Bill Mitchell says “…the gap between real wages growth and productivity growth continues to widen as the wage share in national income falls (and the profit share rises). The flat wages trend is intensifying the pre-crisis dynamics, which saw private sector credit rather than real wages drive growth in consumption spending. The lessons have not been learned.
The following graph shows the indexed growth in hourly real wages and labour productivity per hour since the September-quarter 1997 (the start of the Wage Price Index series).
If I started the index in the early 1980s, when the gap between the two really started to open up, the productivity index would stand at around 180 and the real wage index at around 115.
The on-going subdued economic activity will also undermine the Government’s fiscal strategy, which can be summarised as squeezing net public spending out of the economy in the hope that in three years they will achieve a fiscal surplus.
That folly will be exposed. Economic growth will not be strong enough to match their assumptions and that means the growth in tax receipts will be less than assumed.
It would be better for the Government to stimulate the economy more now with larger fiscal deficits and then see the fiscal balance drop on the back of income growth.
Higher (and more reasonable) wages growth would both benefit from and provide support to such a fiscal strategy.
At the moment, we are in a race-to-the-bottom, which is nowhere any reasonable policy strategy should aim for.”