AAA<\/p>\n
I have one thing to say to our politicians, economists and readers of this august organ: no, it\u2019s not the economy, stupid \u2026 it\u2019s wages.<\/p>\n
At present, the economy is not in a healthy state. It\u2019s going nowhere fast. Although its growth of 2 per cent over the year to June sounds reasonable, the great majority of that growth is attributable to our growing population. Little of the remaining growth represents the rest of us becoming a bit better off.<\/p>\n
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Photo: Dionne Gain<\/p>\n
The economy is close to stalling speed, and if we\u2019re not careful, it will start contracting \u2013 getting smaller rather than bigger \u2013 otherwise known as being in recession. After reaching a low of 3.5 per cent in late 2022, the rate of unemployment has crept up slowly but inexorably to 4.5 per cent.<\/p>\n
And, unless something major is done, it\u2019s likely to keep edging up until, with more and more people unable to find work, it\u2019s high enough to stop people banging on incessantly about the cost of living.<\/p>\n
As I may have mentioned before, the cost of living is not really the problem. It\u2019s just the bit you see when you go to the supermarket or fill up your car.<\/p>\n
We\u2019d all like to live in a world where our wages went up every year while prices didn\u2019t change. Unfortunately, it\u2019s the other way round: rising prices are the main reason we get a pay rise each year. If we didn\u2019t, the real value of our wage would keep declining, making it harder to afford to buy as much as we used to.<\/p>\n
At 3.5 per cent over the year to July, the rate of inflation, aka the cost of living, is too high \u2013 the goal is price rises of 2 to 3 per cent \u2013 but not exceptionally so. So why so much fuss? Because wages haven\u2019t been keeping up.<\/p>\n
You\u2019ve seen me say that once or twice before of late. What I haven\u2019t done is explain how and why wage rises have fallen behind price rises. That\u2019s because I didn\u2019t know. Why didn\u2019t I know? Because no official body \u2013 not the Reserve Bank, not Treasury, not the treasurer nor the prime minister \u2013 and no private economist have pointed it out to me.<\/p>\n
Did none of them know? I find that hard to believe. Much easier to believe they kept it dark because they didn\u2019t want people to know about it. They didn\u2019t want to say rude words in public.<\/p>\n
Related Article When I became an economic commentator many moons ago, I wrote incessantly about \u201cexcessive wage growth\u201d. I said it because everyone else was saying it and, in that long-gone world, it was true.<\/p>\n I now realise that though everyone is free to say the rise in wages has been excessive, it is not done to say the reverse \u2013 that wage increases have been inadequate. Why not? Because the bosses wouldn\u2019t like it. For that matter, nor would the unions thank me for pointing out their failure to do their jobs properly.<\/p>\n So I\u2019m indebted to the Australia Institute\u2019s Greg Jericho for being the country\u2019s first economist to blow the whistle. He\u2019s actually looked up the numbers and seen that, though businesses kept increasing their prices in the first two years following the COVID pandemic \u2013 March 2021 to March 2023 \u2013 the workers weren\u2019t game to ask for a pay rise.<\/p>\n Since then, the system has got back to normal and wage rises have pretty much kept up with price rises. The need for some sort of catch-up was forgotten.<\/p>\n As a result, by March 2023, the purchasing power of everyone\u2019s wage was cut by 5 per cent, and nothing\u2019s been done to reduce that cut to people\u2019s \u201creal\u201d wage.<\/p>\n Now do you wonder why balancing the household budget has become so much harder for so many people and why the economy is weak and getting weaker?<\/p>\n Jericho projects that, if things continue on their present path \u2013 that is, if there\u2019s no recession \u2013 the purchasing power of wages won\u2019t have returned to what it was in 2023 until the end of 2036. Wow. What an enticing prospect. Isn\u2019t it great to be an Aussie!<\/p>\n When the nation\u2019s worthies preach their sermons about the need for improved productivity, the big come-on for you and me is that an X per cent improvement allows an X per cent increase in wages without adding anything to inflation. How do you get a \u201creal\u201d increase in wages? By improving productivity.<\/p>\n But from now on, any increase in real wages will be used to make up for the pay rises foregone in 2021 and 2022. Again, the boss does a lot better out of this deal than the workers do.<\/p>\n What the bosses and economists don\u2019t get \u2013 or don\u2019t want to get \u2013 is that they\u2019ve got productivity the wrong way around. They say, \u201cgive us an improvement in productivity and we\u2019ll increase your wages\u201d. But it works the other way: make employers increase wages, and they start looking for ways to improve the productivity of their workers, thereby cutting the cost of their labour.<\/p>\n Related Article There\u2019s nothing glamorous about improved productivity, which is achieved not by people working harder but by bosses investing in more or better machines to work with.<\/p>\n Get it? It\u2019s up to the bosses, not the workers. And for as long as you keep wage costs low \u2013 say, by skipping a couple of years of pay rises \u2013 you give businesses little incentive to improve productivity.<\/p>\n Meanwhile, although the Reserve Bank has increased interest rates three times this year, many people are convinced it will soon increase them again. I don\u2019t think it\u2019s that stupid.<\/p>\n The economy is weak and getting weaker because the unions lack the power to insist that employers give pay rises sufficient to match price rises. So whatever\u2019s keeping inflation high, it\u2019s not the workers.<\/p>\n The Reserve has insisted that the consumer price index exclude mortgage interest rates, but that doesn\u2019t stop those rates being a major factor in the living costs of people with mortgages. Should they be punished for crimes they didn\u2019t commit?<\/p>\n Ross Gittins is economics editor<\/p>\n Get a weekly wrap of views that will challenge, champion and inform your own. Sign up for our Opinion newsletter<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n![\"Illustration](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/09\/1789510696_61_931ee730a21b868738445ca23d401741a0432dcb.jpeg\")
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