Productivity and pay: Developments & issues in labour’s share of income gains
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Transcript of Productivity and pay: Developments & issues in labour’s share of income gains
Productivity and pay: Developments &
issues in labour’s share of income gains
Dean ParhamDeepa Economics
Workplace Relations Lecture SeriesFair Work Commission
Centre for Employment & Labour Relations LawMelbourne, 16 August 2013
Productivity and pay 4
Rule of thumb• LP growth a benchmark for real wage growth• Increases in nominal wages has regard to growth
in labour productivity and inflation• When growth in real wages above growth in LP
o raises real production costs • reduces competitiveness• pressure to reduce employment
• When growth in real wages below growth in LP o reduces real production costs
• improves competitiveness• conducive to employment growth
o question of fairness – equitable share of productivity gains
Productivity and pay 5
The terms of trade lifted income growth above output
growth in the 2000s
1959
-60
1961
-62
1963
-64
1965
-66
1967
-68
1969
-70
1971
-72
1973
-74
1975
-76
1977
-78
1979
-80
1981
-82
1983
-84
1985
-86
1987
-88
1989
-90
1991
-92
1993
-94
1995
-96
1997
-98
1999
-00
2001
-02
2003
-04
2005
-06
2007
-08
2009
-10
2011
-12
0
100
200
300
400
500
600
700
30
50
70
90
110
130
GDI growth
GDP growth
terms of trade (RHS)
% growth since 1959-60 index
2010-11=100
Data source: ABS national accounts
Productivity and pay 6
The terms of trade filled the gap in average income growth
left by slower productivity growth
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
0
10
20
30
40
50
60
70
40
60
80
100
120
140
160
180
real average income(GDI per capita)
labour productivity
terms of trade (RHS)
export pricesimport prices
% growthsince 1993-
94
index2010-11=100
Data source: ABS national accounts
Productivity and pay 7
Takeaways• Continued strong growth in prosperity in the
2000s• A surge in the terms of trade ‘filled a gap’ left by
slower growth in productivity• The terms of trade had a major influence on the
growth in real income and rate of improvement in living standards
Productivity and pay 8
The fall in the labour income share
• 4+ percentage points over the 2000s
• How did this fall come about?
Productivity and pay 9
No shrinkage in labour income growth
Labour income Capital income Total income0
1
2
3
4
5
6
7
8
1990s 2000s1990s 1990s2000s 2000s
4.5
6.6
7.5
4.9
5.8
4.3
% per year
Source: Parham (2013) forthcoming
Productivity and pay 10
Stronger output price inflation, not slower wage
growth
1990s 2000s0
1
2
3
4
5
nom wage nom wage
outputprices
outputprices
RPW
RPW
3.8
4.8
1.1
3.4
2.7
1.4
% per year
Source: Parham (2013) forthcoming
Productivity and pay 11
Terms of trade drove a wedge between product prices and
consumer prices1959-6
0
1961-6
2
1963-6
4
1965-6
6
1967-6
8
1969-7
0
1971-7
2
1973-7
4
1975-7
6
1977-7
8
1979-8
0
1981-8
2
1983-8
4
1985-8
6
1987-8
8
1989-9
0
1991-9
2
1993-9
4
1995-9
6
1997-9
8
1999-0
0
2001-0
2
2003-0
4
2005-0
6
2007-0
8
2009-1
0
2011-1
2
0
40
80
120
160
200
product prices
consumer prices
1990s 2000s
index1999-
00=100
Source: Parham (2013) forthcoming
Productivity and pay 13
Growth in RPW fell behind LP growth. RCW
did not
1999-00 to 2009-10 2002-03 to 2011-120
0.5
1
1.5
2
2.5
3
RPW RPWLPLP
RCWRCW
1.4
2.12.0
1.5
1.8
2.7
% per year
Source: Parham (2013) forthcoming
Productivity and pay 14
Implications for the rule of thumb
• Not a problem for producerso competitiveness
• What about fairness?o real consumption wage is relevanto growth in RCW kept up with, and surpassed, growth in LP
Productivity and pay 15
Sources of the fall in labour income share
• Additional growth in incomeo 40% in miningo 25% in construction
• Manufacturing lost the most share of income• Mining explains the entire fall in the labour
income shareo Other industries much smaller and offsetting contributions
Productivity and pay 16
Mining essentially explains it all
Agri
c
Min
ing
Manuf
EG
WW
S
Const
r
Wsa
le
Reta
il
Acc
om
Tra
nsp
Telc
o
Fin
an
Art
s
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
RPW
LP
LIS
% pt contributions to market sector growth
Source: Parham (2013) forthcoming
1999-00 to 2009-10
Productivity and pay 17
Implications for wage setting
• Could wage rises be quarantined to the mining industry?
• ‘Headroom’ -- scope for wage growth within bounds of LP growth – essentially confined to mining
• Prices variable, wages ‘sticky’ downward• Fairness of sharing resource rents with mining
workers only• Fall in labour share is predominantly a ‘quantity’
effect – increased capital intensity – and not a price effect – profits v. wages
• Basis for wage increases to raise labour share not clear
Productivity and pay 18
Looking forward• Labour income share likely to rise without any
actiono Lower mineral export prices will raise RPW growth above LP growth
• LIS will not fully reverto Economy is more capital intensiveo Will thereby take a larger share of income
• Growth in consumption prices greater than growth in product priceso Growth in RCW less than growth in RPWo Growth in RCW still in line with growth in LP??
Productivity and pay 19
Concluding remarks• Terms of trade had a large effect on income
growth and the labour share of income• Need to take care with the usual ‘rules of thumb’
when there are shifts in the terms of trade• Need to distinguish between real wages as a cost
to producers (RPW) and real wages as income to labour (RCW)
• RPW the indicator re production efficiency criterion and RCW the indicator re fairness criterion
• Focus on productivity growth to continue growth in living standards and to sustain growth in wages