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2011-01-11

Productivity, inflation and wage growth

Comments on Peter Anderson “Wages policy undermines productivity quest”, 11/01/2011, http://www.theaustralian.com.au/news/opinion/wages-policy-undermines-the-productivity-quest/story-e6frg6zo-1225985225840

While I agree with the notion that wages growth should be in line with the growth of productivity, I find the following paragraph from the post confusing:

"Our annual productivity growth at present stands at 1.1 per cent. This is half of the average during the 90s. Wages are rising three to four times faster than productivity. Across the longer term, that is not sustainable."

Let me start with last sentence. Wages growth is nominal that is inclusive the effects of both productivity and prices change of inflation. Anderson's statement did not mention how inflation was, and that makes it unclear whether the wages growth of 3 to 4 times faster is too fast or not.

Secondly, the differences in productivity growth between now and the average of the 90s can be the effects of many factors, including both domestic and international influences. For example, if the world productivity, especially the industrialised economies also has similar differences, then our productivity slow down may not necessarily a purely domestic issue.

Thirdly, there should be a balance between productivity agenda, as important as it is, and other equally agendas, such as proper, legitimate protection of labour rights.

PS: Further, the growth of labour supply can also be an influence on productivity, other things equal. Labour supply is affected by population growth and participation rate. Population growth is also affected by immigration.

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