The primary interest in the coming Mid Year Economic and Fiscal Outlook is by how much the government downgrades its economic forecasts — particularly the now-traditional downgrade of its ludicrously optimistic wages growth forecasts.
Meantime, the Reserve Bank says wages growth will be stuck at 2.3% for the next couple of years — but economic growth will gradually return. As governor Philip Lowe recently said, “The central scenario for the Australian economy remains for economic growth to pick up from here, to reach around 3% in 2021. This pick-up in growth should see a reduction in the unemployment rate and a lift in inflation.”
Only problem is, what if workers wait until 2022 for the much-heralded fall in unemployment, only for it to not produce any wages growth? Because that’s what’s happened in the US.
The US has enjoyed strong jobs growth for several years now, in the last years of Obama’s presidency and now under Trump. For a long time, this didn’t produce any lift in wages growth — though every small uptick in growth has been seized on by commentators as evidence that it was finally starting to happen. Despite concerns about Trump’s trade war and a slowing global economy, last Friday saw a bumper jobs report push unemployment down to 3.5%, nearly two percentage points lower than Australia.
So did that also see wages growth rise? In fact, wages growth fell to an annualised rate of 3.1%. It seems US wages growth peaked briefly at 3.4% in February and has been trending downwards ever since.
Maybe it’s just the US economy? Over in New Zealand, the unemployment rate increased in the September quarter — but to a still-healthy 4.2%, more than a percentage point lower than here. So if Australian unemployment gets down to 4.2%, what wages growth can we look forward to? It was a mighty 2.4% in NZ, and 2.3% for private sector workers.
But don’t expect that to stop either the RBA or the government from pretending that, somehow, wages growth will eventually recover.
Bernard, thank you for reporting on the same apparent paradox across three jurisdictions, namely: greater demand for labour, but not substantially greater remuneration for it.
So why in three different jurisdictions with three different industrial relations frameworks, is the same paradoxical phenomenon occurring at the same time?
Or put another way, what emergent global economic forces have upended conventional economic expectations, how can we tell whether those forces are transient or persistent, and what will it take for economists, politicians and the public to be able to recognise and identify these factors, discuss them and incorporate them into their democratic decision-making?
There’s a big picture here for all to see – but all most employers and their government can see is the corner that is their own interest and profit.
Wages will not rise.
There is no mechanism by which they can, short of revolution Revolution is unlikely given the atomisation of ordinary people, although the next GFC may galvanise them to rebel against capitalism and wrest control from the rentier classes.
Ordinary working people in Australia have been brainwashed by both sides of politics into believing that the only wage rise justifiable is CPI + x where x <= 0. This only applies if you work for wages. Not if you are a CEO, CFO, Company Director or a politician. In these cases it's CPI + x where x is a large positive number.
Meanwhile the elites are milking it. The Gini Index keeps rising and will continue to rise because of the structural implications of "free" markets and Neo-liberal dogma.
We are reaching "end-stage" capitalism where the elites after taking over the Government run out of easy profits. Mergers and Acquisitions which pay huge success fees to both sides of the takeovers are basically lawyer's, accountants and tax rorter specialists picnics. These will ultimately end as, the elites through their insatiable greed will kill the Golden Geese.
Of course the elites won't be hurt. As with the last GFC they took the money and ran. Wall St, MacQuarie St and Collins Street will come through unscathed.
As Matt Taibi recalled an associate of his saying. "the last GFC wasn't an economic crisis it was a crime". The criminals were let off in the last one and are working on the next one as I write. The politicians and media played the economic crisis narrative whilst the more accurate and obvious criminal narratives were suppressed.
You won’t be told will you Bernie? You have been banging on about static wages for almost two years and despite considerable support from the side line you seem to remain clueless; deliberately so : it appears. Let’s try a different approach what what I have undertaken in days gone by.
Nation States have, in the main, lost their influence over domestic affairs via WTO global agreements and the like. The politics has also been a wash with (so called) Supply Side economic theory which, roughly, discouraged any economic role for governments (save as consumers) and advocated the virtues of the market. From the early 70s (allowing for substantial increases in the price of energy) to 2015 productivity increased a further 73% while real wages increased 11%. Until cica the mid 70s productivity corresponded quite strongly to wage growth.
As for corporate salaries there was a 20x difference for a CEO over a manual worker in 1965 but this factor had changed to just short of 300 by 2013. Stagnant wages has been a phenomenon of first world countries from the inception of the 21st century. Let’s consider an explanation or two.
A relatively new form of economy has been in existence since the early 80s. Collectively this collective economy is known as the Emerging Economics and in particular the E7 comprises China, India, Russia, Brazil, Mexico, Indonesia and Turkey. The output of the G7 (USA, UK, France, Germany, Japan, Canada and Italy) is now being rivalled by the E7 to the point where global growth from the E7 exceeds the G7 from 2015.
The e-commerce, on-line contracting and general trading with the E7 has suppressed wages and prices. I know of accountants who contract with legal firms in India to obtain legal advice with is as good as the domestic variety at 1/10 to 1/20 – and in some instances 1/50 of the cost.
The inter-relationships between the “G” nations and the “E” nations are going to remain whatever the isolationists attempt to do. There are significant implications for Climate Change and even stronger justifications for Australia, that has such a low total annual emission, to do nothing at all. On this aspect the Libs have the policy correct even if they don’t comprehend the mechanics.
Cast you mind back to the Asian crisis of the 90s. The IMF wagged its finger and declared “do NOT print money”! Yet, the 1st world did just the opposite about a decade hence. Which policies to dick about with credit and manipulate rates inflation has been kept under control by equally so have WAGES!
As an aside, it ought to be noted that the Asian economies are comparatively strong with significant returns for investors.
I would not be too influenced as to what the RB claims in regard to wage growth. The current situation (a placid mortgage maxed-out workforce, near zero cost of borrowing and flat wages with predictable future costs) suits the corporates just fine. For my bob’s worth I’d be astonished if a significant increase occurred prior to 2045 – given the PRC’s objectives for 2050.
Kyle wrote: The e-commerce, on-line contracting and general trading with the E7 has suppressed wages and prices.
Thank you for a constructive and well-argued conjecture, Kyle.
In certain sectors– e.g. those where you can off-shore labour, or else temporarily import it — of course that’s true. However, there are many sectors where you can’t. For example, wherever labour must be co-located with consumption (e.g. pizza delivery, hospital staffing) or highly specialised or locally knowledgeable value creation steps (e.g. regional energy markets, Australian teaching), local labour is not interchangeable with low-price off-shore labour.
So if labour were streamed into price-sensitive off-shoreable commodities and value-driven local specialities, your account would make perfect sense.
Yet is that what you see happening? What evidence would persuade you otherwise? And if not this hypothesis, what else could it be?
The situation is multi-dimensional Ruv. That the labour market is compliant (maxed out by debt) explains what you refer to as ‘specialised or locally knowledgeable value’ and there is the matter of minimum or award conditions. As a point of fact even the PRC has a minimum wage – as do most of the E7.
The major explanation is contained in my initial 2nd paragraph (or just ask DB : he seems to know). The labour markets in the 1st world were remarkably open to about 1980. Inflation was high and borrowers were winning. There was a good deal of demand-pull.
The amount of money (a good deal of it printed after the GFC with next to zero interest rates amounts to a second consideration with the lid on inflation.
One could actually travel to Canada or the USA or the UK or to Oz from NZ and have a reasonable job (subject to quals an experience) within 96 hours of arriving. All of that dried up circa ’82 or 83. In fact it became progressively tighter from about 1975 onward but tolerable to about 1983. Ditto for wage rises and there was correspondingly less industrial action.
The price of accommodation and the considerably tighter labour market causes one to look after their job – yet the global context – particularly EU labour rules and work visas for specialised groups (e.g. the USA) enable a greater than domestic pool of labour. Looking at the matter from the other direction consider the antics of the AMA in regard to “importing” GPs; there are any number of FUD stories but little offered to endorse such a proposal.
Gig economies that you mention disguise or camouflage significant aspects of the labour market. Diving and flying, and seasonal skii instructors form part of this near piece-rate per job economy as do many pilots for regional airlines and “contractors” in the financial and real estate sector and so on.
The point is that static wages are here to stay for the majority of the 1st world work force. Turning the coin on its head : whatever temporary benefit the workforce might accrue the captains of industry would rake the benefit out in short order and the consumer would be stuck with a higher price level.
Kyle wrote: The situation is multi-dimensional Ruv.
I’d hope so! 😉 Piecing together the rest of your thoughts…
Nation States have, in the main, lost their influence over domestic affairs via WTO global agreements and the like.
So it seems to me too, Kyle. The agreements were created by nation states, but are no longer supported by the superpowers of the day. It does look like international economic forces are stronger than the need for economic cooperation perceived in postcolonial 20th century, and which gave rise to the multilateral institutions in the first place.
Which makes me wonder what the economic role of a nation state is now: a power that claims the right to tax labour, restrict its movement and set the terms of its engagement, yet cannot offer opportunity, prosperity, age security, residential security and perhaps over time even health security, while labour itself has strong ‘pull’ factors even between developed jurisdictions due to weak job security…
In that regime, what the heck does citizenship actually mean, beyond the right to vote for different political brands that don’t or can’t really help your fundamental economic condition?
Long-term, it doesn’t look good for a nation state that operates in such a way…
But that’s ‘so what’. I was asking about how, so continuing to piece it together and explore…
EU labour rules and work visas for specialised groups (e.g. the USA) enable a greater than domestic pool of labour.
Rather than seeing that a product of legislation alone, I view it as a result of increasing international harmonisation in education, engineering and trade coupled with interpenetrated logistics. The same factors that make possible long supply chains and ‘just in time’ inventory ought to mobilise not just unskilled labour but highly skilled labour too: such labour ought to follow standardisation and production demand, and be limited only by language and travel logistics.
That’s certainly the experience within my own sector of ICT since the 1990s you can go anywhere and do anything provided there’s economic demand (there nearly always is), legislative appetite (there isn’t always), and available accommodation (there often isn’t, due to rampant real estate speculation and under-investment in residential infrastructure: Australians are great international travelers, hampered principally by language and the cost of accommodation.)
So in my sector at least it’s like the global economy wants an internationally mobile, constantly reskilling work-force, while nation-states, manufacturers and property speculators want anything but. Is that how you see it? Contrary to populist claims that wage stagnation arises from workforce mobility, is wage stagnation created by barriers to mobility?
If it were true then we might expect to see less wage stagnation in diverse regions with better trade harmonisation and labour mobility like the EU, and more where local industries and speculators hold national governments captive, such as North America, Australia, and prospectively the UK. Is that what we’re seeing?
(And maybe the post-GFC dust is still settling, so it’s harder to see the global trends… but we should see them soon if they’re there..)
Gig economies that you mention disguise or camouflage significant aspects of the labour market.
I certainly agree with that. Gig economies stuff trading risk and the cost of operations into individuals, shielding the rent-seeking gig-vendor from risk while largely bypassing labour regulation. The price of services are kept low simply because one is paying for service less effectively regulated in the worker’s interests.
(And when the nation-state is unable or unwilling to re-regulate that, it tells me it’s either powerless or held captive to other interests; either of which is also a bad look for its own long-term survival.)
I suppose I’m coming to a definitive question: is first-world wage stagnation occurring because of greater workforce mobility, because of insufficient workforce mobility, or despite whatever nation-states do about workforce mobility?
And how would we test that?
Kyle, I addressed these questions to you initially, and would definitely welcome your continued thoughts, but frankly I’d welcome anyone’s thoughts on this too.
There is nothing quite like a sane discussion Ruv. I have often thought about undertaking a cut and paste of representative “meditations” from the Crikey lists and offering them to a journal of Sociology. BTW, anyone know what happened to the acerbic AR?
> The agreements were created by nation states, but are no longer supported
> by the superpowers of the day. It does look like international economic
> forces are stronger than the need for economic cooperation perceived in
> postcolonial 20th century, and which gave rise to the multilateral
> institutions in the first place.
Exactly! There was a change in fundamental work practices. To about 1970, a score of clerks would undertake computations for a large accountancy firm or an insurance office or an engineering firm or whatever. What they produced in a week could be reproduced (with 100% accuracy – no slide rules or inadvertent rounding) in an afternoon on a well constructed electronic spreadsheet. Indeed, there are copious packages and macros that will crunch “grunt work”. Now, we’re moving – literally – to the age of robots that can assess insurance
forms without human intervention.
In Marxist terms, the worker, via alienation, has “lost” the rights to the productivity of changes in work practice. Similarly for wage growth.
There is also Machine Learning with regard to forecasting but let’s keep the discussion within bounds.
Co-requisitely, we had Foreign Direct Investment (FDI) in addition to a multi-national presence. The order of magnitude of operations needs to be kept in mind here. We’re not considering a shopping centre in a capital city or a main street in a Victorian town.
> Which makes me wonder what the economic role of a nation state is now
Strictly, Ruv, it is an utter fiction now; especially from a Marxist perspective. The WTO can direct (implicitly make laws for entire member-countries; similar to EU legalisation for that economic block) trading relationships with little regard to the domestic sentiments of any particular country.
For countries with prominent multi-nationals and extensive engagement in FDI they call the tune. As an aside, it is not for nothing that the PRC announced its determination to be the manufacturing hub of the world in 2011; a year prior to Xi!
> yet cannot offer opportunity, prosperity, age security, residential security
> [etc. my snip]
Again : quite so! Until the mid 70s increases in productivity were STRONGLY correlated to real wage growth. As an exercise, determine the productivity and real wage growth for a first world country from 1948 to 1968. It is almost hand-in-hand. The upper-managers, until the early 80s, commanded NOTHING like that margin over average wages that is commanded today. With today’s conditions productivity can be syphoned off into executive salaries. I made this point in my first post; noting the difference from ’73 to 2015. The guy at
Westpac waked out with (was it) 2.7? That kind of margin was not distributed over recognised productivity.
> In that regime, what the heck does citizenship actually mean, beyond the
> right to vote for different political brands that don’t or can’t really help
> your fundamental economic condition?
Once again : you take the prize! Galbraith described shareholders (of major companies and, literally, the owners of major companies) as “the passive recipients of income”. So long as their expected dividends arrive they don’t give a flying f. as to how the company is managed. As to your observation, (and what
that amateur GR overlooked altogether in his piece on the likely UK election result) is the INABILITY of the population to discuss issues WITHOUT recourse to identity or sentiment.
This is a principal impediment to developing rational (empirically-based) policy and illustrates the pickle in which UK Labor (Oz Labor come to that) finds itself.
A classical education (with a knowledge of virtue and justice – as per the Greek and Roman plays along with the philosophy) is held in contempt nowadays. Just read the intemperate and uninformed ravings that are abetted by Crikey. “Sally’s opinion on FB compares (or overrules) that of a researcher at NASA”
> Long-term, it doesn’t look good for a nation state that operates in such a
> w>ay…
It’s another topic but, apparently, I’m not alone in envisioning, quite literally, the end of civilisation (as we know it) within a century. Have a look at the sentiments of Lord CJ John Sumption (UK). The plebs have to be disenfranchised along with their representatives. The problem for the CJ is that there some very monied plebs.
I refer to your paragraph : “Rather than seeing that a product of legislation alone, ..” and subsequent paragraphs. May I assume the liberty of tidying some of it up by responding to your observations that follow.
> If it were true then we might expect to see less wage stagnation in diverse
> regions with better trade harmonisation and labour mobility like the EU
But it isn’t true and NOT for the reason that wages are flat in the EU as well. The matter is one of scale and NOT trading blocks. Trading blocks mattered with Nation States mattered; now, they are largely an irrelevance juxtaposed the global (qua WTO) environment. In fact, you are on the threshold of answering your own question with your observations of the gig economy.
> (And when the nation-state is unable or unwilling to re-regulate that, it
> tells me it’s either powerless or held captive to other interests; either of
> which is also a bad look for its own long-term survival.)
Yes. We’re almost back at the beginning. Its less a matter of being “held captive” than of operating in circumstances that were not clearly foreseen (e-commerce to robots and ultra-cheap money) where the multi-nationals are more influential than the Nation States. At the risk of a major digression – do you think that HK is going to be solved by a UN resolution? Jesus!
“I suppose I’m coming to a definitive question: is first-world wage stagnation occurring because of greater workforce mobility, because of insufficient workforce mobility, or despite whatever nation-states do about workforce mobility?”
The answers to the options are ” Yes, no and yes. We have, prior to this post, already answered about 70% of that question. For services contract work over the internet for anything from programming to architectural design is a major economy. I (for example) can get an architect from (e.g.) Bulgaria to design a house or a factory for a location along the (e.g.) NSW coast. Then, I just take the plans to the Council and get the tick. Even if I have to run the plans though a local firm (just to look good) the enterprise is compelling.
Secondly, any fucking fool (a phrase of Kingsley Amis rather than mine) can obtain a degree nowadays. Automation has yet to begin in real terms – and in any event there isn’t a polie that has given the matter an hour’s thought. Thirdly, the Nation State is a fiction; or like “democracy” – it exists only in the mind (nowadays). As observed, empiricism and fact-based argument HAS been supplanted by identity and sentiment.
The education system is in disarray (better in some parts of the world than others) but designed to have the voters remain inarticulate – just read the news on the ABC or note the comments when I advocate correct usage of a term.
Labour immobility is quite real especially for geographical regions that have undergone “de-industuralisation”. The effects compromise all other related occupations. The cost of relocation, at current housing prices – including stamp duty etc, is all but prohibitive – and often is prohibitive. One goes (and the UK is replete) from ok to the dole. Nevertheless, the displaced represent a latent source of labour and in drips and drabs some may well find jobs elsewhere; sufficient not to create “excessive demand” for an occupational grouping.
A summary of our discussion provides anyone with a definitive answer to the question as put Ruv; at least within experimental error. As to testing it : let’s see where the matter is in 2022; i.e. raw observation.
Again, thank you Kyle. You answered as I expected you to — albeit with more and welcomed detail.
At the moment I might be a bit more cautious on my conclusions — in part because I don’t trust my own ontology, and therefore my own questions.
As you’ll already know, the ontology we’re leaning on has its antecedents in theories of manufacturing controlled by (as you mentioned) surplus management of nation-states, who also managed to regulate markets for most of the economic history of civilisations.
I’m not sure that’s even what we’re doing now and it sounds like you think it’s not too. But if it’s not then we might need to redefine fundamental terms like productivity and value in ways that don’t implicitly rely on nation-states to recognise markets and normalise value based on trade surpluses and deficits — and that deal with units of productivion and consumption in ways that aren’t atomised down to idealised individualism, yet don’t implicitly depend on the mediaeval notion of family.
I think I’ll suck my gums for a while, but will continue to read with interest. 😀
Thank you for yesterday’s news Kyle.
Inform Keyne and not me DB! Keyne might give up on this while goose chase if the recommendation came from you. I’m only too glad that after the nth attempt (on my part) some glimmer might have got through to the fellow.
I have, in the past, provided links to graphs for numerous 1st world countries that illustrate flat wage growth for the last decade or more and some, contrary to claims made by those, that particular European countries were experiencing wage growth.
I am fully sympathetic with the economic-political argument of this article, as it applies to Australia, the US and elsewhere, and appreciate BK’s efforts to enlighten me most of the time, but I am having trouble with the arithmetic.
How does a decrease in wage growth rate (US) since February from 3.4% to 3.1% represent no growth or even an actual decrease in wages over that period? Whether at 3.1% or 3.4%, growth is still growth, even if inflation (1.8%) has been ignored.
The US employment rate for February was 3.8%. So, a growth in employment of 0.3% (i.e. from 96.2% to 96.5%) has coincided with a 9 month growth in wages of 2.3% (i.e. 75% of 3.1%) or, allowing for inflation, 1%.
That is, worst case interpretation: employment growth 0.3%, wages growth 1%.
I would be very happy for someone to correct my arithmetic for me, but if by some miracle it is OK, then, what size wage increase would BK and other commentators here have seen as satisfactory in this current US context?
But I suppose to answer that we would have to look at other indicators, such as productivity, investment rates, wages as a proportion of all earnings etc.
Along with Ruv, there is some confusion between “demand” in the labour market (or any market) and “quantity demanded”. Changes in demand have very little (or anything) to do with price but changes in quantity demanded is almost invariably a function of price; wages in this case.
The answer to Ruv’s question is that MORE has been employed at the SAME price because of a host of reasons from expectations to the turnover of stocks. It is debatable (and the employers would argue thus) more would NOT be employed at a higher price (or wage). Wages are a function of the inclination of consumers to buy goods and services. When consumers stop buying depressions occur!
For the largely unskilled and semi-skilled the wage is approximating an international wage save for minimum domestic wage legislation.
For your good self the participation rate has to be taken into account. As an aside real wages = nominal/P.L
where the P.L represents the price level or roughly the CPI as a proxy.
Thanks, Kyle. I’m still chewing over this in the context of our broader exchanges.
It sounds like you may be distinguishing the potential capacity to meet market demand (i.e. workforce skills and available technologies) from the realisable capacity limited by local conditions — like workplace regulation, visa controls, available credit or the need for accommodation and local schools.
Is that the distinction here?