The Times Australia
The Times World News

.
The Times Real Estate

.

Many jobs summit ideas for lifting wages don't make sense – upskilling does

  • Written by Michael Keating, Visiting Fellow, College of Business & Economics, Australian National University
Many jobs summit ideas for lifting wages don't make sense – upskilling does

This article is part of The Conversation’s series looking at Labor’s jobs summit. Read the other articles in the series here[1].

Treasury’s issues paper[2] for the jobs summit says fair pay and job security “strengthen communities, promote attractive careers and contribute to broad-based prosperity”.

But it notes “many Australians have not experienced real wage gains”.

It says real (inflation-adjusted) wages have grown by only 0.1% per year over the past decade and have declined substantially over the past year.

It is important to note Australia is not unique.

In Canada, France, Britain and the United States as well as in Australia, real wage growth has been much lower in the 12 years preceding COVID than it was in the decade before that.

The critical question is why. Good policy depends on the answers.

For a long time, the authorities (in Australia, the Treasury and the Reserve Bank) assumed that low wage growth was caused by excessive slack in the labour market – too many unemployed workers available to take jobs, pushing down what could be asked for.

Low unemployment isn’t driving up wages

Unemployment exceeded their estimate of the non-accelerating inflation rate of unemployment (NAIRU[3]), which was believed to be about 5%. The theory was that once unemployment fell below that level, workers would feel more confident about asking for bigger wage increases and employers would feel the need to offer them.

The problem was that as unemployment fell, wage growth still did not recover, or did not recover sufficiently. The authorities responded by lowering their estimate of the NAIRU to somewhere between 4.5% and 5%[4] without changing the model.

But with unemployment now down to 3.4%, and wage growth still low at 2.6%, it might be time to reexamine the model.

Productivity works both ways

The other thing the authorities consider is the rate of growth in labour productivity (output per hour worked). Australia’s productivity growth averaged 2.1% per year from 1989 to 2004 but has since fallen to about 1%[5] per year, the lowest rate in half a century.

The authorities’ model, which assumes perfect competition, constant returns to scale and neutral technological progress implies that real wages can be expected to grow at the same rate as productivity, neither more nor less, making it look as if the collapse in productivity growth explains the collapse in wages growth.

Read more: Are real wages falling? Here's the evidence[6]

But there are problems with this explanation. One is that real wage growth has not always kept pace with productivity growth. In many countries the share of national income going to wages fell as productivity growth was climbing.

Another problem is that low wage growth can contribute to low productivity growth.

Productivity growth depends principally on the adoption of and adaptation to new innovations, which require new investment. However, investment depends principally on consumer demand, which is driven by wages growth.

Wages can drive investment

Private business investment in plant and machinery averaged 6.7% of gross domestic product between 1989 and 2004 but fell to 5.1% after 2004.

It is entirely possible that if we were able to successfully address the structural causes of low wage growth, we could accelerate wages growth and thus consumer demand, which would accelerate productivity growth, giving us wages growth without a wage-price spiral.

So, what are these structural factors slowing wage growth?

The most-discussed suggestions are changed industrial relations settings (including shrinking trade union membership) and technological change and globalisation.

Low-skill jobs are hollowing out

Although there is something in both of these explanations, I put more weight on technological change and globalisation in part because other countries with different industrial relations systems also experienced weak wage growth, and also because the hollowing out of occupations clearly played a role and it is hard to see how the industrial relations system could have contributed to this.

Read more: The Chalmers graphs: 7.75% inflation, plunging real wages, weak growth[7]

The argument is that technological change and globalisation have hollowed out routine middle-level jobs, depressing pay in these occupations relative to higher-paid occupations.

This means programs to lift wage growth should focus on improving the capacity of the labour market to adapt to new technologies, which means retraining.

As the workforce upskills, wages will increase as workers shift to higher-paid jobs where workers are in short supply.

Thomas Piketty put it this way in his major study of inequality[8]:

the best way to increase wages and reduce wage inequalities in the long run is to invest in education and skills

Although skills, training and migration are listed as key topics for the jobs summit, the treasury’s issues paper focuses almost entirely on industrial relations in its discussion of how best to boost wages.

Treasury's issues paper[9] The paper puts a lot of emphasis on restoring and improving enterprise bargaining, which the paper says, “should be a key enabler of both productivity growth and secure and well paid work”. I am sceptical about this making much difference. As I noted, other countries with different industrial relations systems have low wage growth. The changes to the industrial relations system that would most help are those that improve job and pay security for the almost one third of workers who are casuals or independent contractors. Helping them might flow on to others. And wages in the public sector and jobs that are largely financed by government – such as those in health, education and caring – appear to be inadequate[10]. There is clear evidence of unattractive salaries and work conditions causing labour shortages. Read more: If the PM wants wage rises, he should start with the 1.6 million people on state payrolls[11] These sectors are dominated by women, meaning improving their pay and conditions would help address the gender pay gap. The price of improving the pay and conditions of these workers is worth paying, but it will come at a cost to budgets, which will have to be financed by tax[12], something participants at the summit should acknowledge. References^ here (theconversation.com)^ issues paper (treasury.gov.au)^ NAIRU (www.rba.gov.au)^ 4.5% and 5% (treasury.gov.au)^ 1% (treasury.gov.au)^ Are real wages falling? Here's the evidence (theconversation.com)^ The Chalmers graphs: 7.75% inflation, plunging real wages, weak growth (theconversation.com)^ major study of inequality (www.economist.com)^ Treasury's issues paper (treasury.gov.au)^ appear to be inadequate (theconversation.com)^ If the PM wants wage rises, he should start with the 1.6 million people on state payrolls (theconversation.com)^ tax (theconversation.com)

Read more https://theconversation.com/many-jobs-summit-ideas-for-lifting-wages-dont-make-sense-upskilling-does-189114

The Times Features

Best Deals on Home Furniture Online

Key Highlights Discover the best deals on high-quality outdoor furniture online. Transform your outdoor space into a stylish and comfortable oasis. Explore a wide range of d...

Discover the Best Women's Jumpers for Every Season

Key Highlights Explore lightweight jumpers for spring and summer, ensuring breathability and ease. Wrap up warm with cozy wool jumpers for the chilly autumn and winter season...

Uncover the Elegance of Gorgeous Diamond Tennis Necklaces

Key Highlights Diamond tennis necklaces are a timeless piece of jewelry that exudes elegance and sophistication. They feature a continuous line of brilliant-cut diamonds, cre...

Dental Implants vs. Dentures: Which Is Better for You?

When it comes to replacing missing teeth, two of the most common options are dental implants and dentures. Both have their advantages and disadvantages, so choosing between them ...

What Neck Pain Really Means (And Why It’s More Than Just Poor Posture)

Neck pain is often brushed off as something temporary — a tight spot after a long day at the desk or a poor night’s sleep. But when the discomfort keeps returning, it could be a ...

The Work of Gosha Rubchinskiy: Fashion, Culture, and Youth

From Designer to Cultural Architect Gosha Rubchinskiy is not just a fashion designer—he's a cultural force. Born in Moscow in 1984, Rubchinskiy began his career in fashion in t...

Times Magazine

The Essential Guide to Transforming Office Spaces for Maximum Efficiency

Why Office Fitouts MatterA well-designed office can make all the difference in productivity, employee satisfaction, and client impressions. Businesses of all sizes are investing in updated office spaces to create environments that foster collaborat...

The A/B Testing Revolution: How AI Optimized Landing Pages Without Human Input

A/B testing was always integral to the web-based marketing world. Was there a button that converted better? Marketing could pit one against the other and see which option worked better. This was always through human observation, and over time, as d...

Using Countdown Timers in Email: Do They Really Increase Conversions?

In a world that's always on, where marketers are attempting to entice a subscriber and get them to convert on the same screen with one email, the power of urgency is sometimes the essential element needed. One of the most popular ways to create urg...

Types of Software Consultants

In today's technology-driven world, businesses often seek the expertise of software consultants to navigate complex software needs. There are several types of software consultants, including solution architects, project managers, and user experienc...

CWU Assistive Tech Hub is Changing Lives: Win a Free Rollator Walker This Easter!

🌟 Mobility. Independence. Community. All in One. This Easter, the CWU Assistive Tech Hub is pleased to support the Banyule community by giving away a rollator walker. The giveaway will take place during the Macleod Village Easter Egg Hunt & Ma...

"Eternal Nurture" by Cara Barilla: A Timeless Collection of Wisdom and Healing

Renowned Sydney-born author and educator Cara Barilla has released her latest book, Eternal Nurture, a profound collection of inspirational quotes designed to support mindfulness, emotional healing, and personal growth. With a deep commitment to ...

LayBy Shopping