From Alan Kohler today:
Just as global central banks have had to switch from trying to get inflation down to getting it up, business people and conservative politicians might need to break the habit of a lifetime and work to get wages up, rather than down.
It won’t be easy. Business leaders and the politicians they lunch with are trained to twitch and harrumph convulsively at the idea of any wage rises at all. It’s a result of generations of anti-ambit culture embedded by ambit claims from unions.
..Nominal wages growth is 2 per cent, but real wages per hour have been unchanged for four years — ever since the terms of trade bubble started to burst — despite a pick up in productivity.
More importantly, consumers don’t expect that to change much and at the same time house prices are starting to fall so they are less inclined to use savings to maintain spending.
All of which is holding back consumer spending, without which the domestic economy won’t be able to offset the fall off in growth caused by the commodity price crash.
Sigh. The problem for the economy is not a lack of wage growth. The problem is that there are no drivers of wage growth. Kohler is treating symptom not cause. The following chart of the drivers of income growth from Treasury describes the problem that Kohler ought to be looking at:
Note that we used to make money via productivity gains but the recent decade was all terms of trade related. It gets even worse when you use the more correct multi-factor productivity:
It’s not wages that need to rise it is productivity, then wages will follow. If not, then all you are doing is further killing your competitiveness via rising input costs, very probably using debt, for which there is no compensating productive gain in the economy, further hollowing yourself out.
