Phil Lowe: No wages, no inflation

From Phil Lowe today:

I would like to thank Australian Industry Group (Ai Group) for the invitation to speak at this lunch today. I have participated in many Ai Group events over the years and I have always valued hearing from your members, so it is a pleasure to be here in Melbourne today.

The title I have chosen for my remarks this afternoon is ‘Productivity, Wages and Prosperity’. I know that these three issues are important to your members and they are also important to the broader Australian community.

Australians enjoy a level of economic prosperity that few other people in the world enjoy. Per capita incomes here are high and so, too, is wealth per capita. We have also avoided bouts of high unemployment for over a quarter of a century now. Our banking system is strong, we have world-class natural resources and Australians have access to high-quality health care and education. So there is much for us to feel fortunate about.

The question is how do we sustain this prosperity?

This is an important question to be asking. At the moment, there is unease in parts of the community about the future of work, about competition from overseas and about the implications of technology – all issues that I know the members of Ai Group are dealing with every day. For others in our community, these concerns are being brought into sharp focus by unusually slow growth in wages.

As we address these important issues, we also need to keep focused on the critical task of raising national productivity. After all, lifting productivity is the key to building on our current prosperity and ensuring sustained growth in wages and incomes. There is no shortage of good ideas to consider here.

My remarks today will be in four parts. First, I will briefly cover the recent economic data. Then, with that context, I will talk about some of the reasons why wages growth has been as low as it has. I will then turn to productivity growth. Finally, I will say a few words about the recent monetary policy decisions by the Reserve Bank Board.

The Recent Economic Data

Last week’s national accounts contained positive news about the Australian economy. Over the past year, GDP rose by 3.1 per cent, which is a bit stronger than we were expecting (Graph 1). It is consistent, though, with the RBA’s central scenario for the Australian economy to grow more strongly this year and next than it has over recent years.

Graph 1
Graph 1: GDP Growth

One pleasing feature of the national accounts was the ongoing rise in investment. Non-mining business investment increased by 10 per cent over the past year (Graph 2). This lift is consistent with current business conditions, which, as measured by Ai Group’s own survey, are at the highest level in many years. Investment is also being boosted by increased spending on infrastructure, including in the areas of transport and renewable energy.

Graph 2
Graph 2: Investment and Business Conditions

One area that we continue to watch carefully is consumption growth. Over the year, household consumption rose by 2.9 per cent. This is a reasonable outcome, although growth in the March quarter was on the soft side. Stronger employment growth has contributed to a pick-up in wage-related income and this is helping to support spending. At the same time, though, the level of household debt remains very high and the housing markets in Sydney and Melbourne are going through a period of adjustment, following the earlier very large increases in prices. Credit standards are also being tightened further. So we are paying close attention to household finances.

On the international front, economic conditions remain strong. The US and Japanese labour markets are quite tight and Asia, including China, is benefiting from the global upswing in trade and investment.

At the same time, though, recent developments have increased some tail risks. One of these is political developments in Italy, which have again put the spotlight on the debt dynamics and underlying tensions in the euro area. Another potential source of a financial shock is the increasing strains in several emerging market economies – including Argentina, Brazil and Turkey. And finally, there is the ongoing risk of an escalation in trade tensions sparked by the policies of the US administration. So, against what remains a reasonably positive international backdrop, these are some of the areas to keep an eye on.


I would now like to turn to an issue that has received a lot of attention lately; that is wages growth.

Over recent times, wages growth around the 2 per cent mark has become the norm in Australia. Some time back, the norm was more like 3 to 4 per cent. This downward shift in the rate of wages growth is clearly evident in the wage price index as well as in the more volatile measure of average hourly earnings in the national accounts (Graph 3).

Graph 3
Graph 3: Labour Costs

There are both cyclical and structural explanations for why this change has taken place.

From the cyclical perspective, there is still spare capacity in the labour market. The unemployment rate has been around 5½ per cent for a year now (Graph 4). While we can’t be definitive about what constitutes full employment, most conventional estimates for Australia are that it means an unemployment rate of around 5 per cent. It is possible, though, that we could do better than this, especially if we approach the 5 per cent mark at a steady pace, rather than too quickly. Indeed, in a number of other countries, estimates of the unemployment rate associated with full employment are being revised lower as wage increases remain subdued at low rates of unemployment. We have an open mind as to whether this might turn out to be the case here in Australia too. Time will tell.

Graph 4
Graph 4: Labour Market Underutilisation

Broader measures of underutilisation suggest another source of spare capacity in the labour market. Currently, around one-third of workers work part time, with most of these people wanting to work part time for personal reasons. However, of those working part time, around one-quarter would like to work more hours than they do; on average, they are seeking an extra two days a week. If we account for this, these extra hours are equivalent to around 3 per cent of the labour force. This suggests an overall labour underutilisation rate of 8¾ per cent, compared with the 5½ per cent traditional unemployment rate measure based on the number of unemployed people.

Recent experience also reminds us of another important source of labour supply; that is, higher labour force participation (Graph 5). As we have seen over recent times, when the jobs are there, people stay in the workforce longer and others, who had not been looking for jobs, start looking. So the supply side of the labour market is quite flexible, even more so than we expected.

Graph 5
Graph 5: Participation Rate

Another cyclical element that has affected average hourly earnings over recent years is the decline in very highly paid jobs in the resources sector as the boom in mining investment wound down. It looks, though, that this compositional shift has now largely run its course.

These various factors go some way to explaining the low wages growth over recent times. When there is spare capacity in the labour market, it is understandable that wages growth is slow.

Yet, alone, these cyclical factors don’t fully explain what is going on. Some structural factors also appear to be at work, with perhaps the most important of these related to competition and technology. I will come back to this in a moment.

The idea that structural factors are at work is supported by this next graph, which shows the wage price index and the responses to the NAB business survey where firms are asked whether the availability of labour is a constraint on output (Graph 6). While there is still spare capacity in the labour market, firms are finding it more difficult to find suitable workers. Yet despite this difficulty, wages growth has not responded in the way that it once did.

Graph 6
Graph 6: Constraints on Output and Wages Growth

A similar pattern is evident overseas. This next graph shows wages growth in the United States and the euro area as well as survey-based measures of labour market tightness (similar to those in the NAB survey) (Graph 7). In both economies, wages growth has picked up in response to tighter labour markets, but the response is not as large as it has been in the past.

Graph 7
Graph 7: Wages Growth and Labour Market Tightness

We are still trying to understand fully why things look different in so many countries and how persistent this will be. Part of the story is likely to be changes in the bargaining power of workers and an increase in the supply of workers as the global economy becomes increasingly integrated. But another important part of the story lies in the nature of recent technological progress.

There are a couple of aspects of this progress that are worth pointing out. One is that it has been heavily focused on software and information technology, rather than installing new and better machines – or on intangible capital rather than physical capital. The second is that the dispersion of technology and productivity between leading and lagging firms has increased, perhaps because of the uneven ability of firms to innovate and use the new technologies. The OECD has done some very interesting work documenting this increasing productivity gap.[1]

Both of these aspects of technological progress are affecting wage dynamics. The returns to those who can develop and best use information technology have increased strongly. These returns, though, are often highly concentrated in a few firms and in only certain segments of the labour market. At the same time, the firms that are not able to innovate and take advantage of new technologies as quickly are slipping behind and they feel under pressure. As a way of remaining competitive, many of these firms are responding by having a very strong focus on cost control. In many cases this translates into a focus on controlling labour costs. This cost-control mentality does not make for an environment where firms are willing to pay larger wage increases.

Over time, we can expect the diffusion of new technology to take place. This is what the historical record suggests. I am optimistic that this diffusion will boost aggregate productivity and lift our real wages and incomes. Advances in information technology, in artificial intelligence and in machine learning have the potential to reshape our economies profoundly and lift average living standards in ways that are difficult to envisage today. But the adoption and the diffusion of these new technologies is a gradual process; it takes time. While it is taking place, the benefits of new technologies are accruing unevenly across the community. In my view, this is one of the key structural factors at work.

Whatever weight one places on these various factors constraining wages growth, it is clear that the slow growth in wages is affecting our economy.

On the positive side of the ledger, it is one of the factors that has helped boost employment growth over recent times. Of course, there are other effects as well.

One is that the low growth in wages is contributing to low rates of inflation in Australia. Indeed, if wages growth were to continue at around its current rate for an extended period, it is unlikely that the rate of inflation would average around the midpoint of the inflation target in the period ahead. Wages growth of 2 per cent and reasonable labour productivity growth are unlikely to make for 2½ per cent inflation on a sustained basis.

Another consequence is that real debt burdens stay higher for longer. Many people who borrowed expected their incomes to grow at something like the old rate rather than the current rate. With their expectations not being realised, the real value of the debt stays higher than they expected and this is likely to affect their spending decisions.

And beyond these purely economic effects, the slow wages growth is diminishing our sense of shared prosperity. If this remains the case, it can make needed economic reforms more difficult.

Given these various effects, some pick-up in wages growth would be a welcome development. It would help deliver a rate of inflation consistent with the target, it would help with the debt situation and it would add to our sense of shared prosperity.

In my judgement, a return, over time, to a world where wage increases started with a 3 rather than a 2 is both possible and desirable. To be clear, this is not a call for a sudden jump in wages growth from current rates to 3 point something. Rather, we will be better off if this increase takes place steadily over time as the economy improves.

There are some signs that we are starting to move in this direction, but it is likely to be a gradual process.

Labour markets in most parts of the country have tightened over the past year. One piece of evidence in support of this is the responses to the NAB survey I showed earlier. There has been a sharp increase in the share of firms reporting the availability of labour as a constraint (Graph 6). The only other time in the past 25 years where this share has been as high as it is now was in the early stages of the resources boom. These survey results are consistent with what the RBA is hearing through our own business liaison program.

One explanation for why firms are reporting that it is hard to find workers with the necessary skills is that the very high focus on cost control over recent times has led to reduced work-related training. With the labour market now tightening, we are perhaps starting to pay the price for this. On a more positive note, a number of businesses and industry associations are now starting to address the skills shortage. Some businesses also tell us that another factor that has made it more difficult to find workers with the necessary skills is the tightening of visa requirements.

It’s reasonable to expect that as the labour market tightens, wages growth will pick up. The laws of supply and demand still work. Consistent with this, we hear reports through our liaison program of wages increasing more quickly in areas where there are capacity constraints, although these reports are still not very common.

As part of our liaison program we also ask firms about their expectations for wages growth over the next year: whether it will be lower, higher or about the same as the recent past. The results are shown in this next graph (Graph 8). There are now more firms expecting a pick-up in wages growth and fewer firms expecting a decline compared with recent years.

Graph 8
Graph 8: Expectations for Wages Growth

So it is reasonable to expect growth in wages to pick up from here. To repeat the point, though, this pick-up is expected to be only gradual given both the spare capacity that still exists in our labour market and the structural factors at work.


This is an appropriate segue to the issue of productivity.

The best outcome is one in which a pick-up in wages growth is accompanied by stronger growth in labour productivity. That’s because, ultimately, the basis for sustained growth in real wages is that we become more productive as a nation.

The recent productivity data are difficult to interpret. Despite a positive outcome in the most recent quarter, there has been no net increase in measured labour productivity over the past two years. Over the past couple of years, output growth has been subdued, but employment growth has been strong. In other words, measured labour productivity growth has been weak (Graph 9). However, if we take a slightly longer period – say since the end of 2010 – labour productivity growth has been better, averaging 1.4 per cent per year, which is a reasonable estimate of the rate of productivity growth we could expect over the medium term. This outcome has been boosted by stronger labour productivity in the mining sector as new production comes on stream after the investment boom. It may be that the current lull in productivity growth is just noise in the data, which is quite common, but it may also be a sign of something more persistent. Again, time will tell.

Graph 9
Graph 9: Labour Productivity

In trying to understand recent trends, it is useful to examine what has been happening in the broad industry groups: goods-related industries, business services and household services (Graph 10). Employment growth has been especially strong in household services over recent times, yet measured productivity growth in this area of the economy has been quite weak. Output per hour worked in this set of industries is only 4 per cent higher than it was in 2010. In contrast, over this period, output per hour worked is up 13 to 16 per cent in the other industry groups. This is quite a different picture.

Graph 10
Graph 10: Employment and Productivity

Almost 40 per cent of the workforce currently works in household services, so the weak productivity growth here is weighing on the outcome for the economy as a whole. It is possible that part of the story is the difficulty of measuring output in some service industries. Even so, last year’s ‘Shifting the Dial’ report by the Productivity Commission highlighted some of the steps we could take to boost productivity in the delivery of services.[2]

One of these steps is ensuring a strong ongoing focus on training, education and the accumulation of human capital. As I have spoken about on previous occasions, our national comparative advantage will increasingly be built on the quality of our ideas and our human capital. This means that a continued focus on education and research is important.

Investment in human capital also helps with two of the issues that I touched on earlier: the diffusion of new technologies and emerging skills shortages.

One explanation for the widening gap between leading and laggard firms is the difficulty of employing new technologies. Successfully using these technologies requires both the right management capability and technical skills. Both of these can be difficult to acquire. It seems reasonable, then, to suggest that investment in human capital can both lift the rate of technical progress and accelerate its diffusion. It is therefore an important part of addressing the slow wages growth in many advanced economies, including Australia. Another way of encouraging the more rapid diffusion of technology is ensuring that there is strong competition in our economy.

There are many other elements of the productivity debate that are also important. I don’t plan to expand on them today, but the list of areas is well known. It includes: the design of the tax system; the provision and pricing of infrastructure; the way we finance innovation and new businesses; and our business culture around innovation, risk and entrepreneurship. We need to keep all these areas on the radars of both government and business if we are to build on the prosperity that we currently enjoy.

Monetary Policy

I would like to close with a few words on monetary policy.

At its meeting last week, the Reserve Bank Board again held the cash rate steady at 1½ per cent, where it has been since August 2016.

Subsequent to the Board meeting, the national accounts provided confirmation that the Australian economy is moving in the right direction. If this continues to be the case, it is likely that the next move in interest rates will be up, not down. It is, however, important to remember that the environment in which interest rates are increasing is also likely to be one in which people’s incomes are growing more quickly than they are now. This will help.

Any increase in interest rates, however, still looks to be some time away. The Board will want to have reasonable confidence that inflation is picking up to be consistent with the medium-term target and that slack in the labour market is lessening. At this stage, a sustained pick-up in inflation to around the midpoint of the target range is likely to require faster wages growth than we are currently experiencing. There are reasonable grounds to expect that this increase in wages growth will occur. But for the reasons I have spoken about today, this increase is likely to be only gradual. Given this, there is not a strong case for a near-term adjustment in monetary policy.

With things moving in the right direction, the Board’s view is that by holding rates steady, we can help promote a sense of stability and confidence. We hope that this helps Australians make the decisions that can help build the future prosperity of the country that we are so fortunate to live in.

Thank you for listening. I am happy to answer your questions.

Mass immigration into supply-side slack that destroys what was once a pretty fair industrial relations regime equals immense pressure on wages. If you can’t even bring yourself to mention the elephant in the room then don’t expect it to change.

Next move in rates is down. Wishing it ain’t so won’t change it.


  1. >One pleasing feature of the national accounts was the ongoing rise in investment.

    Yeesss yesss… it pleases us! our nipples are exploding with delight.

  2. I love that NAB Business survey comment, Labour is a constraint?
    …..should read “cheap labour is a constraint”

      • AlbyM – that’s pretty inefficient.

        He should sack two of those blokes and the remaining two can work a bit harder. Make sure the other two are independent contractors engaged through a labour hire firm.

      • Tedblack44MEMBER

        Skills level is a constraint. Technological redundancy requires retraining. We have enough pool and yard maintenance men thrown on the scrap heap at 50. Redundant blue collar men have no savings for education even if they are motivated. The Sharing (coping) economy is a symptom. We need to redeploy some of the GDP growth share from profits to training and education. What future awaits those with low IQ? Once there were unskilled jobs enough to soak up this pool. Today less so. Into the future I fret.

    • Cheap labour, with anymore squeezable juice is a constraint. Many places I’ve worked there is zero employee increase regardless of growth in workload. More with less, is the never stated formula. When he/she leaves exhausted just replace and start over. People just circle about with no job security and a constant stream of jobs that are fundamentally unworkable over the longer term. Those that survive are those with the most effective ‘delegative’ abilities. Low productivity must be because the growth is mostly in ‘reporting up’ and compliance exercises as higher ups wonder why no projects are completed with no connection made with the high turnover.

  3. Torchwood1979

    So when did wishing for something become a strategy for a central banker on a $1 million salary?

  4. Reserve Bank governor Philip Lowe, being payed over 1 million dollars a year by tax payers, is too scared to bring up immigration at an AIG event

      • The bloke’s name is Pillow, for chissakes, of course he needs to be in a cushy job. Born for it.

    • yep – note that he showed GDP growth, he would not dare show GDP growth per capita.

      The GDP growth graph looks like our population growth.

  5. SH1T analysis of wages trends without once mentioning head of population change, or its biggest booster, immigration. This guy is a complete FRAUD!! WHO PAYS HIS WAGE FFS!!

    • You do. But you can’t sack him. Haha!

      A small taste of what it will be like when the CCP completes its takeover of the country.

  6. Bloody hell! I haven’t seen so much dribble in one place since…well…since Glenn!
    If you keep stacking people into Sydney and Melbourne with nothing to do nothing but either
    create rules and regulations so that the productive externally facing sectors can’t produce
    or serve coffee to the said regulators…
    How the hell is anyone going to get a wage increase except by parasitising somebody else
    How is productivity going to increase if we aren’t actually PRODUCING ANYTHING?

    Has everyone gone stark raving bloody mad?

    • >Bloody hell! I haven’t seen so much dribble in one place since…well…since Glenn Reusa!

      I fixed that for you! 😀

    • Super Phoenix

      We can keep building residential real estate which somehow became an exportable commodity.

      Welcome to Straya.

    • Jumping jack flash

      Never fear. The captains of our economy will eventually find that missing link between having simply the biggest debt pile and using it to create wage inflation, and after that everything will be fixed.
      I think I saw it over there behind that tree, or maybe under that rock…

      Put on your sleuthing hat, Phil, and grab the magnifying glass.

  7. Bloody hell

    Surely chart six and seven are purely driven by inmigration?

    He even said it himself under the veiled guise of “increase in the supply of workers as the global economy becomes increasingly integrated”

    Yes getting labour is hard, ok then we will open the doors instead of paying more to attract a local

    Explains AU and Europe

  8. Kinda why human memory is designed to forget stuff I guess…. anywho…

    It seems that Friedman´s most pathbreaking innovation as an economist has been in the art of what is called “massaging the data” to arrive at preferred conclusions.

    In July 1970 Nicholas Kaldor wrote an article in the Lloyd’s Bank Review in which he questioned Friedman’s empirical assertions. Friedman replied — in the same journal in October — that:

    “Asking how Professor Kaldor would explain the existence of essentially the same relation between money and income… for the UK as for the US, Yugoslavia, Greece, Israel, India, Japan, Korea, Chile and Brazil?”

    The problem with this? Friedman just made it up. No such relation existed. went back and crunched the numbers. Kaldor is his responded in his ‘The Scourge of Monetarism’:

    “The simple answer to this is that Friedman’s assertions lack any factual foundation whatsoever. They have no basis in fact, and he seems to me to have invented them on the spur of the moment. I had the relevant figures extracted from the IMF statistics for 1958 and for each of the years 1968 to 1979, for every country mentioned by Friedman and a few others besides… Though there are some countries (among which the US is conspicuous) where in terms of the M3 the ratio has been fairly stable over the period of observation, this was not true of the majority of others.” Kaldor, N. 1982. The Scourge of Monetarism. Oxford University Press, Oxford and New York.

    Kaldor summed this up well in a speech to the House of Lords regarding this little ‘blunder’ on the 16th April 1980. There he said:

    “Professor Friedman, as on some other WELL-KNOWN OCCASIONS, invented the facts to clinch the argument, and relied on his reputation as an expert for being taken on trust without anyone bothering to check the figures.” source: The UK Forum for Post Keynesian Economics
    Keynes Seminar in Cambridge Professor Richard Kahn on The Scourge of Monetarism (11 December 1987).

    Professor Paul Diesing a Economist and Philosopher of Science that worked closely with Friedman at University of Chicago, points out in his valuable article ‘Hypothesis Testing and Data Interpretation: The Case of Milton Friedman,” Research in the History of Economic Thought and Methodology, vol. 3, pp. 61-69.: that Friedman “tests” hypotheses by methods that never allow their refutation.
    Diesing lists six “tactics” of adjustment employed by Friedman in connection with testing the permanent income (PI) hypothesis:

    1. If raw or adjusted data are consistent with PI, he reports them as confirmation of PI
    2. If the fit with expectations is moderate, he exaggerates the fit.
    3. If particular data points or groups differ from the predicted regression, he invents ad hoc explanations for the divergence.
    4. If a whole set of data disagree with predictions, adjust them until they do agree.
    5. If no plausible adjustment suggests itself, reject the data as unreliable.
    6. If data adjustment or rejection are not feasible, express puzzlement. ‘I have not been able to construct any plausible explanation for the discrepancy’…”

    In a proposed Op Ed column written in 1990, Elton Rayack (Not So Free To Choose, New York: Praeger, 1987) pointed out the interesting fact that while Friedman’s models did well in retrospective fitting to historic data, where the Friedman testing methods could be employed, they were abysmal in forecasts, where “adjustments” could not be made. Rayack reviewed eleven forecasts of price, interest rate, and output changes made by Friedman during the 1980s, as reported in the press. Only one of the eleven was on the mark, a not-so-great batting average of .092;
    “not enough to earn a plaque in baseball’s Hall of Fame, but evidently quite adequate to qualify [Friedman] as an economic guru.” The guru was, however, protected by the mainstream media; Rayack’s piece was rejected by both the New York Times and Wall Street Journal.

    We may conclude says Elton Rayak that Friedman’s truly pathbreaking innovation as an economist has been in the art of what is called “massaging the data” to arrive at preferred conclusions. This innovation has been extended further by other members of the Chicago School.”
    Professor Edward S. Herman writes further in Triumph of the Market, Boston: South End Press, 1995, p. 34-37 : about Milton Friedman:

    “Friedman was considered an extremist and something of a nut in the early postwar years. As Friedman has not changed, and is now comfortably ensconced at the conservative Hoover Institution, his rise to eminence (including receipt of a Nobel prize in economics), like that of the Dartmouth Review’s Dinesh D’Souza, testifies to a major change in the general intellectual-political climate.

    Friedman is an ideologue of the right, whose intellectual opportunism in pursuit of his political agenda has often been heavy-handed and sometimes even laughable. The numerous errors and rewritings of history in Friedman’s large collection of popular writings are spelled out in admirable detail in Elton Rayack’s Not So Free To Choose.[2] His “minimal government” ideology has never extended to attacking the military-industrial complex and imperialist policies; in parallel with Reaganism and the demands of the corporate community, his assault on government “pyramid building” was confined to civil functions of government. As with the other Chicago boys, totalitarianism in Chile did not upset Friedman-its triumphs in dismantling the welfare state and disempowering mass organizations, even if by the use of torture and murder, made it a positive achiever for him.

    Friedman’s reputation as a professional economist rests on his monetarist ideas and historical studies, his analysis of inflation and the “natural rate of unemployment,” and his theory of the consumption – income relationship (the so-called “permanent-income” hypothesis). These are modest achievements at best. His monetarist forecasts have proven to be as wrong as forecasts can be, and the popularity of monetarism has ebbed in the wake of its failures…

    The Chicago School intellectual tradition traces back to University of Chicago professors Frank Knight and Henry Simon, who flourished in the 1920s and 1930s. These men were conservative, but principled and iconoclastic, Simon’s 1934 pamphlet, “A Positive Program for Laissez Faire,” actually called for nationalization of monopolies that were based on incontrovertible economies of scale, on the grounds of the evil of private monopoly and the inefficiency and corruptibility of regulation of monopoly.

    The post-World War II Chicago School, led by Milton Friedman and George Stigler, has been more political, right-wing, and intellectually opportunistic. On the monopoly issue, for example, in contrast with Simon’s 1932 position, the post-World War II School’s preoccupation was to dispute the importance and damaging effects of monopoly and to blame its existence on government policy. The postwar school is also linked to U.S. and IMF policies toward the Third World, in its pioneering service, through the “Chicago boys,” as advisers to the Pinochet regime of Chile from 1973 onward.

    This alliance points up the School’s notion of “freedom,” which has little or nothing to do with political or economic democracy, but is confined to a special kind of market freedom. As it accepts inequality of initial economic position, and the privilege and political influence built into corrupt states like Pinochet’s (or Reagan’s), its economic freedom is narrow and class-biased. The Chicago boys have always claimed that economic freedom is a necessary condition of political freedom, but their tolerance of political non-freedom and state terror in the interest of “economic freedom” makes their own priorities all too clear.

    The Chicago School’s attitude toward labor was displayed in the Chicago boys’ complacence over Pinochet’s use of state terror to crush the Chilean labor movement. The School’s general tolerance of monopoly on the producers’ side has never been paralleled by softness toward labor organization and “labor monopoly.” Henry Simon himself developed a pathological fear of labor power in his later years, as evidenced in a famous diatribe “Reflections on Syndicalism,” which may have contributed to his committing suicide in 1944. Subsequently, the labor specialists of the postwar Chicago School, most notably Albert Rees and H. Gregg Lewis, dedicated lifetimes to showing that wages were determined by marginal productivity and that labor unions’ pursuit of higher wages was futile.

    Rees, however, did acknowledge the non-economic benefits of labor organization in his class lectures.) Chicago School analyses stressed the wage-employment tradeoff and the employment costs of wage increases based on bargaining power (as opposed to those negotiated individually and reflecting marginal productivity). They linked collective bargaining to inflation, viewing “excessive” wage increases as the pernicious engine of inflationary spirals. Milton Friedman’s concept of a “natural rate of unemployment” was a valuable tool in the arsenal of corporate and political warfare against trade unions-a mystical concept, unprovable, but putting the ultimate onus of price level increases on the exercise of labor bargaining power…. – en fin…..

    Hay oo7 whats the magic word for the day and falwse I mentioned Kaldor again…. isn’t economics fun everyone….

    • Nicholas Kaldor, the post war Hungarian economist based in the UK, adviser to Wilson and Callaghan and colleague of Lord Balogh. At least one person has heard of him, Skippy

  9. Interesting material on Friedman’s doubtful credentials. It is unarguable that over adherence to measurements of M3 led to interest rate rises in Britain in the midst of a world recession, boosting the pound, smashing exports and making the 1979 to 1982 recession in the UK far deeper than it needed to be. Members of Thatcher’s own Cabinet said so

    • Doubtful – ????

      I think I submitted his and Stigler’s little congressional mishap more than a few times, this is not unlike Hudson’s observations about Greenspan. So my point astrolin is are we going to do rigorous economics to uplift society and deal with environmental realities or be forced to contend with ideological pogroms spewing money in lieu of facts or rigorous methodology.

      • Yeabut™️ “hard work is hard”, Skip. Much easier to “wave magic wand and make unicorns sh*t skittles”! Wheeeee!!

        As an old saying in the old country said: “Hard work is for tractors and for slaves”

        Oh and there’s another one: “if making honey was easy, any fly would make it and a cow’s ass would covered in honey”

      • Part of the answer has to take into account electoral cycles and our representatives imperative to run economics to suit their reelection chances rather than in the interests of the country. And the power of politicians to make central bank appointments as well as the make up of central banks. I don’t know when.

  10. Isn’t it simple though? Household sector is tapped out with lots of debt, there’s less opportunities for the business sector to sell things so they invest less, which means they need less workers. Growth companies who see a positive Npv opportunity will pay higher wages if the investment will pay off for them even if they aren’t yet profitable. Debt is holding down wage growth as what’s the point of investing? Who’s going to give me my profits?

    • No. Mr Lowe has informed us it’s because there are good companies that do tech and raise wages and unicorns and investment, and bad companies that don’t do tech and don’t raise wages. There are too many of the bad companies, but The Bank isn’t sure, and is still Studying why wages don’t increase.

  11. BoethiusMEMBER

    “Thank you for listening. I am happy to answer your questions.”
    Says it all. Extraordinary. No mention of immigration as a factor in suppressing wage growth. Topped-off by a useless labour-productivity (i.e. output per worker) graph.

  12. Jumping jack flash

    They just need to find that link between debt and wages.
    There’s plenty of money sloshing around, we’re pretty much the most indebted nation. Our streets are paved with someone else’s debt. People have never been richer – awash with mountains of debt dollars.

    We all live in million dollar fibro shacks ffs!

    But why no wage inflation???

    Mate! Its a good ‘un.

    But… I’m sure those giant brains that we elected to run our country will be able to not only find an answer, but implement it quickly and efficiently with all that power they wield over the machinations of the economy…

    Easy peasy, no wukkas mate! Economy’ll be fixed next week!

    It’s almost June 30. Get ready for the torrent of wage inflation to wash all over you!
    Mmm wage inflation, its warm and salty…