By now you realize the fundamentals of the “productiveness disaster” narrative: Australian staff aren’t productive sufficient, and wages development with out productiveness is inflationary, which implies the Reserve Financial institution should preserve rates of interest increased for longer.
However the Productiveness Fee’s newest annual productiveness bulletin places a bomb below the entire narrative. It’s solely 9 pages, but it surely’s all killer, no filler.
“Labour productiveness for the entire economic system fell by 3.7% in 2022-23,” the fee experiences upfront. Up to now, so Monetary Evaluate/Reserve Financial institution. That’s an enormous fall. Narrative intact.
However two industries — wholesale commerce, and lodging and meals providers — “contributed to greater than 50% of the decline”. Okay… that complicates issues somewhat. Nonetheless, it’s an enormous fall. However why? A single paragraph from the fee explains it:
The lower in labour productiveness was a results of giant will increase in hours labored for the entire economic system and market sector (each 6.9%). This improve in hours labored is unprecedented — the subsequent highest development charge on file was 4.3% for the entire economic system (in 1988-89), and three.8% for the market sector (in 1999-2000). The expansion in hours labored outpaced development in output for the entire economic system (3%) and the market sector (3.8%).
Can now we have a spherical of applause, or a minimum of some acknowledgement, from employers, their cheerleaders on the AFR and the Reserve Financial institution, for Australia’s staff, who’re working longer hours than ever earlier than in our historical past, and growing these hours by file charges?
Because the fee says, this historic surge in work by Australians isn’t resulting in increased output. “The rise in hours labored led to a decline within the capital-labour ratio (4.9% — the biggest decline on file), because the capital inventory didn’t preserve tempo. This resulted in a decline in labour productiveness as staff had entry to much less capital, and in consequence had been, on common, much less productive.”
So the productiveness decline is the results of companies not investing sufficient. And, you possibly can add, the truth that companies are working in a sluggish home economic system that has been smashed by a number of rate of interest rises, curbing demand and crimping output in consequence (and let’s not neglect distortions of the tax system round damaging gearing, capital good points tax and imputation guidelines for retirees — all rorts that drive funding in direction of negatively geared investments like housing, not productive funding in additional companies).
None of that matches the narrative of grasping staff demanding pay rises in extra of their productiveness development, or lamentations about how the commercial relations system stifles productiveness, does it?
However wait, the fee isn’t finished with that narrative but. Like everybody else, it’s apprehensive about “wage decoupling” — when wages develop at a distinct charge to productiveness. So it investigated how the 2 had been faring.
To do that, it makes use of one thing known as “producer wages (the wage prices producers face) as distinct from client wages (the buying energy of the wages customers obtain) because the measure of wages”. For the layperson that is problematic, since you don’t go to the outlets and purchase your groceries with “producer wages” — you’re caught with lavatory customary client wages — but it surely’s the measure some economists want to make use of. The end result?
Contemplating the economic system as a complete, there’s proof that the expansion in labour productiveness exceeds development in producer wages — a sign of wage decoupling.
Hold on… did they are saying productiveness exceeded wages? That’s precisely the other “decoupling” that the Monetary Evaluate and the Reserve Financial institution have been issuing apocalyptic warnings about.
Bear in mind, these are producer wages, not actual wages, and the fee says it’s primarily occurred within the two huge trade-exposed industries of mining and agriculture, but it surely blows up the complete “charges increased for longer” nonsense.
Oh, and, as Columbo appreciated to say, “only one other thing”. The large collapse in labour productiveness final 12 months must be seen in context. Which context?
Labour productiveness elevated quickly at first of the pandemic … [due to] a speedy drop in hours labored, mixed with comparatively sticky output. The lower in labour productiveness in 2022-23 reversed good points noticed at first of the COVID-19 pandemic. The autumn in labour productiveness displays, partly, an unwinding of the distortionary results of the COVID-19 pandemic. General, labour productiveness was 0.8% above its pre-pandemic common on the finish of 2023-23, and a pair of.4% above its pre-pandemic common on the finish of 2022-23 throughout the market sector.
Two level 4 % increased. Some productiveness disaster, eh?
Let’s end on that earlier level concerning the lengthy hours Australians are working. Why are they doing that? Partially it’s alternative — we’ve entered a world with too few staff as a result of inhabitants ageing, and it’s pushing our participation charges up. That’s a superb factor. However a key purpose is that bizarre households are fighting excessive inflation — a lot of it profit-led — and excessive rates of interest for the large mortgages now wanted to purchase even modest housing. The Reserve Financial institution helps drive this surge in working hours — similtaneously it’s smothering output by smashing demand within the wider economic system.
It’s vicious circle — the RBA’s actions are resulting in decrease labour productiveness figures, which inflation hawks are then utilizing to justify holding charges increased for longer, which is able to in flip drive extra folks to work longer hours and smother output, resulting in decrease labour productiveness…
Too unhealthy the entire narrative of lazy, grasping staff is, because the Productiveness Fee has proven, a load of garbage.
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