Real wages have not kept up with productivity

by Greg Jericho

When you count earnings per waged hours it is very clear that real wages have not kept up with productivity

A constant refrain is that to lift real wages we just need to lift productivity. While that might work in theory, in practice it hasn’t for over 20 years.

Recently the Productivity Commission, ACCI and the Business Council of Australia have suggested that real wages move in line with productivity if we calculate real wages from the National Accounts figure of Compensation of Employees per hour worked.

The problem is, while the Productivity Commission correctly noted in its recent interim report that this measure only includes “total labour compensation per hour rather than the labour income from owner operators”, it fails to consider that the Hours index in the National Accounts does include hours worked by owner operators.

Fortunately we can use the quarterly labour force figures to work out the hours worked by only wage earners as opposed to those such as owner operators, whose income is not included in the “compensation of employees”.

Even the Productivity Commission’s measure makes it clear that productivity over the past 20 years has risen faster than real wages.

But when we correctly only count hours worked by wage earners, the disconnect becomes even more much apparent.

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