ESA National Economic Panel Polls


 

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Top economists say cutting immigration is no way to boost wages





Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

Australia’s top economists have overwhelmingly rejected cuts to either permanent or temporary migration as a means of restoring lost wage growth.

The 56 leading economists polled by the Economic Society and The Conversation include a former head of the Fair Pay Commission and a former expert member of the Fair Work Commission’s minimum wage panel.

Among the experts, selected by their peers, are specialists in economic modelling and the economics of labour markets from both the private and public sectors.

All but five rejected cuts in temporary migration as a means of boosting wage growth. All but three rejected cuts in permanent migration.

The results put the economists at odds with Reserve Bank Governor Philip Lowe, who last month drew a link between temporary migration and weak wage growth saying employers had been using overseas hires to fill gaps that would have been filled by locals, diluting “upward pressure on wages in these hotspots”. He said this might have spilled over to rest of the labour market.

Cutting temporary and cutting permanent migration were the first two of ten options for boosting wage growth presented to the panel of economists. The panel rated them third last and second last. Only “holding back growth in female and older worker participation” was marked down more.

Each economist was asked to pick three of the ten options. The most popular, picked by 78.2%, was measures to boost productivity growth. The next most popular, picked by 50.9%, was measures to boost business investment.



Michael Keane of The University of NSW said the idea that population growth and increased labour supply were constraining wage growth was “so naive as to not really be worthy of comment”.

Consultant Rana Roy said only a “cultivated amnesia” could ignore the near-uninterrupted growth in real wages in US, industrialised Europe and Australia amid record inbound immigration in the decades after the second world war.

Gabriela D'Souza of the Committee for Economic Development of Australia said the idea owed much to a “one dimensional view of the world” that took account of only the direct impact of immigrants on particular wages and not the impact of their demand for goods and services on a broader range of wages.

Dozens of studies had identified the overall impact as “near zero”.

Productivity ‘almost everything’

Robert Breunig of the Australian National University said immigrants appeared to add to productivity rather than detract from it, meaning slowing down immigration could slow down rather than add to productivity and growth.

Three quarters of the panel nominated productivity growth as the most important precondition for higher wages growth, endorsing the conclusion of Nobel Prize winning economist Paul Krugman that “productivity isn’t everything, but in the long run it is almost everything.”

Krugman famously added that a country’s ability to improve its standard of living
over time depended “almost entirely on its ability to raise its output
per worker”.


Wages growth is way below the Reserve Bank’s +3% target




Total hourly rates of pay excluding bonuses, seasonally adjusted. Change from corresponding quarter of previous year.
ABS Wage Price Index

Ian Harper, a former head of the Howard government’s Fair Pay Commission and a current member of the Reserve Bank board, said that without productivity growth, any boost in wages growth that was delivered was likely to be nominal — matched by inflation — rather than real, delivering higher living standards.

One of the best tools for lifting production per worker was business investment.

One of the five economists who thought immigration hurt wages growth, Macquarie University’s Geoffrey Kingston, said it seemed to do it by thinning investment per worker. In the 1980s, under Prime Minister Bob Hawke, increased immigration helped push down real wages for five years in a row.

Several of those surveyed said wage growth needed investment in more than machines. Griffith University’s Fabrizio Carmignani said what also mattered was investment in “human capital” via education and research and development.





Read more:
Exclusive. Top economists back unemployment rate beginning with '4'


 

Adrian Blundell-Wignall, a former division chief at the Organisation for Economic Co-operation and Development, said reforming the education system and getting rid of elitism had to be part of the plan.

“That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy,” he said. “The entitlement and club economy that comes with this permeates politics, business, and who gets the best jobs after completing school.”

Former Rudd and Gillard government minister Craig Emerson said while measures to boost productivity growth were essential, even if implemented soon, they would take years to flow through into higher wages.

It’s how you divide the pie

Saul Eslake said whether or not higher productivity growth actually delivered higher real wages would depend on the division of the fruits of that growth between wages and profits.

John Quiggin said nearly every reform of Australia’s industrial relations system since 1975 had acted to reduce the bargaining power of unions. All ought to be reviewed with a “presumption in favour of repeal”.

Mala Raghavan of the University of Tasmania said wage growth had become uneven. Wages for a small number of managers had soared while wages for others — especially casual workers — had barely moved.





Read more:
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The Australian National University’s Emily Lancsar saw a triple benefit from reforming the industrial relations system to support higher wage decisions: it would increase wages directly, it would put money that would have been paid out as profits in the hands of people likely to spend it, and the increases would flow through to workers not directly affected by the decisions.

Labour market specialist Jeff Borland added that there was a case for strengthening the ability of unions to obtain gender pay equity in female-dominated occupations.

None of those surveyed were optimistic about the prospect of quickly lifting wages growth. The Reserve Bank said in July it wasn’t planning to lift interest rates until aggregate growth exceeded 3%.


Detailed responses:

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Responses (1001)


 

Harry Bloch

.

Maintaining high government spending in order to boost aggregate demand;Reforming industrial relatio


 

Adrian Blundell-Wignall

.

Measures to boost productivity growth Maintaining high government spending in order to boost aggrega

These choices should be thought about in the context of an economic plan for the longer term. Reforming the education system and corporate governance to get rid of the elitism that entrenches inequality should be a part of that plan. That the best predictor of how well you do at school is how rich your parents are and where they went to school is a national tragedy. It is redistribution of opportunity, income and wealth that is the key issue. `The 'entitlement' and club economy that comes with all this permeates politicians, business leaders, and who gets the best jobs after completing school.


 

Alison Booth

.

Measures to boost productivity growth;Maintaining high government spending in order to boost aggrega


 

Jeff Borland

.

Measures to boost productivity growth;Maintaining high government spending in order to boost aggrega

Productivity growth is the best way to get long-run real wage growth. Maintaining a more stimulatory fiscal stance, via spending, will push us closer to the level of labour under-utilisation needed for wage growth. I prefer spending rather than tax cuts for equity reasons. I would like to see substantial improvements to wages and conditions (and on-going wage growth) for workers in low-pay occupations such as caring jobs (for equity reasons as well as considerations of overall wage growth) I have ticked the box to boost trade union power because that may be part of the way to achieve that outcome, via stronger representation with employers; but other changes, such as legislative reforms to make it easier to make the case for gender pay equity in female-dominated occupations would also be necessary, I think.


 

Robert Breunig

.

Measures to boost productivity growth

Ultimately, wage growth is linked to productivity. Short term wage growth can be created by cutting immigration, but overall immigrants appear to add to productivity rather than detract from it, so this seems like a bad policy for generating sustained productivity growth. Reducing regulatory burden, IR reform and improving the tax mix (lowering taxes on corporate and personal income and increasing taxes on consumption and land) are the types of micro-economic reform which will enable productivity increases which will lead to higher wages. It is important to remember three things: (1) low wage growth is a widespread OECD-country phenomenon so the forces driving it are probably not Australian-specific; (2) investment remains very low despite very cheap money being available; (3) productivity is about individuals and firms making decisions and government can create the conditions for it to happen but can't ultimately control what people decide to do.


 

Markus Brueckner

.

Measures to boost productivity growth;Measures to boost business investment;Cutting taxes in order t


 

Matthew Butlin

.

Measures to boost productivity growth;Measures to boost business investment;Cutting taxes in order t


 

Lisa Cameron

.

Reforming industrial relations to support higher wage decisions by state and federal industrial rela

Low wage growth in Australia reflects a shift in power over the last few decades from employees to employers. With a weakened system for determining the equitable sharing of returns from productivity growth, capital owners are able to pocket a larger share of the returns. For this reason, reform of the industrial relations system which increases the bargaining power of workers is needed. The growth in the employment of low-wage temporary migrants and the gig economy (in which workers receive substantially lesser remuneration and benefits than recognised employees) also play a role. I would support an examination of the role of temporary migration but have not selected this option as it is worded to include international students and I do not agree that we should be cutting international student numbers.


 

Fabrizio Carmignani

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

Boosting productivity is key to sustain long-term wage growth. To some extent, this requires boosting investment, but one should keep in mind that productivity growth is not just a matter of building new physical capital. Innovation stems from investment in human capital, research and development. In this respect, the list of policies should have also included some reference to education, human capital and R&D. Finally, maintaining high government spending is a short term measure and, in terms of wage growth, I think less of a priority than boosting productivity growth.


 

Bruce Chapman

.

Reforming industrial relations to increase the use of enterprise bargaining;Reforming industrial rel


 

Ken Clements

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel


 

Deborah Cobb-Clark

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm


 

Lin Crase

.

Measures to boost productivity growth;Measures to boost business investment


 

Gabriela D'Souza

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

Evidence shows that the keys to unlocking wages growth will be our productivity and the ability of firms to increase productive investment in capital. Trying to bring about wage growth by slowing migration would not be wise in my view. Dozens of studies have shown that the effects of migration on aggregate wages growth is near zero. This might seem counterintuitive but it is because migrants supply labour and consume goods and services. It?s also a very one dimensional view of the world - a partial equilibrium lens if you will - and doesn?t take into account the knock-on effects this will have on different parts of our economy, and on some of our key industries.


 

Brian Dollery

.

Restraining growth in labour supply by cutting temporary migration (including international students


 

Uwe Dulleck

.

Measures to boost productivity growth;Maintaining high government spending in order to boost aggrega

I do feel public investment, can achieve the other two levers to increase wages - it increases demand - and if we talk about infrastructure investments, these will stay in Australia to have the effect on the labour market. More importantly, if done well these investment should increase productivity as well. If higher wages in themselves are the aim, then I doubt the best way to achieve it, is to increase the power of unions - I am not sure whether this type of wage growth is the most beneficial for the country Where I am certain that we may get only a very limited and, if at all, short lived effect is by reducing labour supply in any way. I am quite certain that new migrants increase wages for Australians - for the simple reason of their demand increasing aggregate demand, and their willingness to seek employment, creates jobs (and many for people with higher qualification levels).


 

Chris Edmond

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

In the long run, the key to stronger wage growth is stronger labour productivity growth, through total factor productivity growth, investment, or allocative efficiency. In the short run, we need expansionary fiscal policy that drive us towards full employment. The question asks about wage *growth*. The industrial relations policies listed are more likely to increase labour's *share* of national income, this might help wage growth in the short run but seem less likely to lead to permanently higher wage growth. Although not listed as an option, policies that reduce product market power (monopoly) might similarly lead to an increase in labour's share of national income and hence increase wage growth in the short run. The evidence on immigration and wages provides no reason to think lower migration would sustainably increase economy-wide wages. Lower migration reduces labour supply *and* labour demand.


 

Craig Emerson

.

Restraining growth in labour supply by cutting temporary migration (including international students

Measures to boost productivity growth are essential for the longer term but, even if implemented soon, would take years to yield their benefits in higher wages. The Pacific Islander program of temporary migration should be retained but Australia should not resume the high pre-pandemic levels of temporary, low-skilled migration through the working holiday visa and related programs. The questionnaire included international students, but I would separate them (as long as they are engaged in genuine higher education programs) from temporary, low-skilled migration and do not agree their numbers should be cut. OECD, US and Reserve Bank reports have all identified loss of union bargaining power as contributing to weak wages growth.


 

ALLAN FELS

.

Restraining growth in labour supply by cutting temporary migration (including international students


 

Gigi Foster

.

Measures to boost productivity growth;Reforming industrial relations to boost the bargaining power o

The question underlying this month's poll is "what causes wage growth"? The two main things that cause wage growth are (1) higher labour productivity, and (2) a higher share of productivity gains flowing to workers, rather than to owners of capital. I have selected the two options in the list above that align with these underlying reasons. However, because of the absence of economic gain in the long run from bickering over a fixed pie, I would only advise that the government actually pursue one of these - the "measures to boost productivity growth". These "measures" are quite broad, from investments into better-quality school curriculums to efforts to reduce the ownership concentration (and hence increase competition, thereby spurring innovation) in different industries.


 

John Freebairn

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

As commonly argued, in the long run higher wages primarily come from higher productivity. Higher productivity can be supported by: private sector innovation and investment; improved productivity in government expenditures, and include sorting out messy commonwealth and state overlaps in expenditures on health and education, and choice of infrastructure projects; more comprehensive tax bases and lower rate reform packages; a coherent energy policy. Reform of industrial relations to choose more productive work practices can generate gains for both employees and employers. Restricting labour supply, including immigration and female and mature age participation, has minimal net effects on wages with reductions in supply roughly offset with reductions in demand. Given expenditure projections in the recent IGR, and by others, cutting tax revenue as a share of GDP is not a sustainable long term policy, and productivity is about structural changes.


 

Paul Frijters

.

Measures to boost productivity growth;Reforming industrial relations to boost the bargaining power o

In the long-run, what matters is productivity and the bargaining power of labour. Governments can improve productivity by reforming the education system so as to provide high-level education. This would require major reforms, though it would not require money. Bargaining power of labour can also be increased such as by making it easier for labour to organise in more effective trade unions, and via increased minimum wages. All the other measures mentioned reduce real wages in the longer run. Restricting migration is clearly bad for long-run wage growth because foreign migrants have complementary skills to those educated in Australia, so restricting their inflow reduces the productivity of those living here. Lowering taxes means lowering government expenditure on productivity-improving investments. 'Boost business investment' is an empty gimmick phrase. Etc. So I see only two measures that governments can actually take that would increase real wages in the longer-run: the bargaining power of unions and productivity improvements. The other ones are either not up to government, do not work, or have opposite effects.


 

Renee Fry-McKibbin

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel


 

Lata Gangadharan

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel


 

Ian Harper

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

It is important to distinguish between growth in real wages and growth in nominal wages. Nominal wages growth (absent rising labour productivity) is a driver of price inflation and vice versa. Growth in real wages, on the other hand, is driven by growth in labour productivity, which is in turn driven by business investment among other factors. Ultimately real wages growth is what matters for household incomes and living standards. Nominal wages growth will assist in meeting the RBA's target for price inflation but will not translate into longer-run improvements in living standards without rising labour productivity.


 

John Hewson

.

Measures to boost productivity growth;Reforming industrial relations to increase the use of enterpri

While the measures to restrict labour supply would work directly to raise wages I can't support them for a host of other economic and social reasons. The end-game can't just be to raise wages ignoring the broader economic and social consequences of the means by which this is achieved. I have supported measures which I believe would together result in a longer-term structural reset of industrial relations and the labour market to ensure longer-term, fair, and sustainable wages growth.


 

RICHARD HOLDEN

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

Immigration affects both labor supply and labor demand. And arguments that immigration of the composition in Australia?s recent pre-pandemic years systematically reduces wages is contrary to the best available evidence, and basic economic theory.


 

Michael Keane

.

Reforming industrial relations to increase the use of enterprise bargaining;Reforming industrial rel

Wages have lagged behind productivity growth for a decade in Australia, and in some OECD countries (like the US) they have lagged behind productivity growth for several decades. So policies to enhance productivity growth will not address the core issue. The key problem appears to be a declining labour share of national income (and an increasing capital or corporate share). This is most plausibly attributable to declining labour bargaining power. That is why reforms to increase the bargaining power of labour are the only policies amongst the listed options that might help wages keep pace with productivity growth. Other policies might help as well. The flip side of policies to enhance bargaining power of labour are policies to reduce the bargaining power and tax avoidance scope of corporations. And of course productivity growth is a prerequisite for wage growth (and the most effective thing the government can do on that front is to work on improving the education system). Also, sophisticated modeling by researchers at the ARC Centre of Excellence in Population Ageing Research (CEPAR) predicts that the increase in the superannuation guarantee will lead to higher effective wage rates for labour (in contrast to the overly simplistic Econ 101-style analysis we heard from many economists during the debate on this issue). Finally, the idea that population growth and increased labour supply are what is constraining wage growth is so naive as to not really be worthy of comment. For instance, wage growth was robust in the post-WWII era despite a booming population and a high rate of immigration.


 

Michael Keating

.

Maintaining high government spending in order to boost aggregate demand;Cutting taxes in order to bo

Boosting aggregate demand will help increase wage growth, but I think there are also structural reasons why wage growth is less than in the past. In particular, the impact of technology hollowing out of middle-level jobs has weakened the power of trade unions, and also wage expectations have now fallen.


 

Geoffrey Kingston

.

Restraining growth in labour supply by cutting temporary migration (including international students

The history of real average weekly earnings over the last four decades sheds light on this question. The Hawke era (1983-90) saw a big rise in migration to Australia (discussions of the Hawke era tend to neglect this policy shift while overestimating the influence of the Accords on wages). Accordingly, growth in the capital-labour ratio was sluggish and real wages fell for five years in a row: high immigration put downward pressure on real wages. Then came Paul Keating, who cut the company tax rate from 49 percent to 33 per cent. The Keating-Howard-Rudd-Gillard era saw decent growth in the capital-labour ratio, along with two decades of rising terms of trade, which boosted the average value of the marginal revenue product of labour in the economy. Real wage growth was decent too. Finally, the Abbott-Turnbull-Morrison era (2013-2021) saw sluggish investment and ushered in another episode of sluggish growth in both the capital-labour ratio and real wages. We can't do much about our terms of trade but we can cut both immigration and company tax. Immigration has been high recently (at least before the virus) and our current tax rate of 30 percent for large companies has become increasingly uncompetitive by world standards.


 

Michael KNOX

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

What the RBA in the person of Phillip Lowe has actually said is that it will allow unemployment to fall to a level low enough for wages to grow one percent faster than inflation . They will do this to lift inflation to a level where it consistently hits its target . My judgement is that they will be successful in lifting real wages. The data this century shows that rises in real wages have happened when during times of rising export commodity prices and hence improving term of trade . We are seeing dramatic improvements in the terms of trade during the current recovery this should in turn to a period of rising real wages . All we really have to do is allow time for the good people of the RBA to do their work . In the longer term though we need to encourage business to invest to generate further employment . A good way to do this would be to reduce the corporate tax rate from the current level of 30% to the OECD average rate of 25% . This would reduce the tendency of Australian real wage growth to stall in periods when commodity prices are not rising and a the terms of trade is not improving.


 

Emily Lancsar

.

Measures to boost productivity growth;Maintaining high government spending in order to boost aggrega

My responses reflect my view that it is essential not just to increase wage growth but to also reduce inequalities. To increase wages, we must support measures to boost productivity growth ? particularly investment in education and skills training which will help respond to technological change (which has played a part in slowing wage growth). I also support maintaining high government spending to boost aggregate demand in order to reduce unemployment and increase wages. Reforming industrial relations to support higher wage decisions by state and federal industrial relations commissions is an important measure to stimulate wage growth in a way that also addresses inequality. Increasing wages of those on awards also means the wage increase is more likely to be spent than saved, thereby helping stimulate aggregate demand. Increasing awards can also support wage growth in non-award jobs by setting an expectation regarding wage growth more broadly.


 

Guay Lim

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

Policies directed at increasing output per unit of labour are likely to sustain long-term growth in wages. Measures to boost productivity growth, measures to boost business investment, and measures to increase government spending to support physical and human capital accumulation are labour augmenting changes and likely to yield stronger economic growth. What exactly these measures should be, though, remains to be discussed.


 

Lisa Magnani

.

Reforming industrial relations to increase the use of enterprise bargaining;Reforming industrial rel

Wages support consumption, the largest component of aggregate demand. Consequently wage stagnation endangers one key economic channel for economic stability. Wage stagnation can also contribute to rising income inequality in Australia. Understandably, the RBA has recently emphasized the need to multiply efforts to support higher wage growth. We know that market factors have been the primary drivers of income inequality in Australia over the past few decades. Policy factors have the largest impact in reducing this inequality, especially for lower income earners (Li et al., 2021, Review of Income and Wealth, 67(1), 196-221). Labour supply measures such as those involving restraints on migration are not appropriate to support wage growth. As pointed out by numerous economists in Australia and overseas, migration operates at two levels, namely labour supply and aggregate demand. These two channels have divergent effects on the potential for wage growth, one negative and one positive. Economists tend to agree that in the aggregate the net effect of migration on a recipient economy is positive. Temporary migration, for example by international students, may affect the wage growth for specific groups, for example young people, females or senior labour market participants. However, these effects are likely to be small, as recently argued by Brell and Dustmann (2019). Furthermore, international students contribute to funding the university system, which is central to Australia?s research and innovation strategy. Given the labour market effects of temporary migration are likely to be small and limited to some groups, and recognising the importance of this type of migration for aggregate demand and for specific sectors such as tertiary education, the overall effect of temporary migration is large and positive. Wage growth measures that rely on restraining growth in labour supply by holding back growth in female and older worker participation would contradict the large and beneficial economic effects of female employment that have been experienced in the OECD. These measures would also run the risk of engendering discrimination in our labour markets and betray our commitments to workplace inclusion and diversity. The identification of the right set of policies to support wage growth requires an understanding of which wages are stagnant and which wages are growing (Coelli and Borland, 2015). The last few decades have seen the decline of wages received by the bottom deciles of the wage distribution and the rapid growth of the top deciles, relative to the median. Many labour economists have stressed the role of market factors including changes in the structure of trade and technology changes to explain these long term dynamics. Many advanced economies have experienced lower wage growth in the period since the global financial crisis (GFC) than in the years beforehand (Australian Government, the Treasury, 2017). Underemployment is a key feature of the Australian labour market and has been increasing since the GFC (Treasury, 2017). Support to wage growth also needs to identify the sectors and firms that pay low and stagnant wages and the reasons why this is the case. For example, labour productivity and Total Factor Productivity growth, the main drivers of labour demand, vary significantly across sectors (Productivity Commission 2019). Micro and small enterprises often address the challenges of market competition in way quite different to medium-size enterprises or large corporations. The Bank of England has recently suggested that trends towards self-employment and the prevalence of micro and small enterprises may affect wage growth. This includes employment in the growing gig economy. These considerations invite us to think of what targeted policy measures would be best to support wage growth. If government spending, tax cuts or business investment boost wages to highly skilled workers whose wages are already growing, policies targeting business investment would only affect wage growth in the aggregate, failing to boost wage growth prospects for those workers whose wages are stagnant. Policies designed to boost productivity growth might be effective only if there is a demand for what these workplaces produce. If there is a reasonable expectation that the market demand for such products is shrinking, there is little point to boost productivity growth in these sectors. Rather, this situation suggests the need to help workers? transition to sectors where their wages can grow, conditional on their finding employment in these sectors. Industrial relations reforms to boost workers? bargaining power can have the desired outcomes--e.g., by supporting trade union operations or the actions of state and federal industrial relations commissions. These measures can target the wages of specific groups of workers--e.g., unskilled workers, workers in declining industries, workers with low bargaining power, and those in industries with prevalent casual and underemployed workers.


 

Tony Makin

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

Productivity improvement, a supply-side phenomenon, should be the driver of sustainable real wage growth. Increased investment in technology-intensive capital equipment, along with a more flexible labour market, would deliver this. Ramping up aggregate demand may well increase nominal wages in the short term, but consistent with the Friedman-Phelps critique of the Phillips curve, this would yield no lasting macroeconomic benefits. Real wage growth and unemployment would ultimately be unaffected due to the rise in the price level. Meanwhile, measures that restrict labour force growth via reduced immigration or workforce participation may also drive up nominal wages in the short term. But if highly skilled workers are precluded from potential output generation, this would dampen long term economic growth.


 

Margaret McKenzie

.

Maintaining high government spending in order to boost aggregate demand;Reforming industrial relatio

There is plenty of evidence that tax cuts don't work to raise wages or stimulate activity particularly in an equitable way. We need to remove the overly prescriptive rules associated with bargaining and provide access to industry bargaining so that workers have some real and not hypothetical capacity to negotiate wage increases.


 

Warwick McKibbin

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

The government spending should be on high return infrastructure investment.


 

Flavio Menezes

.

Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm


 

James Morley

.

Measures to boost productivity growth;Measures to boost business investment;Cutting taxes in order t

It is hard to pick anything on this list other than "boosting productivity growth". It is the only thing that would reliably increase the *growth* of (real) wages. Restrictions on supply of labour or regulatory changes in wage bargaining rules might temporarily increase the *level* of real wages, but it is hard to see how they would increase the growth of wages and, indeed, it is unlikely that labour supply restrictions in particular would even increase the level of wages in the long run (e.g., cuts to migration would seem more likely to reduce productivity and put downward pressure on real wages in the long run). Because I had to pick three of the options, I also selected "boosting business investment" and "cutting taxes" as they could, if well-designed, influence productivity growth in a positive way. The proviso that the tax cuts are supposed to boost aggregate demand again suggests that they might only increase the level of wages given current slack in the economy, but not growth of wages. However, maybe there would be an unintended consequence to the tax cuts that could boost wages growth by positively affecting productivity growth.


 

Margaret Nowak

.

Measures to boost productivity growth;Reforming industrial relations to support higher wage decision


 

Lionel Page

.

Measures to boost productivity growth

The growth rate of wages may differ across categories of population for the different measures listed. Distributive considerations matter to choose among them. Several of the options have political implications which would have to be taken into account, beyond the goal of wage growth.


 

A Abigail Payne

.

Measures to boost productivity growth;Measures to boost business investment

From the list provided I could not identify three options. The challenge is that you provided one side of the response but not the other side of the response. E.g. constrain immigration v. enhance immigration; e.g. boost bargaining power of trade unions v. enable greater/increased negotiation rights/deviations from union or EBA, etc.


 

Alison Preston

.

Measures to boost productivity growth;Reforming industrial relations to increase the use of enterpri

Slow wage growth in recent decades fundamentally relates to changes in bargaining arrangements, insecure employment arrangements and to reforms that have circumscribed the bargaining power of trade unions. State and federal industrial relations commission currently have the capacity to make higher minimum wage determinations should they wish. A policy option not in the list presented would be for governments (federal and state) to agree to faster wage growth for public sector employees.


 

John Quiggin

.

Reforming industrial relations to boost the bargaining power of trade unions

I've only listed one policy, since it's the only one that matters. Nearly every reform of IR since 1975 has acted to reduce the bargaining power of unions and push wages down. All should be reviewed with a presumption in favour of repeal.


 

Mala Raghavan

.

Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

To maintain sustainable growth in wage rates in Australia, we need to address the structural issues related to wages and salaries. Over the years, we have been observing uneven development in the salary scheme of people in different income groups and levels in the organization. The huge expansion in wage growth is observed for those at the top end (usually a small group) of the organization, while the wage growth for some others is only inching slowly and for many others hardly moving. he upward trend in the casualization of the workforce, mainly in the service-related sectors, is another crucial factor contributing to the sluggish wage rate. In addition, sectors that are major employers, such as healthcare, education, child care, construction, to name a few, are not great paymasters. These trends appear to have significant spillover effects on wage rates in other sectors. Therefore, Australia needs reform in the employment and wage structure.


 

Sue Richardson

.

Restraining growth in labour supply by cutting temporary migration (including international students

Changes in the wage/profit share have some influence on the level of wage growth. Systematic and sustained efforts to reduce union power have been successful and are probably part of the reason for low wage growth. But over time, the biggest influence is the growth in labour productivity


 

Leonora Risse

.

Reforming industrial relations to support higher wage decisions by state and federal industrial rela

One key reason for low wage growth is the weakening link between productivity and wages that we have observed over time. The OECD describes this as a "decoupling" of wages from productivity (https://www.oecd.org/economy/decoupling-of-wages-from-productivity/) It is reflected in labour's decreasing share of total income over time. An increasing share of income is going to the owners of capital in the form of profits. This has been reported on by the RBA (https://www.rba.gov.au/publications/bulletin/2019/mar/the-labour-and-capital-shares-of-income-in-australia.html) It's not clear that any of the policies on this menu would adequately target this issue, but it implies that the solution is more complex than simply trying to manipulate labour demand or labour supply. It's about refining the mechanism through which workers' output is valued and imparted to them. Even though our focus here is on aggregate wage growth, our insights on gender gaps in earnings highlights the way that the society-wide value of particular jobs (healthcare, childcare, aged care, community services, cleaning) is not reflected in the wage paid to the worker. Mechanisms for improving wage growth will need to encompass a more accurate assessment of the society-wide value of a job. This is especially relevant as our workforce composition becomes increasingly oriented towards human services. It's not guaranteed that IR reforms will be able to steer improvements along these lines, but it probably has the best chance of doing so, out of all the policies on this menu. Economists generally would advocate for investment in productivity (via investment in skills, technology, innovation etc) as a driver of wage growth, but there is no point in pushing for productivity improvements if the mechanism for converting productivity improvements into wage growth is not working. The RBA has attributed labour low wage growth to excess capacity in the labour market, indicated by unemployment and under-employment. The paradox is that this excess supply of worker capability exists alongside job vacancies, which indicates that it is a job-matching, re-skilling and mobility issue. Policy attempts to boost AD won't necessarily help and could instead exacerbate skill shortages. It's shameful and disillusioning that some of the policy options suggested on this list - "Holding back growth in female and older worker labour force participation" - are outright discrimination and a contravention of UN human rights (UN Convention on the Elimination of All Forms of Discrimination against Women) and Australian legislation (Sex Discrimination Act 1984; Age Discrimination Act 2004). Proposing that migration numbers should be manipulated for the purpose of domestic wage growth is also insensitive to the rich evidence on the economic, cultural and society-wide gains of migration (https://www.pc.gov.au/inquiries/completed/migrant-intake/report).


 

Rana Roy

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None

The alternative I would propose is: Reforming industrial relations, and other relevant institutions, so as to boost the bargaining power of workers. Leaving aside the continuing controversies amongst economic historians on the record of real wages in the early years of industrialisation (cf. the Hobsbawm-Hartwell dispute), as well as in the pre-industrial era (cf. the outputs of the Maddison Project), we do possess reliable enough statistical data on the last 150 years to answer the question of what does and what does not ?deliver higher wages growth?. None of the ten bullet points listed above, per se, delivers the requisite result. I shall consider these ten bullet points in four clusters: (a) restraining growth in labour supply; (b) boosting productivity growth and business investment; (c) boosting aggregate demand; (d) reforming industrial relations. Re labour supply: It is true that a catastrophic collapse in labour supply can result in higher wages for the surviving workers for a more or less lengthy period ? the decades following the Black Death in Europe in the mid-fourteenth century being the most oft-cited example. But the result does not usually follow in the case of more modest, and less grisly, instances of restricting labour supply: there are other forces in play. The Spanish ?flu of 1918-2020 killed perhaps 50 million people (adjusted for population, the equivalent of 200 million people today, or 50 times the number of COVID-19 deaths to date). Many were working-age adults. It was followed by the introduction of restrictions on immigration into the United States, and by new borders and border controls across Continental Europe. But far from delivering wages growth, the decade of the 1920s witnessed wage stagnation and/or declining wages in the United States and much of Europe ? see https://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/, Table 1, and https://www.oecd-ilibrary.org/economics/how-was-life_9789264214262-en, Table 4.6 ? even as it delivered endless riches to the likes of Tom and Daisy Buchanan. In contrast, consider the later, lengthy period of more or less uninterrupted growth in real wages: from 1940 to the mid-1970s in the United States, from 1945 to the end of the century in much of industrialised Europe and Australasia, and from the 1970s onward, successively, in newly industrialising countries across the world. In almost every case, this was accompanied by an expansion of the labour supply: through large-scale immigration (into the United States, Australasia, and from the European periphery to the European core); through an internal movement from family-owned farms to waged work in towns and cities; through increasing female participation in waged work; and so on. More recently, from the mid-1970s onward in the United States, and from the start of the twenty-first century in much of the rest of the old industrialised world, including Australia, we have witnessed a lengthy period of wage stagnation ? alongside an increasing labour supply resulting from immigration. But it is only by combining this datum with a cultivated amnesia regarding all the rest of the data for the century since 1920 that one can arrive at the false conclusion that restricting labour supply will deliver rising wages. Rather, what the record as a whole suggests is the presence of an independent force driving the movement of wages, irrespective of movements in labour supply. Re productivity growth and business investment: It is true that productivity growth and productivity-enhancing business investment play an essential role in economic development, including serving as a necessary condition for sustaining long-term wage growth. But they do not constitute a sufficient condition. Nor are they a proximate cause of wage growth: rather, the causal relation is the other way round. Productivity growth has been less than satisfactory in the old industrialised world for quite some time ? but it has not been absent. And this growth has been attended by wage stagnation. In the United States, real wage rates in 2019 stood at the same level as obtained 45 years previously. Or as a recent World Economic Forum report amusingly put it ? see https://www.weforum.org/agenda/2019/04/50-years-of-us-wages-in-one-chart/ ? ?today?s wages in the United States are at a historically high level with average hourly earnings in March 2019 amounting to $23.24 in 2019 dollars. Coincidentally that matches the longtime peak of March 1974, when hourly wages adjusted to 2019 dollars amounted to exactly the same sum.? Far from productivity growth automatically delivering wage growth, it is the growth in real wages that is one of the key drivers in the growth of productivity. This is partly though the Ricardian route of the movement of factors from low- to high-productivity sectors, and partly through the route mapped by Marx and later formalised by Sir John Hicks: the choice by firms of higher-productivity, more capital-intensive techniques in response to this actual and anticipated movement in relative factor prices. Re aggregate demand: Boosting aggregate demand per se does not deliver growth in real wages. Aggregate demand can also be boosted, as it has been boosted in Australia over the last eighteen months, by a combination of stagnant wages for workers with the flow of free money from the RBA via the banking system to asset-owners, who are also consumers of what the Government of New South Wales apparently regards as ?essential retail?, that is, ?designer handbags, luxury watches, $10,000 dresses? ? see https://www.abc.net.au/news/2021-07-16/sydney-covid-lockdown-retailers-open-jbhifi-gucci-lv/100296684 ? in a word, the Tom and Daisy Buchanans of our age. Re industrial relations reform: the architecture of trade unions, state and federal commissions, enterprise bargaining, and so on, is well-entrenched in Australia and in every other OECD country. And these self-same institutions ? and often the same individuals ? have delivered wage stagnation for decades past. Indeed, with some exceptions ? such as The Construction, Forestry, Maritime, Mining and Energy Union in Australia, The Associated Society of Locomotive Engineers and Firemen in Britain, and the International Brotherhood of Teamsters in the United States, each of which has succeeded in winning relatively high and rising wages for its members ? trade unions today do not focus primarily, let alone exclusively, on winning improved wages and conditions for their membership. Rather, they perform too many other roles: as a school for politicians, as an industrial police force suppressing unofficial strikes, and, especially in Australia, as a major player in the finance sector via their presence in the three-trillion dollar superannuation industry. So what is it that has delivered rising wages for prolonged periods in the course of the last 150 years, such as in the decades preceding the First World War and in the decades following the Second World War? The answer is not a mystery. From Britain to Brazil and from Sweden to South Korea, it has been the same story: the self-organization of workers as a class and their consequent self-assertion both in the workplace and in the public sphere, through trade unions and political parties that they themselves created. This is an independent variable, independent of the market, just as the system of nation-states and systems of land tenure are independent variables, independent of the market. But once set in motion it has enormous economic consequences: it delivers high and rising wages for workers, a powerful incentive for firms to invest continuously in higher productivity techniques, and general prosperity. For all these reasons ? the workers? own welfare, the productivity of our economy, and the welfare of society as a whole ? I share the RBA?s desire for higher wages growth. But I do not under-estimate the scale of the task. A good starting-point would be to reform industrial relations, and other relevant institutions, so as to boost the bargaining power of workers, including by restoring fully the right to strike. Given that landlords enjoy the right to withhold properties from the rental market, thereby enlarging the army of homeless people on our streets ? and given that firms enjoy the right to withhold investment and spend the cash on share buy-backs and the like, thereby weakening the productive capacity of our economy ? this is to do no more than level ever-so-slightly the highly-titled playing field of today. And if workers were indeed to seize the opportunity to assert their interests anew, it could well be that newly energised and focused trade unions will once again have a role to play. Witness for example the growing multi-sectoral membership of the International Brotherhood of Teamsters, now present in 23 sectors from airline pilots to bakery and laundry workers: see https://teamster.org/divisions/. But all this is necessarily a long-term process: the RBA will need to be patient.


 

Stefanie Schurer

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Measures to boost productivity growth;Measures to boost business investment;Maintaining high governm

Australia is currently experiencing supply shocks that translate into demand shocks because of renewed lock downs. Current forecasts suggest varying degrees of lock downs will be part of daily life way into 2022. Thus, the Government needs to step in with a generous fiscal policy to compensate for short and longer-term income losses among businesses and households, and unfavorable business investment climates. I personally support hard lock downs only if the Government steps in to compensate for such income losses. Given longer term trends in productivity and demographic change (with a declining population), we need more migration (both temporary and permanent), not less. Our own research - with Maryam Nagsh Nejad (UTS) - has shown that Australia's migrants have brought a high level of skills - both cognitive and non-cognitive - to Australia, skills that have also been passed on to the children of migrants. High levels of skills are needed for generating productivity growth. Links to this research can be found on my homepage: https://www.stefanie-schurer.com/publications


 

Jeffrey Sheen

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Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel


 

Julie Toth

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Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

Stronger growth in wages needs to be real and not just nominal, if it is to support a genuine lift in incomes and living standards for Australians. This means wage growth must be underpinned by productivity growth. Without it, we risk triggering a nominal wage-inflation spiral that benefits nobody.


 

joaquin vespignani

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Measures to boost productivity growth;Measures to boost business investment;Cutting taxes in order t

Wage?s growth should be enhanced only by an increase in productivity, any other incentive or mechanism to increase wages would be costly for society (e.g. higher unemployment). Microeconomics and education reforms to boost productivity are the key elements to be considered for a long-term increase in wages and productivity growth.


 

Rachel Ong ViforJ

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Measures to boost productivity growth;Measures to boost business investment;Reforming industrial rel

In reality, Australia?s productivity levels were already lower than desired prior to COVID-19. So I think driving increases in productivity would be the most direct way of addressing the crux of the wage problem. Other than that, it was difficult finding two other measures that I could fully support. Demand-side measures are secondary as we do not have a problem with low demand, so boosting demand at the expense of a growing budget deficit is undesirable. I doubt that restricting labour supply through reduced immigration will have meaningful impacts at this time, given already historically low immigration levels during the past year. Perhaps if immigration levels were currently high, there would be scope to look at reducing immigration. Reducing the international students intake will only further harm a large export sector (international education) which will in turn depress aggregate demand (and wages). Increasing the bargaining power of trade unions may assist specific sectors where union representation is widespread, but we will not see broad increases in wages across the economy.


 

Beth Webster

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Maintaining high government spending in order to boost aggregate demand;Reforming industrial relatio

The wage share of GDP is low historically and this will affect business sales and investment if consumers are not able buy their goods and services. There is no point pumping business investment if the consumer market is lacklustre. Furthermore, continuing to see wage rises only at the top end, will lead to a fractured society of the ilk we have been seeing in the USA for many years. In the end, we all lose.