In this in-depth look at the wage debate, we explain the arguments about the growth of wages versus profits, and consider the role of productivity in wages growth.
Many economists would say leave it to the forces of supply and demand.
Aside from the fact that it’s considered fair practice, it is also believed pay rises of CPI plus productivity do not put upward pressure on inflation and create a situation where wages spark higher prices, which spark higher wages, which spark higher prices and so on, which is known as a wage price spiral.The general “anchor point” for wages growth sought by the Reserve Bank is 3.5 per cent. This is made up of CPI of 2.5 per cent plus 1 per cent productivity growth.
Over the past five years, the average gap between WPI and CPI was just 0.1 per cent despite average productivity growth of 0.9 per cent; over 10 years, the gap was 0.5 per cent, while productivity growth was 1.6 per cent.productivity dividend when comparing aggregate economic data., CPI has flaws that mean it’s not always the best data point to use for wages comparisons. That’s why the Bureau of Statistics produces what’s called the Employee Cost of Living Index .
Labour productivity in the finance and insurance sector fell 0.7 per cent in 2019-20 and accounted for 8 per cent of economic output; manufacturing fell 3.9 per cent with 6 per cent of output; and mining labour productivity was up 3.2 per cent while accounting for about 11 per cent of economic output.
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