According to policymakers, your wages are going to start growing properly again once unemployment reduces further and unused capacity in the economy is used up. Only problem is, New Zealand is already at that point, and it’s not happening.
Despite the claims of some “turned the corner” optimists eager to spot a turnaround in the years-long wages stagnation endured by Australians workers, the view of the Reserve Bank is that any substantial lift in growth is a ways away, and we’ll only get there “gradually” — the RBA’s new buzzword. As the RBA governor, Phil Lowe said in a speech in Adelaide on Tuesday night, in which he used it seven times:
… our central scenario is for a gradual pick-up in wages growth, a gradual lift in inflation, and a gradual reduction in the unemployment rate. While we might like faster progress, it is encouraging that things are moving in the right direction and are likely to continue to do so.
That gradualism suggests forecasters like AMP’s chief economist Shane Oliver may be right in seeing no interest rate rises from the RBA until 2020, rather than 2019 (it used to be later this year, but the end of the RBA’s record period without a rate rise keeps being pushed back).
But even if we gradually reach the point where unemployment falls low enough to start pushing on wages, what if nothing happens? Because that’s what’s happened across the ditch. New Zealand’s unemployment rate was 4.4% in the March quarter, down from 4.5% at the end of last year and well below Australia’s 5.6%. If we had a 4.4% unemployment rate, you can bet the RBA would already have at least one rate rise under its belt, and looking at perhaps two or three more this year.
But Kiwi workers are suffering the same stagnation as us (and most workers across the western world). NZ’s labour cost index climbed by just 0.3% in the March quarter, for an unchanged annual rate of 1.8%, slower than expected. And like Australia, it’s government spending in the health and social care sector that’s propping up what little wages growth exists: only the introduction of a big pay rise for aged care and disability workers meant wages didn’t grow by even less. Economists say the share of NZ workers receiving no pay rises is at the highest level since 2010.
So even with unemployment more than one percentage point below ours, New Zealanders are still stuck with stagnant wages. Indeed, New Zealand really challenges the “wages will rise when spare capacity is used up” thesis: it has a much higher participation rate than us — 70.8% in the March quarter (down from 70.9%). We were chuffed a fortnight ago when our participation rate hit a record high of 65.7%, more than five points lower. NZ appears a lot closer to using its full economic capacity than us.
It’s also worth noting that New Zealand has a much more employer-friendly industrial relations system with fewer rights for workers and unions than in Australia, which would undermine the capacity of unions to extract larger pay rises even in favourable bargaining conditions such as low unemployment.
Still, don’t expect the government or the RBA to abandon it’s “wage growth … eventually” narrative any time soon. The implications of the alternative — that industrial relations laws have been tilted too far in favour of corporations against workers — are too unpalatable.
The social contract between business and workers has largely gone. Serfdom is the goal.
With all due respect, Bernie, just what aspects of this global phenomenon do yo not understand? You have written (around the point) for some time on this matter and in this instance the tone is one of “the first that I have heard of it”! There is an oblique reference to the matter being global in your paragraph five and the (duh) references to employers regarding “gradual pick-up”.
Then, (skipping along) you observe, “New Zealand has a much more employer-friendly industrial relations system”. Yeah! The place also has a much more compliant (less union-inclined) work force. The most difficult task in organising a srike in the 70s was to get someone to actually do it. As to compliance, union membership has deteriorated in NZ at about the same rate (and for roughly the same reasons) has it has in Australia.
What caused you (or anyone) to conjecture that there would be a material increase in wages given an unemployment rate at a given value. I hope, for your own sake you will not reply “the Phillips Curve” because (just as an exercise) undertake a plot (for the last 30 years) of the the price level v’s unemployment (independent variable) for Oz, NZ and the UK and it will be readily evident that the relationship is no longer forecast-able but, in fact, all over the sky.
Agreed. It is astonishing that company/PAYE tax has inverted in eighty years but there it is. There are a few who don’t care for the trend (including some Republicans of late) but, considering recent instances, Shorten has provided no detail whatsoever as to his “reforms” that he made mention of earlier this year. The Green’s four day week would be a start (20% increase in effective real wages), if presented competently, but most workers would winge about having an extra day to fill.
Any comment, Kyle, in Smith’s argument that profits go to paying wages and also to paying the interest on the borrowings used by companies get their raw materials.
Lower wages meaning that more of the profits can go to paying higher interest rates on those borrowed monies.
German industry is supposedly largely self-funding, doesn’t divert much of its profits to interest payments and so can support high wages quite well.
In short, low wages mean higher interest rates or more pay for the idle rich.
Is this what plagues both the NZ and OZ economies?
Could the underlying analysis of the persistent low wage phenomenon be this simple?
Nominal wages in Germany increased by 2.2% or 2017 while consumer prices increased by 1.8 thus providing a real increase in wages of about 1.2% for the year of 2017.
The such has been the case (i.e. about 1% Real growth) for the last 10 years in Germany and ditto, roughly, for Europe. I have the data but I do not know how to upload the .png files etc. I’ll ask Crikey on Monday.
The conditions are somewhat different in Scandinavia and Norway is a good example. Imagine a growth rate of something like 17% a decade ago and a more or less straight line to were we are now (2017) terminating at 4%; – i.e. fairly steep negative gradient (or slope). For 2018 the Unions in Norway are attempting a 2.7% wage increase but we’ll see.
Smith is right : no argument. However, interest rates are also historically low. Good for companies eh? As I pointed put to Bernie – try plotting a Phillips Curve for any first world country and nowadays it looks nothing like the “typical” – historical – Phillips Curve. QED.
I have remarked on the reasons for this phenomenon (and others have contributed) in previous posts. It is not a simple phenomenon but is a textbook projection of Marxist analysis. The Gini coefficient for Australia is almost identical to that of the USA now. The index could be used as an argument as to just how “USA” Australia has become in terms of tax structure, income distribution and equality.
Just reading the post that I have submitted I foresee some comments brewing.
(1) Real (anything) in economics is Nominal (anything) / price level. That is a definition.
(i.e. divided by the price level).
(2) for the German workers for 2017 their effective wage increase was 0.4% (2.2% Nominal minus 1.8% cost-of-living) for 2017. Statistics : we can’t be too careful.
There is one major difference between Germany and Australia. Germany backs its manufacturing base and workforce. They average A$17B/annum subsidy to a auto industry with an annual revenue of about A$650B, thus keeping a heavy manufacturing capability and the maintenance of about 750,000 direct and god knows how many indirect jobs.
Contrast that with what NLP managed to do here. No car industry, a much reduced heavy manufacturing industry and over 100,000 people out of work, resulting in a labour glut, no doubt one of the reasons for lower wages.
Well – hardly a labour glut considering the unemployment rate (and, ipso facto, the size of the workforce). For any country there are going to be the unemployable if only on account of the various aspects of ‘structural’ unemployment. Anything above 8% Unemployment is considered a glut.
However, yes indeed : Germany has identified a number of ‘essential’ industries but the prospects for workers are not materially better than within the OECD generally.
Kyle, replying here as no reply tab on your comment.
I don’t trust the official figures to give an accurate unemployment picture at all. They discuss the full time job seeker number as rising but the part time job seeker rate falling, therefore the unemployment rate has dropped. Just so much BS. Just from looking around my own and surrounding shires and what I read in local papers there is chronic under employment in regional areas and I hear similar stories from the regional areas west of New Castle.
New Zealand counts as unemployed one who has no paid work at all. Just had a quick look, there are well over 100,000 underemployed. That changes the picture quite a bit.
Yes, the matter of the data is somewhat contentious. For Australia the unemployment rate is reflective of people who have actively looked for work in the past four weeks it excludes people who would work but were not looking for work; i.e. discouraged job seekers on account of lack of skills or age or location or whatever. From about the late 80s it has created “dodgy” training TAFE schemes to minimise the percentage also.
For NZ the assessment of unemployment is a tad more strict; viz., All persons in the working-age population who during the reference week were without a paid job, available for work and had either actively sought work in the past four weeks ending with the reference week, or had a new job to start within the next four weeks.
Of course the participation rate or the employment (or unemployment) rate possesses error despite reasonable treatment of the data and is only an indicator (within standard error of the “true” value (however defined) of the estimated parameter but such is not altogether the point. Comparing unemployment rates for different countries is as perilous as comparing Real GDP or any other economic indicator but the comparison is better than noting
The point is of the article is (as I understand it) that if productivity increased x% overnight or the unemployment rate declined to near zero wages could not be expected to increase – on account of institutional practices that exist globally within first world economies.
What Keane OUGHT to have presented are two graphs regarding unemployment such as Australia : https://tradingeconomics.com/australia/unemployment-rate and for New Zealand :
https://tradingeconomics.com/new-zealand/unemployment-rate
BUT do NOT be too influenced with the profiles of the graphs. The graduation on the ‘Y’ axis for Australia is 0.05 but 0.20 for New Zealand. The truly consciousness would do well to collate the data but rescale the cart to a common(Y) interval (and perhaps a line chart may be preferable).
As an aside any self-respecting stats course has either an introductory lecture or a concluding lecture with the title ‘A [insert your political-party-of-contempt here] persons guide (and exemplar) to deceiving with statistics’.
The paradigm capture of BK is no more evident than in this vapid attempt to extrapolate from NZ to Oz.
Two more dissimilar economic, demographic and social systems would be hard to find, at least on this planet.
Planet Neocon – well, who knows, or cares, what goes on with that fever swamp of delusion.
Actually the two economies, at a push, are roughly similar; viz., : primary producing, relatively light industrial (Secondary sector) and roughly similar in the Tertiary sectors.
I have the good fortune to have a reply to Brief embargoed at 20:53 where I convey the perils of inter-country comparisons of economic data or indicators – however carefully treated or complied which, as you convey, has not been taken into account.
Pasting one of the (embargoed) paragraphs : The point is of the article is (as I understand it) that if productivity increased x% overnight or the unemployment rate declined to near zero wages could not be expected to increase – on account of institutional practices that exist globally within first world economies.
The fun-filled post might be available tomorrow.
Meanwhile, Australians all let us rejoice. Back here, girt by BCA/Limited News Party facts as we are, we’re going to buck the experiences of other countries?
…. According to ‘experts’ like Aaron Patrick?