch.ac.uk/wp-content/uploads/2019/10/UK-Productivity-Skills-Full-Article.pdf">“productivity puzzle”</a>. By 2016, the output per hour worked in the UK was <a href="https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2016">16.3% below</a> the average of the rest of the G7 countries – although this has improved following adjustments to how labour input is measured.</p>
<p>But why? And what can be done about it in these uncertain times? Aston Business School explored this in a <a href="https://www.lbpresearch.ac.uk/wp-content/uploads/2019/10/UK-Productivity-Skills-Full-Article.pdf">recent white paper</a>.</p>
<p>In the short term, tumbling global and local demand and a slow economic recovery following the financial crisis arguably have played a part, as have other factors such as falling real wages and low business dynamism. Low real wages and low productivity usually go hand in hand – there’s less incentive to be productive when you’re undervalued – while low business dynamism reduces the likelihood of innovative ideas boosting productivity. </p>
<p>As part of the UK government’s austerity programme, around half a million jobs were slashed from the UK public sector, while the private sector added 1.7 million jobs between 2012 and 2015. But <a href="https://www.niesr.ac.uk/sites/default/files/publications/The%20UK%20Productivity%20Puzzle%20NIESR%20DP%20448_0.pdf">evidence</a> suggests that many of these new private sector, self-employed roles were low-productivity, part-time and based on zero hours contracts. On average, these mean low pay, low skills utilitisation and few opportunities for skills development. </p>
<p>Meanwhile, the acute decline in demand has also made firms less willing to invest in innovation and new ideas that might improve productivity. Again, COVID-19 could present even greater challenges, as firms are likely to invest less in research and development (R&D) than usual due to uncertainties and financial pressure. </p>
<p>So where does that leave us? We argue that technology, innovation and skills are central to the conundrum.</p>
<h2>Skills crisis</h2>
<p>There is some hope for the UK economy. In recent years, skills have improved at every skill level and are expected to continue to do so. High skills are already relatively abundant – <a href="https://books.google.co.uk/books?id=Tk7UDwAAQBAJ&pg=PA35&lpg=PA35&dq=uk+46%25+25-64+tertiary+education&source=bl&ots=YsQ5Bk16jA&sig=ACfU3U1dVf9flbzfalNJ3J7rC27zkkZTSw&hl=en&sa=X&ved=2ahUKEwiPte6WvIjpAhVlSxUIHT71BWcQ6AEwAHoECAkQAQ#v=onepage&q=uk%2046%25%2025-64%20tertiary%20education&f=false">46% of adults aged 25-64</a> have some form of tertiary education, compared to an Organisation for Economic Cooperation and Development (OECD) average of 37%. Meanwhile, in 2015, 13% of UK university students were enrolled in science, technology, engineering and maths (STEM) subjects, compared to an OECD average of 6%.</p>
<p>But the situation is gloomier when it comes to low and medium skills. In fact, while the UK is predicted to be ranked <a href="https://www.oecd.org/skills/piaac/Skills_Matter_Further_Results_from_the_Survey_of_Adult_Skills.pdf">seventh</a> among OECD countries in 2020 for high (tertiary level education) skills, it is projected to be 22nd for low (below upper secondary) skills and an even lowlier 28th for intermediate (upper secondary) skills.</p>
<p>The UK also lags behind its competitors in vocational education and training – and many adults remain hampered by poor literacy and, particularly, numeracy. Ranked 13th out of 18 countries by the benchmark <a href="https://www.oecd.org/skills/piaac/Skills%20volume%201%20(eng)--full%20v12--eBook%20(04%2011%202013).pdf">Surveys of Adult Skills</a>, a staggering quarter of UK adults scored at Level 1 or below (out of five) for numeracy skills (the OECD average is 19%). Worryingly for the future, the UK is the only country where older people (aged 55-64) outperformed younger people (16-24) in both literary and numeracy.</p>
<p>Productivity is driven by technology, but it demands the right level of skills, deployed when and where needed to be effective. And in the UK, growth in this new environment continues to be held back by workplace skills shortages, gaps and mismatches.</p>
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<img alt="" src="https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/320597/original/file-20200315-50538-1kiu2gy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">It’s a brave new technological world.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/uk-stock-graphic-background-on-financial-1064025851">Shutterstock</a></span>
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<p>New technologies and their adoption require varied skills. Nowadays, innovation in manufacturing means that customer service and embedding algorithms in customers’ software systems are as important as bashing metals. These changes must be adapted to if firms are to become more productive.</p>
<p>As technology advances, it’s no surprise that there are skills shortages and mismatches. But they must be addressed by policy, corporate practices and innovative thinking – especially in the current climate. Skills gaps may lead to reduced short-term R&D expenditure and long-term fixed capital investment, slowing productivity further. At a regional level, skills gaps sharpen competition for skills and talents between companies, <a href="https://www.enterpriseresearch.ac.uk/wp-content/uploads/2019/01/ERC-ResPap73-DuVanino-Final-1.pdf">favouring fast-growth firms</a> while impairing others.</p>
<p>There is a long way to go before a healthy balance is maintained. The UK Commission for Employment and Skills’ (UKCES) <a href="https://www.gov.uk/government/publications/ukces-employer-skills-survey-2015-uk-report">2015 Employee Skills Survey (ESS)</a> found that one in seven employers identified workers who were not sufficiently proficient in their positions, amounting to an estimated 1.4 million employees.</p>
<p>Meanwhile, three in ten employers are estimated to experience “over-skilling”, whereby employees are over-qualified and under-utilised. This is a clear waste of resources and a missed opportunity for productivity growth.</p>
<p>But while skills gaps are a central part of the productivity problem, current efforts to assess their scale tend to fall short. This is because skill levels are often measured via formal educational attainment. While most people finish their education by their early twenties, they can, and should in fact, continue to acquire skills throughout life – particularly if their workplace offers training. Indeed, <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/571675/ER5_The_UK_s_Skills_Mix_Current_Trends_and_Future_Needs.pdf">existing statistics</a> suggest the UK should encourage lifelong learning and better use of skills if it wants to boost growth, productivity and earnings.</p>
<p>Future research should reflect this – by focusing on levels of training and skills rather than education among the workforce.</p>
<h2>The future</h2>
<p>But the UK is also letting itself down on R&D, which helps drive firms’ innovations and productivity. The good news is that the UK has a world-leading fundamental science base and is ranked fourth among economies producing the largest volume of top-cited <a href="https://static.rasset.ie/documents/news/2017/09/oecd.pdf">scientific publications</a>. Despite this, however, it spends less on R&D, relative to GDP, especially by its corporate sector, than many other major world economies. In 2016, the UK ranked just 11th in the EU. </p>
<p>In this new economic environment, information and communication technologies (ICTs) will play a key role, accounting for <a href="https://static.rasset.ie/documents/news/2017/09/oecd.pdf">70% of global patents</a>. The UK, however, doesn’t feature among the top countries patenting emerging ICT technologies. And while it is on a par with France and Germany when it comes to artificial intelligence (AI) related patents, it is a long way behind Japan, Korea, the US, China and Taiwan. It also lags behind many other countries in robotics. These are issues the UK should consider as it seeks to thrive in this technological new world.</p>
<p>Productivity slowdown is not unique to the UK – it is a global issue that now faces a whole array of added challenges. Skills and technology are key components of the solution, but the two must be correctly balanced. Skills must meet the demands of evolving technologies, for they not only lead to new technological innovations, but also drive and facilitate their adoption and diffusion.</p>
<p>There is no easy fix. But forward-looking, bold policies, inspired and informed by solid research and a global perspective, are key to lifting the UK out of the productivity doldrums and providing a lasting recovery post-COVID-19.</p><img src="https://counter.theconversation.com/content/133735/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In these troubled economic times, skills and technology are key to lifting the UK out of the productivity doldrums.Jun Du, Professor of Economics, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1307972020-02-02T18:53:40Z2020-02-02T18:53:40ZThink superannuation comes from employers’ pockets? It comes from yours<figure><img src="https://images.theconversation.com/files/313020/original/file-20200131-41541-1dsm0mq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A key question for the government’s retirement incomes <a href="https://treasury.gov.au/review/retirement-income-review">review</a> is who ultimately pays for compulsory super contributions, especially since they are set to climb from 9.5% of wages to 12% over the next five years.</p>
<p>Legally, they come from employers, on top of wages. But employers’ contributions have to come from somewhere. Compulsory super was introduced in 1992 with the <a href="https://treasury.gov.au/sites/default/files/2019-10/afts_retirement_incomes_consultation_paper.pdf">intention</a> they would come out of funds that would otherwise have been paid out as wage increases.</p>
<p>Modelling by the <a href="https://treasury.gov.au/sites/default/files/2019-09/foi_2534_document_set_for_release_re.pdf">Treasury</a>, <a href="https://grattan.edu.au/report/money-in-retirement/">Grattan Institute</a>, and the <a href="https://www.cis.org.au/app/uploads/2016/08/32-3-potter-michael.pdf">private sector</a> has long assumed that is what has happened.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/productivity-commission-finds-super-a-bad-deal-and-yes-it-comes-out-of-wages-109638">Productivity Commission finds super a bad deal. And yes, it comes out of wages</a>
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<p>But until now there has been scant empirical evidence about who actually pays, and against the backdrop of chronic low wage growth and the imminent increases, the conventional wisdom has come <a href="https://www.futurework.org.au/abandoning_super_increases_won_t_boost_wages">under attack</a>. </p>
<p>Today’s new Grattan Institute study, <a href="https://grattan.edu.au/report/no-free-lunch/">No free lunch: higher superannuation means lower wages</a> fills the gap.</p>
<p>In an Australian first, it examines detailed data on 80,000 enterprise bargaining agreements over the three decades of compulsory super and concludes that, on average, 80% of each increase in compulsory super has been taken from what would otherwise have been wage increases.</p>
<h2>Increases super comes from wages</h2>
<p>In theory, super contributions could come from three sources:</p>
<ul>
<li><p>workers, through lower wage growth</p></li>
<li><p>consumers, through higher prices</p></li>
<li><p>investors, through lower profits.</p></li>
</ul>
<p>International <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3435377">studies</a> of similar schemes find that most, if not all, of the cost is borne by workers through lower wage growth. </p>
<p>Our study examined administrative microdata on 80,000 enterprise bargaining agreements filed between 1991 and 2018 sourced from the <a href="https://www.ag.gov.au/industrial-relations/enterprise-agreements-data/Pages/workplace-agreements-database.aspx">Workplace Agreements Database</a> maintained by the attorney general’s department. </p>
<p>We compared agreements whose terms spanned leglislated increases in compulsory super with those that did not.</p>
<p>Then we estimated what the wage rise in each agreement ought to have been based on detailed information about the agreement, the employer’s industry, and economic conditions at the time it was negotiated.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-questions-about-superannuation-the-governments-new-inquiry-will-need-to-ask-124400">5 questions about superannuation the government's new inquiry will need to ask</a>
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</em>
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<p>We were able to see whether there was a systematic difference in wage rises between the agreements that spanned step-up increases in compulsory super and those that did not.</p>
<p>On average 80% of the cost of increased compulsory super contributions was passed on to workers through lower wage rises than would have been expected over the life of those agreements. The long-term impact is likely to have been higher.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-uncomfortable-truth-about-super-theres-no-one-size-fits-all-contribution-130193">The uncomfortable truth about super: there's no ‘one-size-fits-all’ contribution</a>
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</em>
</p>
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<p>The graph shows the overall finding using data from 1992 to 2018 and also the results from subsets of the including the private or public sectors, big and small firms and the period since 1997. </p>
<p>In each case somewhere between most and all of the cost of super increases was passed through to workers in the form of lower wage increases.</p>
<hr>
<p><strong>On average, 80% of super increases were at the expense of wages</strong> </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=311&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=311&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=311&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=390&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=390&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313024/original/file-20200131-41495-1ahpb28.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=390&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Notes: see report.</span>
<span class="attribution"><span class="source">Source: No free lunch Higher superannuation means lower wages, Grattan Institute, February 2020</span></span>
</figcaption>
</figure>
<hr>
<h2>It isn’t only enterprise agreements</h2>
<p>Our study looked only at workers on federally-registered enterprise bargaining agreements, around <a href="https://www.ag.gov.au/industrial-relations/industrial-relations-publications/Documents/trends-report-june-quarter-2019.pdf">30%</a> of the workforce. Other workers are also likely to bear the cost of higher super through lower wages. </p>
<p>The Fair Work Commission – the body which sets award wages – has made the link between super increases and award wages <a href="https://www.fwc.gov.au/documents/sites/wagereview2013/decisions/2013fwcfb4000_statement.pdf">explicit</a>, saying that when super goes up, award wages grow more slowly than they otherwise would.</p>
<p>State enterprise agreements are unlikely to differ much from federal agreements, and workers covered by one-on-one arrangements are likely to experience similar trade-offs. </p>
<h2>Future super increases are unlikely to be different</h2>
<p>It is unlikely the leglislated future step ups in compulsory super contributions will be different from the earlier ones.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=962&fit=crop&dpr=1 600w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=962&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=962&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1210&fit=crop&dpr=1 754w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1210&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/265468/original/file-20190324-36267-olwp2z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1210&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?anchor=Superguaranteepercentage">Source: Australian Tax Office</a></span>
</figcaption>
</figure>
<p>Although wage growth is slower now than in the past, wages are nevertheless – by all measures – growing by more than 2% a year, offering ample room for employers to wind back wage increases in order to fund each of the five scheduled annual step ups of 0.5% in compulsory super contributions that begin on July 1, 2021.</p>
<p>In fact, if workers’ bargaining power has fallen recently - <a href="https://www.smh.com.au/business/workplace/lack-of-competition-between-employers-contributes-to-weaker-wages-20180902-p50197.html">as some suggest</a> - employers might feel they can push even more of the cost of higher super onto workers than in the past.</p>
<p>Our analysis shows previous increases in compulsory super came mainly from wages: they took money that would have been handed to workers as wage increases and handed it to fund managers to hold and invest until those workers retired. </p>
<p>The next set of legislated increases are likely to do the same.</p><img src="https://counter.theconversation.com/content/130797/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments, $4 million from BHP Billiton, and $1 million from NAB. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and contribute to funding Grattan Institute's activities. Grattan Institute also receives funding from corporates, foundations, and individuals to support its general activities, as disclosed on its website. </span></em></p><p class="fine-print"><em><span>Matthew Cowgill and Will Mackey do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An examination of 80,000 enterprise bargaining agreements finds that on average 80% of each increase in compulsory super has been at the expense of wages.Brendan Coates, Program Director, Household Finances, Grattan InstituteMatthew Cowgill, Senior Associate, Grattan InstituteWill Mackey, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1302892020-01-27T18:58:56Z2020-01-27T18:58:56Z2020 survey: no lift in wage growth, no lift in economic growth and no progress on unemployment in year of low expectations<figure><img src="https://images.theconversation.com/files/311739/original/file-20200124-81411-2qr7n4.png?ixlib=rb-1.1.0&rect=77%2C23%2C3562%2C1970&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>2020 is shaping up as a dismal year for the economy, with no progress on many of the key measures that matter for Australians.</p>
<p>Unemployment will stay above 5% and probably rise rather than fall. </p>
<p>Economic growth will continue to have a “1” in front of it, instead of the “2” or “3” that used to be common, and living standards will grow more slowly. </p>
<p>Wage growth, forecast in the budget to climb to 3%, will instead remain stuck near 2.2%, where it has been for half a decade.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-asked-13-economists-how-to-fix-things-all-back-the-rba-governor-over-the-treasurer-126283">We asked 13 economists how to fix things. All back the RBA governor over the treasurer</a>
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<p>Those are the <a href="https://cdn.theconversation.com/static_files/files/857/2020___CONVERSATION_ECONOMIC_SURVEY.pdf?1579661077">central forecasts</a> of a panel of 24 leading economists from 15 universities in six states assembled by The Conversation to review the year ahead, a year they expect to be marked by one only more interest rate cut, more modest growth in house prices, and a return to slower growth in the share market. </p>
<p>The panel comprises macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board. Combined, their forecasts are more likely to be correct than those of any individual member. One-third are women.</p>
<p>They expect the long-promised budget surplus to all but disappear as a result of responses to the bushfires and weaker-than-predicted economic growth.</p>
<h2>Economic growth</h2>
<p>The Treasury believes the Australian economy is capable of growing at a sustained annual pace of <a href="https://www.smh.com.au/business/the-economy/australias-economy-grew-08-per-cent-in-june-quarter-20170906-gybpqu.html">2.7%</a>, but it hasn’t grown that fast since mid-2018. Growth slipped below 2% in March 2019 and hasn’t recovered. It now has been below 2% for <a href="https://theconversation.com/gdp-update-spending-dips-and-saving-soars-as-we-stash-rather-than-spend-our-tax-cuts-128297">three consecutive quarters</a>, the longest period since the global financial crisis.</p>
<p>The panel’s central forecast is for economic growth to stay at or below 2% for at least another year, producing the longest period of low economic growth since the early 1990s recession. The average forecast for the year to December is 1.9%.</p>
<p>Panellist Saul Eslake says it will be the result of persistently slow growth in household disposable incomes, reflecting “very slow growth in real wages, the increasing proportion of gross income absorbed by tax, and weakness in property income (interest and rent) as well as (at the margin) the impact of the drought on farm incomes”.</p>
<p>It will be domestic rather than overseas conditions that hold back Australian growth. US economic growth is expected to remain little changed at 2.1% notwithstanding trade friction with China, and China’s officially reported growth is expected to ease back only slightly from 6% to 5.8%. </p>
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<h2>Living standards</h2>
<p>One of the best measures of overall living standards (the one the Reserve Bank watches) is real net national disposable income per capita, which takes better account of buying power than gross domestic product does. In the year to September it climbed an unusual 3.3%, pushed up by a resurgence in iron ore export prices. </p>
<p>The iron ore price has since slid from US$120 a tonne to around US$90 a tonne, and the panel’s average forecast is for it to fall further.</p>
<p>As a result it expects growth in living standards to slow to 2.4% in 2020, a result that will still be better than between 2012 and 2016 when a dive in export prices sent it backwards.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-weve-the-weakest-economy-since-the-global-financial-crisis-with-few-clear-ways-out-122942">Why we've the weakest economy since the global financial crisis, with few clear ways out</a>
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<p>Growth in nominal GDP, the raw total unadjusted for inflation, is also expected to slow, slipping from 5.4% to 4.4% as export prices weaken, producing a decline in revenue growth the government has already factored in to the budget.</p>
<p>The unemployment rate is expected to end the year near the top of the 5%-to-5.5% band it has been stuck in for the past two years, rather than falling to the 5% forecast in the budget or towards the <a href="https://www.rba.gov.au/publications/smp/2019/nov/overview.html">4.5%</a> the Reserve Bank believes is possible.</p>
<p>Only one of the panel, Warren Hogan, expects the unemployment rate to end the year below 5%. </p>
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<h2>Wages and prices</h2>
<p>The panel’s central forecast is for inflation to remain below the bottom of the Reserve Bank’s 2-3% target band, where it has been for most of the past five years.</p>
<p>One panellist, Margaret McKenzie, breaks ranks. She expects the drought and bushfires and floods to sharply push up the cost of food and essential items including energy, quickly pushing inflation into the range the authorities have long wanted, but not for the reasons they wanted.</p>
<p>“I don’t think people have thought about it, because there hasn’t been inflation for so long,” she says. “The problem is that the fires are likely to contract an already weak economy, impelling the Reserve Bank to cut interest rates further, even though its inflation targeting regime would tell it not to.”</p>
<p>Wage growth is forecast to be well below the highest inflation forecast and only a little above the central forecast, resulting in continued low real wage growth and seeing the budget miss its wage growth target for the eighth year in a row. </p>
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<h2>Business</h2>
<p>Household spending barely grew in the year to September, inching ahead by a shockingly low 1.2%, the least since the financial crisis, and not enough to account for population growth. </p>
<p>The panel’s central forecast is for a recovery in spending growth to a still-low 2.4%, with spending held back by low consumer confidence and what former Organisation for Economic Co-operation and Development director Adrian Blundell-Wignall calls a “sense that we are living on borrowed time”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/gdp-update-spending-dips-and-saving-soars-as-we-stash-rather-than-spend-our-tax-cuts-128297">GDP update: spending dips and saving soars as we stash rather than spend our tax cuts</a>
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<p>“China is slowing, bank-financed housing has been pushing the envelope and is very expensive, and the governments have never had a plan for the next phase of sustainable growth,” he says. “This perception of no confidence in the government has not been helped by the bushfire events.” </p>
<p>There are few signs of a recovery in business investment, notwithstanding record-low interest rates. </p>
<p>The panel’s average forecast is for investment by mining and non-mining companies to grow by only 1.7% and 1.9% in 2020, which will represent a turnaround for mining, in which investment fell 11.2% in the year to September.</p>
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<h2>Markets</h2>
<p>Financial markets should provide less support to households in the year ahead, with the ASX 200 share price index expected to climb only 6.4% after soaring 20% in the year just ended. </p>
<p>None of the panellists expect last year’s growth to continue.</p>
<p>The Australian dollar is expected to end the year at 68 US cents, close to where it is at present. The iron ore price is expected to fall to US$75, a smaller slide than was assumed in the budget.</p>
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<h2>Home prices</h2>
<p>Housing investment (homebuilding) is expected to stabilise in 2020, falling only slightly from here on, after sliding 9.6% in the year to September 2019. </p>
<p>Sydney and Melbourne home prices are expected to continue to recover, growing by 5% in 2020. </p>
<p>Panellist Nigel Stapledon says the higher home prices will in time boost perceptions of wealth, opening up the possibility that consumer spending will “surprise on the upside”. </p>
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<h2>Interest rates and budget</h2>
<p>The panel’s central forecast is for only one more cut in the Reserve Bank’s cash rate this year, in the first half, followed by no further cuts in the second half. This would allow the bank to avoid so-called unconventional monetary policy or “quantitative easing” in which it forces down longer-term rates by buying government and private bonds, an option Governor Philip Lowe said it would only resort to after it had cut its cash rate to 0.25%.</p>
<p>The single cut would take the cash rate to an all-time low of 0.5%. In anticipation the ANZ cut its online saver account rate from 0.1% to <a href="https://www.smh.com.au/politics/federal/anz-cuts-deposit-rates-to-all-time-low-20200123-p53tzd.html">0.05%</a> on Thursday. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/now-we-know-the-reserve-bank-has-spelled-out-what-it-will-do-when-rates-approach-zero-127697">Now we know. The Reserve Bank has spelled out what it will do when rates approach zero</a>
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<p>The cut could come as soon as next week when the board holds its first meeting for the year on February 4. Governor Lowe has scheduled an address to the National Press Club for <a href="https://www.rba.gov.au/media/">the following day</a>.</p>
<p>Most of the panel think quantitative easing will not be needed and many question its effectiveness, saying the government could achieve much more by fully abandoning its commitment to surplus in order to stimulate the economy.</p>
<p>The panel expects the government’s 10-year bond rate to remain historically low at 1.3%. That makes it about as cheap as it has ever been for the government to borrow for worthwhile purposes.</p>
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<p>Treasurer Josh Frydenberg has abandoned his absolute commitment to return the budget to surplus this financial year, saying his first priority is “<a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/transcripts/doorstop-interview-treasury-canberra">meeting the human cost of the bushfires</a>”.</p>
<p>The 2019-20 surplus was forecast at A$7.1 billion in the May budget and then downgraded to $5 billion in the December update. </p>
<p>The panel’s average forecast is for a bushfire-ravaged $2.2 billion. </p>
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<p>Most of the panel believe that with good management the government can avoid a recession for another two years, propelling the Australia economy into what will be its 30th straight year of expansion. </p>
<p>On average they assign a 27% probability to a recession within the next two years, down from their average forecast of 29% in June.</p>
<p>Several point out that, whereas the main risks to continued growth come from overseas, China appears to be managing its slowing economy better than expected, although the emergency triggered by the new and deadly <a href="https://theconversation.com/should-we-be-worried-about-the-new-wuhan-coronavirus-130366">Wuhan coronavirus</a> might change that.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/their-biggest-challenge-avoiding-a-recession-117381">Their biggest challenge? Avoiding a recession</a>
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<p>Among those who do fear a home-bred recession is Julie Toth who has lifted her estimate of the likelihood of a recession from 25% to 50%, saying growth is already so weak that it won’t take much to send it backwards.</p>
<p>“The bushfire disaster presents the real and immediate possibility of two quarters of negative growth for the fourth quarter of 2019 and the first quarter of of 2020,” she says.</p>
<p>“Even if disaster relief and fiscal stimulus are delivered swiftly, resource constraints (a lack of skilled tradespeople, water, equipment and appropriate building materials) mean reconstruction will be very slow.”</p>
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<p><iframe id="WPaz5" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/WPaz5/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>The panel began compiling its responses when the bushfires weren’t as bad as they subsequently became and before the emergence of the Wuhan coronavirus. </p>
<p>It delivered its final forecasts on January 20 when the worst of the bushfires appeared to have passed but before the coronavirus had <a href="https://theconversation.com/the-wuhan-coronavirus-is-now-in-australia-heres-what-you-need-to-know-130580">spread</a> to Australia. </p>
<p>The effects of both won’t be known for some time.</p>
<p>2020 is turning out to be a year of uncertainty, as well as low expectations.</p>
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<h2>The Conversation 2020 Forecasting Panel</h2>
<p><em>Click on economist to see full profile.</em></p>
<p><iframe id="tc-infographic-457" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/457/bf44ce885daf5a3f6f0c3f21add509bc262c561f/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><a href="https://cdn.theconversation.com/static_files/files/1355/2020_survey_-_Raw_data.pdf?1607169630">PDF OF RESULTS</a></p>
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Read more:
<a href="https://theconversation.com/buckle-up-2019-20-survey-finds-the-economy-weak-and-heading-down-and-thats-ahead-of-surprises-119455">Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises</a>
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</p>
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<img src="https://counter.theconversation.com/content/130289/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Conversation’s 2020 economic survey points to a dismal year, with no progress on many of the key measures that matter for Australians and an increase in the unemployment rate.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1289312019-12-16T05:50:44Z2019-12-16T05:50:44ZPolitics with Michelle Grattan: Mathias Cormann and Jim Chalmers on the mid-year budget update<figure><img src="https://images.theconversation.com/files/307078/original/file-20191216-123998-7br79a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The forecast for Australia's economic growth in 2019-20 has been cut by 0.25%, and the projected surplus for this financial year slashed by A$2.1 billion.</span> <span class="attribution"><span class="source">The Conversation</span></span></figcaption></figure><p>The mid-year budget update has seen the government downgrading its forecast for Australia’s economic growth in 2019-20 by 0.25%, and slashing the projected surplus by A$2.1 billion, to $5 billion. The forecast for wage growth has also been reduced, and unemployment is projected to be slightly higher than was envisaged at budget time.</p>
<p>The figures indicate a worsening economy, but the government has sought to put a positive spin on the situation, saying the Australian economy is showing resilience. </p>
<p>Joining this podcast is finance minister Mathias Cormann and shadow treasurer Jim Chalmers to talk about the figures and the outlook.</p>
<h2>New to podcasts?</h2>
<p>Podcasts are often best enjoyed using a podcast app. All iPhones come with the Apple Podcasts app already installed, or you may want to listen and subscribe on another app such as Pocket Casts (click <a href="http://pca.st/BVa3#t=3m34s">here</a> to listen to Politics with Michelle Grattan on Pocket Casts).</p>
<p>You can also hear it on Stitcher, Spotify or any of the apps below. Just pick a service from one of those listed below and click on the icon to find Politics with Michelle Grattan.</p>
<p><a href="https://itunes.apple.com/au/podcast/politics-with-michelle-grattan/id703425900?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL3BvbGl0aWNzLXdpdGgtbWljaGVsbGUtZ3JhdHRhbi5yc3M"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation-4/politics-with-michelle-grattan"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/News--Politics-Podcasts/Politics-with-Michelle-Grattan-p227852/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<p><a href="https://radiopublic.com/politics-with-michelle-grattan-WRElBZ"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a> <a href="https://open.spotify.com/show/5NkaSQoUERalaLBQAqUOcC"><img src="https://images.theconversation.com/files/237984/original/file-20180925-149976-1ks72uy.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" width="268" height="82"></a> </p>
<h2>Additional audio</h2>
<p><a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A List of Ways to Die</a>, Lee Rosevere, from Free Music Archive.</p>
<p><strong>Image:</strong></p>
<p>The Conversation</p><img src="https://counter.theconversation.com/content/128931/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The figures indicate a worsening economy, but the government has sought to put a positive spin on the situation, saying the Australian economy is showing resilience.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.