Another economist thinking in a shoebox today at Nine’s AFR:
Workers may need to get used to their pay packets increasing by no more than 3 per cent annually, with new research from NAB finding productivity growth is likely to stagnate at its lowest level in more than 70 years.
The Reserve Bank of Australia would be forced to raise the cash rate if the jobs market failed to adjust to the norm of lower salary growth, though NAB believes Australia’s current 4.2 per cent rate of wages growth is consistent in the short term with a further decline in inflation, provided it came at the expense of lower corporate profits.
While labour productivity increased by an average of 1.2 per cent per year in the decade before the pandemic, about 70 per cent of the gains came from the fruits of the mining investment boom, which was unlikely to be repeated. In coming years, annual productivity growth of 0.5 per cent growth was more realistic, NAB found.
“With the tailwind from mining likely over, achieving productivity growth around 1.2 per cent per annum is not impossible, but requires a substantial pickup in non-mining productivity, not just a return to trend,” Mr Nugent said.
…Since the ability to use resources more efficiently is the main driver of incomes, Mr Nugent said the tepid outlook for productivity growth meant real wages would need to grow more slowly in the future.
I want a counterfactual study with no mining boom and zero immigration. What if, instead of embracing “houses and holes,” Australia persisted with further economic reforms over the last two decades?
The odds are that productivity would be much higher, though incomes would not be, given the impact of the terms of trade.
But as we head into the post-China era and falling commodity prices, the counterfactual economy with greater competition, innovation, dynamism, and diversity would catch up with and overtake the mining largesse economy we have today in the not-too-distant future.
This is because of two factors.
First, we have squandered much of the one-off income and wealth gain of the China boom by spending it on unproductive stuff like house prices instead of saving or reinvesting it like Chile or Norway.
Second, we have exacerbated the first mistake with population growth, which has massively diluted the China windfall in per capita terms and dramatically shallowed capital across the economy by crushloading everything.
Not only is non-mining investment not enough to backfill disappearing mining investment to lift productivity, but capital shallowing is shunting non-mining productivity backward.
Equally, however, the idea that this will trigger unsustainable wage rises and keep interest rates high is wrongfully wrong. The labour-market expansion economic model led by immigration does not lead to wage growth.
It offers an infinite supply of unskilled, corrupt, and manipulable labour from the Third World. Don’t make me laugh about 3% wage growth. We’re already below that on leading indicators.
The secret sauce of Canberra’s corrupt policymaking is that it delivers neither productivity nor wage growth. It delivers warm bodies to extract economic rents for a narrow set of interests like banks, builders, landlords, and real estate media.
These gains disguise the wider dis-automation, capital clogging, and substitution of skilled by unskilled labour in Australian production behind population-inflated headline GDP numbers.
Per capita living standards are guaranteed to keep falling while it lasts.
