Despite what employers say, workers are not being rewarded for productivity growth

by Greg Jericho


Employers says wages should rise in line with productivity, but they do all they can to prevent that happening.

One of the biggest myths asserted by business groups and pro-market economists is that the solution to wage growth is to just lift productivity. This line is reported to be pushed by the head of the Australian Industry Group, Innes Willox, in his speech today at the National Press Club.

The AFR reports that Mr Willox will argue that “Over the medium term, we find wage rises have risen broadly in line with productivity. The link with productivity is the key – the more productive we are the more we can be sustainably compensated.”

The problem is that while this should occur, the reality is that workers are only properly compensated for productivity gains when they have the ability to bargain with employers. The increase in wages does not occur by some magic invisible hand doling out wage rises.

In reality, employers desire to keep the benefits of productivity gains for themselves. And the past 25 years have shown that, on the back of changes to the industrial relations system that have successively weakened the ability of workers to collectively bargain, employers have been very successful at keeping the gains.

When we correctly measure the hourly earnings for work done by employees we see that while during the 1990s productivity and earnings did rise together, since then a great divergence has occurred.

Far from wages over the median-term rising “broadly in line with productivity” as Mr Willox argues, since 2000 productivity has risen 28% while hourly earnings have gone up just 10%. Since 2015, which is the period that Mr Willox in his speech reportedly will argue that “the main problem has been flat productivity”. productivity has risen 3.4% while hourly earnings have fallen 4.2%

Wages should rise in line with productivity, but they have not, and without a stronger ability to bargain collectively and reap the just rewards of productivity growth, the share of national income going to workers will continue to fall and workers will continue to be paid less than they rightfully should.

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