I think Labor needs to follow up with some kind of support package for small businesses. Employees of struggling businesses may have heightened fears of job loss even without LNP encouragement despite reduced consumer spending from declining real wages being as likely to tip such businesses over the edge as a higher wage bill.
1) Could you be more precise about what you are proposing? It seems to be:
a. A 5.1% increase in the forthcoming National Wage Case
b. The RBA should not target, or even worry about inflation, until some unstated condition is met
c. Future wage cases should also, by implication, grant full wage indexation.
2) You say “no one cares about the fact that a grocery order that cost $50 in 1980 costs around $250 today. What matters is whether you can afford to pay for it.” In other words, only real variables matter.
a. True, the level of the CPI does not matter. But people care a lot about inflation. So what you say is incomplete.
3) You say that wage-price spirals are out of date. I agree. But I worry that your policies -- In particular, your implicit support of full wage indexation -- would bring them back. Once your “once-off increase in the price level” is achieved, why would inflation stop? Experience suggests it has momentum.
4) I do not think your monetary policy recommendations are politically feasible. If the RBA does continue to target 2-3% inflation, then would you still support large increases in nominal wages? Wouldn’t that lead to higher interest rates and unemployment?
Employers never support wage increases, specially for lower and middle wage earners. Progressive governments must push for increases, specially when Unions have no power to do so. That is why, between 2012 and 2019, wage growth in Australia was less than half the OECD average.
Accordingto the Australian Bureau of Statics’ wage price index (WPI), between 2012 and 2019, Australia’s annual growth rate of nominal wages has lingered between 1.9% and 2.3%. Those rates correspond to half the rate registered in the 2000s and the slowest since the Great Depression. As a further point of reference, institutions like the IMF and the Reserve Bank or Australia (RBA) consider 3.5% to 4% as the benchmark for nominal wage growth for a developed economy.
The wage growth decline, in Australia, has been concentrated on low and middle-wage earners, while top wage earners continued to accrue sizeable raises. Australia’s income inequality is now significantly higher than 20 years ago and exceeds the OECD average.
Also, wage growth has plummeted despite increase in productivity and profits. Wages are getting a smaller slice of the pie.
"Opponents of a wage increase have argued that it might lead to a wage-spiral spiral. But this way of thinking about inflation, dating back to the days when powerful unions could extract large increases in wages, and their employers could increase their prices to cover costs, is out of date."
I have two clarifying questions. First, what was it that caused stagflation in the first place - was it wage indexation/union power driving up expectations (as I've heard it portrayed), or something else?
Second, why wouldn't we see a wage-inflation spiral this time? Is it because wage indexation is rarer / unions are less powerful? Or is it because the driver of inflation is primarily supply side rather than demand side at the moment? (or both/something else)
How about trickle-up economics? Make conditions ideal to reduce poverty and the less poor will also benefit – if not as much, proportionately.
Or it could be headlined as "The case for keeping real wages constant"
I think Labor needs to follow up with some kind of support package for small businesses. Employees of struggling businesses may have heightened fears of job loss even without LNP encouragement despite reduced consumer spending from declining real wages being as likely to tip such businesses over the edge as a higher wage bill.
1) Could you be more precise about what you are proposing? It seems to be:
a. A 5.1% increase in the forthcoming National Wage Case
b. The RBA should not target, or even worry about inflation, until some unstated condition is met
c. Future wage cases should also, by implication, grant full wage indexation.
2) You say “no one cares about the fact that a grocery order that cost $50 in 1980 costs around $250 today. What matters is whether you can afford to pay for it.” In other words, only real variables matter.
a. True, the level of the CPI does not matter. But people care a lot about inflation. So what you say is incomplete.
3) You say that wage-price spirals are out of date. I agree. But I worry that your policies -- In particular, your implicit support of full wage indexation -- would bring them back. Once your “once-off increase in the price level” is achieved, why would inflation stop? Experience suggests it has momentum.
4) I do not think your monetary policy recommendations are politically feasible. If the RBA does continue to target 2-3% inflation, then would you still support large increases in nominal wages? Wouldn’t that lead to higher interest rates and unemployment?
Employers never support wage increases, specially for lower and middle wage earners. Progressive governments must push for increases, specially when Unions have no power to do so. That is why, between 2012 and 2019, wage growth in Australia was less than half the OECD average.
Accordingto the Australian Bureau of Statics’ wage price index (WPI), between 2012 and 2019, Australia’s annual growth rate of nominal wages has lingered between 1.9% and 2.3%. Those rates correspond to half the rate registered in the 2000s and the slowest since the Great Depression. As a further point of reference, institutions like the IMF and the Reserve Bank or Australia (RBA) consider 3.5% to 4% as the benchmark for nominal wage growth for a developed economy.
The wage growth decline, in Australia, has been concentrated on low and middle-wage earners, while top wage earners continued to accrue sizeable raises. Australia’s income inequality is now significantly higher than 20 years ago and exceeds the OECD average.
Also, wage growth has plummeted despite increase in productivity and profits. Wages are getting a smaller slice of the pie.
I am using date up to 2019 because that is what I had in hand. The argument stands now, I think.
"Opponents of a wage increase have argued that it might lead to a wage-spiral spiral. But this way of thinking about inflation, dating back to the days when powerful unions could extract large increases in wages, and their employers could increase their prices to cover costs, is out of date."
I have two clarifying questions. First, what was it that caused stagflation in the first place - was it wage indexation/union power driving up expectations (as I've heard it portrayed), or something else?
Second, why wouldn't we see a wage-inflation spiral this time? Is it because wage indexation is rarer / unions are less powerful? Or is it because the driver of inflation is primarily supply side rather than demand side at the moment? (or both/something else)
Great piece overall :)
Perfectly argued!