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PostPosted: Mon Jun 05, 2017 2:32 am 
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When profits eat wages we all pay the price

It's too early to be sure, but not too early to suspect that, if we and the other developed economies keep travelling the way we are, conventional wisdom about what constitutes good economic policy may soon need to be turned on its head.
Australia may have enjoyed more than 25 years without a recession, but as Peter Martin explains, it's been a close run thing.

We're living through very strange times. Each developed economy has its own story, but there are strong similarities. One is exceptionally low inflation, which doesn't seem temporary.
Another is surprisingly weak rates of measured productivity improvement, although our rate of improvement in the productivity of labour isn't too bad.

My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.
But the other explanation may be a decline in price competition in many industries, thanks to several decades of both natural and government-facilitated rent-seeking by big businesses, in ever-more concentrated industries.
Next, wages. It's too soon to conclude that wage growth – which in Oz has been slowing since mid-2012 and been pathetically weak for three years – is down for the count.

We don't yet know how much of the weakness is merely cyclical and how much is due to deeper, longer-lasting, structural causes.
Even so, it's hard not to suspect that a fair bit of the wage weakness is structural. My guess is that while we've been busy decentralising wage-fixing and removing all provisions thought to favour unions, globalisation and technological change have conspired to rob the nation's employees of any collective bargaining power.

This may sound like a dream come true for business and its high-paid executives but, if it's true, it's deeply destabilising overkill.
Wages are a key variable in the economy. Allow them to be either too high or too low and the economy gets out of kilter.
Allow the profits share of national income to keep continually expanding at the expense of the wages share and expect to pay a price economically, socially and politically.
And that's before you remember that wages are the chief source of governments' tax revenue. Not only personal income tax, but all the indirect taxes – notably, the goods and services tax – that households pay when they spend their labour incomes.

Low nominal wage growth isn't necessarily a worry if, at the same time, the rise in consumer prices is low.
What matters to working households and the rest of the economy (but not governments) is what's happening to real wages.

In a healthily functioning economy, real wages should rise pretty much in line with the improvement in the productivity of labour.
That way, both labour and capital get their fair share of the fruits of economic progress.

Trouble is, in the US this relationship broke down maybe 30 years ago, explaining why the top few per cent of households have captured most of the growth in the nation's real income over that time.
This doesn't just widen the gap between rich and poor. By directing so much income growth away from the high spenders at the bottom and middle to the high savers at the top, it slows growth in consumption and thus production.

It also adds to the disillusionment of ordinary voters, making them more likely to lash out and vote for the cunning wacko celebrity-de-jour candidate, such as Clive Palmer, Pauline Hanson or Donald somebody.
Get this: there are tentative signs the relationship between real wage growth and labour productivity may be breaking down in Oz.

The relevant indicator, the index of real labour costs per unit, should hover around 100. It fell by 3.3 per cent during 2016, reaching 98.1, equal lowest since the series began in 1985.
If this weakness persists, it will raise the question of whether the formerly healthy relationship was a product of market forces, or if the industrial relations system's achievement of a fine balance between employer and union bargaining power.

If it does persist, how could we return to a healthy relationship? By reversing the dominant wisdom of many decades, that governments must never do anything that adds to the regulatory burden on employers. By acting (very carefully) to strengthen the hand of union collective bargainers.
Final point: governments of all colours secretly rely on bracket creep to help tax collections keep up with the inexorable growth in government spending.

But bracket creep depends on both reasonable inflation and real wage growth to work its barely noticed fiscal magic.
What happens if inflation stays low and real wages stop growing? You have to junk your rhetoric about smaller government and keep doing what Malcolm Turnbull did in this budget: justify explicit tax increases.
Either that, or get wages growing properly.

Ross Gittins is the Herald's economics editor.


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PostPosted: Mon Jun 05, 2017 3:08 am 
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It's pretty obvious that wages have not kept up with inflation (And profits).

I earn way more than I earnt when I first moved to Oz 15 years ago.

Whilst not at all crying poor, what I can buy at the supermarket is markedly less than what I could for the same money.

Rent, Bills, etc have all increased at a far higher rate than wages in that time.


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PostPosted: Mon Jun 05, 2017 3:22 am 
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terangi48 wrote:
When profits eat wages we all pay the price

It's too early to be sure, but not too early to suspect that, if we and the other developed economies keep travelling the way we are, conventional wisdom about what constitutes good economic policy may soon need to be turned on its head.
Australia may have enjoyed more than 25 years without a recession, but as Peter Martin explains, it's been a close run thing.

We're living through very strange times. Each developed economy has its own story, but there are strong similarities. One is exceptionally low inflation, which doesn't seem temporary.
Another is surprisingly weak rates of measured productivity improvement, although our rate of improvement in the productivity of labour isn't too bad.

My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.
But the other explanation may be a decline in price competition in many industries, thanks to several decades of both natural and government-facilitated rent-seeking by big businesses, in ever-more concentrated industries.
Next, wages. It's too soon to conclude that wage growth – which in Oz has been slowing since mid-2012 and been pathetically weak for three years – is down for the count.

We don't yet know how much of the weakness is merely cyclical and how much is due to deeper, longer-lasting, structural causes.
Even so, it's hard not to suspect that a fair bit of the wage weakness is structural. My guess is that while we've been busy decentralising wage-fixing and removing all provisions thought to favour unions, globalisation and technological change have conspired to rob the nation's employees of any collective bargaining power.

This may sound like a dream come true for business and its high-paid executives but, if it's true, it's deeply destabilising overkill.
Wages are a key variable in the economy. Allow them to be either too high or too low and the economy gets out of kilter.
Allow the profits share of national income to keep continually expanding at the expense of the wages share and expect to pay a price economically, socially and politically.
And that's before you remember that wages are the chief source of governments' tax revenue. Not only personal income tax, but all the indirect taxes – notably, the goods and services tax – that households pay when they spend their labour incomes.

Low nominal wage growth isn't necessarily a worry if, at the same time, the rise in consumer prices is low.
What matters to working households and the rest of the economy (but not governments) is what's happening to real wages.

In a healthily functioning economy, real wages should rise pretty much in line with the improvement in the productivity of labour.
That way, both labour and capital get their fair share of the fruits of economic progress.

Trouble is, in the US this relationship broke down maybe 30 years ago, explaining why the top few per cent of households have captured most of the growth in the nation's real income over that time.
This doesn't just widen the gap between rich and poor. By directing so much income growth away from the high spenders at the bottom and middle to the high savers at the top, it slows growth in consumption and thus production.

It also adds to the disillusionment of ordinary voters, making them more likely to lash out and vote for the cunning wacko celebrity-de-jour candidate, such as Clive Palmer, Pauline Hanson or Donald somebody.
Get this: there are tentative signs the relationship between real wage growth and labour productivity may be breaking down in Oz.

The relevant indicator, the index of real labour costs per unit, should hover around 100. It fell by 3.3 per cent during 2016, reaching 98.1, equal lowest since the series began in 1985.
If this weakness persists, it will raise the question of whether the formerly healthy relationship was a product of market forces, or if the industrial relations system's achievement of a fine balance between employer and union bargaining power.

If it does persist, how could we return to a healthy relationship? By reversing the dominant wisdom of many decades, that governments must never do anything that adds to the regulatory burden on employers. By acting (very carefully) to strengthen the hand of union collective bargainers.
Final point: governments of all colours secretly rely on bracket creep to help tax collections keep up with the inexorable growth in government spending.

But bracket creep depends on both reasonable inflation and real wage growth to work its barely noticed fiscal magic.
What happens if inflation stays low and real wages stop growing? You have to junk your rhetoric about smaller government and keep doing what Malcolm Turnbull did in this budget: justify explicit tax increases.
Either that, or get wages growing properly.

Ross Gittins is the Herald's economics editor.

In the UK our government is busy cutting corporation tax and they are not to worried at the moment about government tax revenue as they in their ideologically driven slashing of government services phase. You name it, Police, fire fighters,and council services all being cut to the bone.


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PostPosted: Mon Jun 05, 2017 4:06 am 
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The trouble with a diverse economy like the US and Aus is that you have a stratification in income that is necessary for the economy to function. If the potato farmer in bumfuck nowhere is earning the same as the engineer in Silicon Valley then the people won't be able to afford food, and if the inverse is the case then there would be no incentive to invest in skills and education that grow the overall economy.

There's always going to be a productivity struggle in the agricultural sector and this gets reflected in the stats when that sector and related industries are dominant in an economy.


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PostPosted: Mon Jun 05, 2017 6:28 am 
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Quote:
Ross Gittins is the Herald's economics editor.


Hell, I thought he would have retired by now (if it is the Ross Gittins I went to school with)


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PostPosted: Mon Jun 05, 2017 8:18 am 
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Enzedder wrote:
Quote:
Ross Gittins is the Herald's economics editor.


Hell, I thought he would have retired by now (if it is the Ross Gittins I went to school with)


Is he another blow in like Derren Hinch?

And yes, he's that old :proud:


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PostPosted: Mon Jun 05, 2017 8:34 am 
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Quote:
My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.


My guess is pretty much all of the productivity mystery arise from this. GDP doesn't capture the digital economy remotely well enough.

But that's different from the profit share analysis. And it's not really clear that the profit share is increasing. Most people seem to assume this from the fact the labour share is decreasing. But's its not binary. Most of the decrease in labour share globally is due to (i) changes in tax burden (i.e. the govt taking labour share); and (ii) people stepping out of traditional employment to become self employed.


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PostPosted: Mon Jun 05, 2017 9:03 am 
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zzzz wrote:
Quote:
My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.


My guess is pretty much all of the productivity mystery arise from this. GDP doesn't capture the digital economy remotely well enough.

But that's different from the profit share analysis. And it's not really clear that the profit share is increasing. Most people seem to assume this from the fact the labour share is decreasing. But's its not binary. Most of the decrease in labour share globally is due to (i) changes in tax burden (i.e. the govt taking labour share); and (ii) people stepping out of traditional employment to become self employed.


In Oz, where the OP article is from, it's not about Self-employment, it's about being forced into Casualisation.

No Leave and no Sick pay - How these people are expected to plan or buy a house is beyond me


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PostPosted: Mon Jun 05, 2017 9:11 am 
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Pat the Ex Mat wrote:
zzzz wrote:
Quote:
My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.


My guess is pretty much all of the productivity mystery arise from this. GDP doesn't capture the digital economy remotely well enough.

But that's different from the profit share analysis. And it's not really clear that the profit share is increasing. Most people seem to assume this from the fact the labour share is decreasing. But's its not binary. Most of the decrease in labour share globally is due to (i) changes in tax burden (i.e. the govt taking labour share); and (ii) people stepping out of traditional employment to become self employed.


In Oz, where the OP article is from, it's not about Self-employment, it's about being forced into Casualisation.

No Leave and no Sick pay - How these people are expected to plan or buy a house is beyond me


If that means zero hours contracts, I am surprised that isnt in the labour share.


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PostPosted: Mon Jun 05, 2017 9:44 am 
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Location: Middle of the Lothians
Anonymous. wrote:
terangi48 wrote:
When profits eat wages we all pay the price

It's too early to be sure, but not too early to suspect that, if we and the other developed economies keep travelling the way we are, conventional wisdom about what constitutes good economic policy may soon need to be turned on its head.
Australia may have enjoyed more than 25 years without a recession, but as Peter Martin explains, it's been a close run thing.

We're living through very strange times. Each developed economy has its own story, but there are strong similarities. One is exceptionally low inflation, which doesn't seem temporary.
Another is surprisingly weak rates of measured productivity improvement, although our rate of improvement in the productivity of labour isn't too bad.

My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.
But the other explanation may be a decline in price competition in many industries, thanks to several decades of both natural and government-facilitated rent-seeking by big businesses, in ever-more concentrated industries.
Next, wages. It's too soon to conclude that wage growth – which in Oz has been slowing since mid-2012 and been pathetically weak for three years – is down for the count.

We don't yet know how much of the weakness is merely cyclical and how much is due to deeper, longer-lasting, structural causes.
Even so, it's hard not to suspect that a fair bit of the wage weakness is structural. My guess is that while we've been busy decentralising wage-fixing and removing all provisions thought to favour unions, globalisation and technological change have conspired to rob the nation's employees of any collective bargaining power.

This may sound like a dream come true for business and its high-paid executives but, if it's true, it's deeply destabilising overkill.
Wages are a key variable in the economy. Allow them to be either too high or too low and the economy gets out of kilter.
Allow the profits share of national income to keep continually expanding at the expense of the wages share and expect to pay a price economically, socially and politically.
And that's before you remember that wages are the chief source of governments' tax revenue. Not only personal income tax, but all the indirect taxes – notably, the goods and services tax – that households pay when they spend their labour incomes.

Low nominal wage growth isn't necessarily a worry if, at the same time, the rise in consumer prices is low.
What matters to working households and the rest of the economy (but not governments) is what's happening to real wages.

In a healthily functioning economy, real wages should rise pretty much in line with the improvement in the productivity of labour.
That way, both labour and capital get their fair share of the fruits of economic progress.

Trouble is, in the US this relationship broke down maybe 30 years ago, explaining why the top few per cent of households have captured most of the growth in the nation's real income over that time.
This doesn't just widen the gap between rich and poor. By directing so much income growth away from the high spenders at the bottom and middle to the high savers at the top, it slows growth in consumption and thus production.

It also adds to the disillusionment of ordinary voters, making them more likely to lash out and vote for the cunning wacko celebrity-de-jour candidate, such as Clive Palmer, Pauline Hanson or Donald somebody.
Get this: there are tentative signs the relationship between real wage growth and labour productivity may be breaking down in Oz.

The relevant indicator, the index of real labour costs per unit, should hover around 100. It fell by 3.3 per cent during 2016, reaching 98.1, equal lowest since the series began in 1985.
If this weakness persists, it will raise the question of whether the formerly healthy relationship was a product of market forces, or if the industrial relations system's achievement of a fine balance between employer and union bargaining power.

If it does persist, how could we return to a healthy relationship? By reversing the dominant wisdom of many decades, that governments must never do anything that adds to the regulatory burden on employers. By acting (very carefully) to strengthen the hand of union collective bargainers.
Final point: governments of all colours secretly rely on bracket creep to help tax collections keep up with the inexorable growth in government spending.

But bracket creep depends on both reasonable inflation and real wage growth to work its barely noticed fiscal magic.
What happens if inflation stays low and real wages stop growing? You have to junk your rhetoric about smaller government and keep doing what Malcolm Turnbull did in this budget: justify explicit tax increases.
Either that, or get wages growing properly.

Ross Gittins is the Herald's economics editor.

In the UK our government is busy cutting corporation tax and they are not to worried at the moment about government tax revenue as they in their ideologically driven slashing of government services phase. You name it, Police, fire fighters,and council services all being cut to the bone.


My daughter has just qualified as a physiotherapist and is earning about £12 an hour in the NHS. 4 year degree and nearly £18000 student loan.

Newly qualified nurses are even worse. At the same time the government are removing the Nursing Bursary (£4000 per year) which goes some way to compensating nursing students for the fact they spend most of their time working full time on the wards during their degree. It is absolute madness.


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PostPosted: Mon Jun 05, 2017 9:54 am 
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Quote:
My daughter has just qualified as a physiotherapist and is earning about £12 an hour in the NHS. 4 year degree and nearly £18000 student loan.

Newly qualified nurses are even worse. At the same time the government are removing the Nursing Bursary (£4000 per year) which goes some way to compensating nursing students for the fact they spend most of their time working full time on the wards during their degree. It is absolute madness.


25 to 30 grand straight out of Uni ? About the same as any other profession. And far more than I earned as a new entry into banking ..... With regards to the 18 k she has 30-40 years to pay that back, I'm sure she'll manage.

For her info a private Physio around my way earns about 40 quid an hour.


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PostPosted: Mon Jun 05, 2017 9:56 am 
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Anonymous. wrote:
terangi48 wrote:
When profits eat wages we all pay the price

It's too early to be sure, but not too early to suspect that, if we and the other developed economies keep travelling the way we are, conventional wisdom about what constitutes good economic policy may soon need to be turned on its head.
Australia may have enjoyed more than 25 years without a recession, but as Peter Martin explains, it's been a close run thing.

We're living through very strange times. Each developed economy has its own story, but there are strong similarities. One is exceptionally low inflation, which doesn't seem temporary.
Another is surprisingly weak rates of measured productivity improvement, although our rate of improvement in the productivity of labour isn't too bad.

My guess is a fair bit of this is mis-measurement arising from our quite radical shift to a digital economy.
But the other explanation may be a decline in price competition in many industries, thanks to several decades of both natural and government-facilitated rent-seeking by big businesses, in ever-more concentrated industries.
Next, wages. It's too soon to conclude that wage growth – which in Oz has been slowing since mid-2012 and been pathetically weak for three years – is down for the count.

We don't yet know how much of the weakness is merely cyclical and how much is due to deeper, longer-lasting, structural causes.
Even so, it's hard not to suspect that a fair bit of the wage weakness is structural. My guess is that while we've been busy decentralising wage-fixing and removing all provisions thought to favour unions, globalisation and technological change have conspired to rob the nation's employees of any collective bargaining power.

This may sound like a dream come true for business and its high-paid executives but, if it's true, it's deeply destabilising overkill.
Wages are a key variable in the economy. Allow them to be either too high or too low and the economy gets out of kilter.
Allow the profits share of national income to keep continually expanding at the expense of the wages share and expect to pay a price economically, socially and politically.
And that's before you remember that wages are the chief source of governments' tax revenue. Not only personal income tax, but all the indirect taxes – notably, the goods and services tax – that households pay when they spend their labour incomes.

Low nominal wage growth isn't necessarily a worry if, at the same time, the rise in consumer prices is low.
What matters to working households and the rest of the economy (but not governments) is what's happening to real wages.

In a healthily functioning economy, real wages should rise pretty much in line with the improvement in the productivity of labour.
That way, both labour and capital get their fair share of the fruits of economic progress.

Trouble is, in the US this relationship broke down maybe 30 years ago, explaining why the top few per cent of households have captured most of the growth in the nation's real income over that time.
This doesn't just widen the gap between rich and poor. By directing so much income growth away from the high spenders at the bottom and middle to the high savers at the top, it slows growth in consumption and thus production.

It also adds to the disillusionment of ordinary voters, making them more likely to lash out and vote for the cunning wacko celebrity-de-jour candidate, such as Clive Palmer, Pauline Hanson or Donald somebody.
Get this: there are tentative signs the relationship between real wage growth and labour productivity may be breaking down in Oz.

The relevant indicator, the index of real labour costs per unit, should hover around 100. It fell by 3.3 per cent during 2016, reaching 98.1, equal lowest since the series began in 1985.
If this weakness persists, it will raise the question of whether the formerly healthy relationship was a product of market forces, or if the industrial relations system's achievement of a fine balance between employer and union bargaining power.

If it does persist, how could we return to a healthy relationship? By reversing the dominant wisdom of many decades, that governments must never do anything that adds to the regulatory burden on employers. By acting (very carefully) to strengthen the hand of union collective bargainers.
Final point: governments of all colours secretly rely on bracket creep to help tax collections keep up with the inexorable growth in government spending.

But bracket creep depends on both reasonable inflation and real wage growth to work its barely noticed fiscal magic.
What happens if inflation stays low and real wages stop growing? You have to junk your rhetoric about smaller government and keep doing what Malcolm Turnbull did in this budget: justify explicit tax increases.
Either that, or get wages growing properly.

Ross Gittins is the Herald's economics editor.

In the UK our government is busy cutting corporation tax and they are not to worried at the moment about government tax revenue as they in their ideologically driven slashing of government services phase. You name it, Police, fire fighters,and council services all being cut to the bone.


1. The incidence of corporation tax is mainly on employees not capital.
2. As noted in the text above, the tax revenue to be obtained from companies mainly comes from taxing the wages they pay. If you want lots more Govt spending, you need lots more jobs - and should do what produces that.
3. Expenditure is rising year on year and most of these "cuts" are the net effect of below inflation increases - which means that by the time the Tories have finished we will probably have a State that is in real terms about the same size as we had in 2005. I don't remember the world ending that year.


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PostPosted: Mon Jun 05, 2017 10:03 am 
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Pat the Ex Mat wrote:
Is he another blow in

Nah, Newsouthwegian. Fort Street High School.

Probably about Enzo's age, though.


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