The case for higher wages

We are finally seeing some substantive argument about policy, with Scott Morrison supporting a cut in real wages, and Anthonly Albanese opposing it. I’ve drafted a response (over the fold)

Also here on my Blogstack

The ‘cost of living’ crisis has been central to the 2022 election campaign. The Consumer Price Index rose by 5.1 per cent over the year to March, and at an annual rate of 8.8 per cent over the last three months. Unsurprisingly, low-paid workers are seeking an increase in the minimum wage sufficient to offset this. Disappointingly, but also not surprisingly, employers and the Morrison government have opposed this claim, suggesting that this will make inflation even worse.

This response reflects the fact that talking in terms of the ‘cost of living’ is a dangerous and misleading way of discussing prices and wages. As Anthony Albanese has suggested, the crucial point isn’t the fact that prices have risen, but the fact that wages have not. In the end, no one cares about the fact that a grocery order that cost $50 in 1980 costs around $250 today. What matters is whether you can afford to pay for it.

For several decades after 1980, wage indexation and enterprise bargaining ensured that the real value of wages grew slowly but steadily. However, real wages have been stagnating for some years, and have fallen sharply since the resurgence of inflation. An increase of 5 per cent would merely reverse the recent cut.

Opponents of a wage increase have argued that it might lead to a wage-spiral spiral. But this way of thinking about inflation, dating back to the days when powerful unions could extract large increases in wages, and their employers could increase their prices to cover costs, is out of date.

Inflation is often described as ‘too much money chasing too few goods’. While this is an oversimplification in many cases, this is an accurate description of what is going on around the world right now.

The pandemic disrupted production and supply chains around the world. Its effects are continuing, most notably in China and have now been magnified by Russia’s invasion of Ukraine and the sanctions imposed in response.

Meanwhile, the massive increases in public expenditure to fight the pandemic were financed by ‘quantitative easing’, that is, money creation, on a massive scale. The conventional approach to expansionary monetary policy, cutting interest rates, had reached its limits when the Reserve Bank cash rate was cut to 0.1 per cent.

Now that quantitative easing is no longer needed, the problem is how to manage the huge increase in money balances that is driving demand. This is not a new problem; it arises every time a lot of spending is needed to handle an emergency, and we know what works and what does not. In the aftermath of World War I, governments in the UK and Australia sought to unwind the inflation created by wartime spending and return to the gold standard. The result was a long period of economic weakness, culminating in the Great Depression. By contrast, after World War II, wages and prices were allowed to rise, as wartime rationing ended and reconstruction gradually removed constraints on production.

As long as the real value of wages is maintained, a once-off increase in the price level is a small price to pay for avoiding economic disaster during the pandemic. The reconstruction of supply chains, along with the underlying increases in productivity generated by technological progress, will allow a gradual return to lower rates of inflation. We can also hope for some additional gains arising from the experience of the pandemic with remote work, telecommunications and home delivery of goods and services.

Once the current upsurge in prices is past, we need to reconsider whether the inflation targeting regime introduced around the world in the 1990s, based on frequent small adjustments to the central bank interest rates, is still appropriate. Inflation targeting, failed to prevent the Global Financial Crisis, and was abandoned during the pandemic. Even though interest rates are rising in the short run, there’s still very little capacity to cut them in the event of a new emergency. It might well be better to target growth in the money value of GDP, and to accept inflation somewhat higher than the 2-3 per cent range that has been aimed for, though not always reached, under inflation targeting.

But this is a question for another day. The inflation we have observed in the last year was not caused by low-wage workers, most of whom did not see much benefit from the big expenditure during the pandemic. They should not be asked to bear the costs of a misconceived program of deflation.

84 thoughts on “The case for higher wages

  1. Geometric mean, productivity & zombies.

    “Throughout this, the advocates of the productivity agenda rejected the idea that productivity growth was simply code for working harder. But finally, they have begun to admit this. In evidence before the Senate standing committee on economics in 2012, the Commission conceded that work intensity (also described as “cutting the fat of organisations”) is an unmeasured source of productivity growth, and stated that the debate “was settled in the mid-2000s”.

    “The problem is, as the experience of the last 20 years has shown, that productivity gains achieved by driving workers harder are not sustainable, except in recession conditions like those of the 1990s. As soon as the labor market recovers, overworked employees will either quit to look for new jobs, or find unofficial and unsanctioned ways of restoring work-life balance.

    “Genuine long-term improvements in the productivity of the economy can be gained only through educating the workforce to take account of improvements in technology (only a small proportion of which are generated domestically) and through macroeconomic and labour market policies that avoid wasting human potential through unemployment and other forms of social exclusion. It’s time to focus on these issues and bury the zombie agenda of the 1980s once and for all.”

    “Like a zombie, the productivity doctrine is back – we need to fight it”

    https://www.theguardian.com/commentisfree/2013/oct/03/productivity-zombie-economy

  2. “Genuine long-term improvements in the productivity of the economy can be gained only through educating the workforce to take account of improvements in technology ….”

    Would this include educating the Treasurer to the effect that giving jobkeeper funds to corporations who did not need it but not to Universities is not consistent with the advice in the above quote? And what about those in charge of robodebt – education first and then technology? And the flow-on cost of the robodebt class action?

    I’d like to add a point to those raised in KT2’s post. The notion of ‘labour productivity’ fails to distinguish between the productivity of managers and those who are managed.

  3. To be fair to Harry Clarke, and of course I do take issue with him on other points, he did write against the failure of this government and treasurer to recoup the incorrectly paid job-keeper funds from those corporations which got that windfall. I don’t recall discussing the Universities not getting the funds. But they should have for sure. Education in technology is of key importance.

    Also of key importance is education in the general humanities including language and philosophy. I’ve noticed that some much more educationally accomplished people than me, albeit only in their narrow technical field, are kind of ingenues outside that narrow specialty. I expressly do not refer to most people here when I say that. KT2 takes a polymath approach. John Quiggin and Ernestine Gross clearly have a philosophical turn [1] to their thinking and are not economists I could or would accuse of narrow economism. [2]

    If we doubt the productivity of managers (and I do, certainly above the line manager level) how much more must we doubt the productivity of owners? I’ll leave it at that.

    An Aside on Chemistry (Yes, this is relevant to economics!)

    A long time ago I studied Grade 12 chemistry and then passed one semester each of Chemistry and Biochemistry at university before changing courses. In this last year, the mere act of trying to balance pool chemistry has taught me how little I had really learned about Chemistry in what was clearly Chemistry 101. It’s an example of how a little knowledge is a dangerous thing. I thought I knew what pH was and how it all worked, inside out. How little did I know!

    It’s a simple scale right? It’s about acids, alkalines and neutral at the middle of the scale, no? Acids are acids and alaklines are alkalines, correct ? It’s not so simple as I have since found out. There are actually three kinds of alkalines and they all behave differently. They seem to be grouped as hydroxides, carbonates and bicarbonates (going from memory of recently acquired, still imperfectly absorbed knowledge here). At least two of the alkaline classes (carbonates and bicarbonates) behave differently according to the pH of the solution they go into. Sodium bicarbonate (ordinary old “bicarb soda”) is bivalent and can act as a weak alkaline or as a weak acid depending on the pH of the solution it goes into (and is effective at this for practical purposes within a quite narrow range of pH, say from 7 to 8; neutral to weak alkaline. It’s why the pool business calls it a “buffer”.

    This concept (and reality) of a substance or input into a system changing its qualities or effects depending on the state of the system it goes into, must be regarded as key, I think, to understanding that one must move beyond Econ 101 or Chem 101 etc. or one will be stuck in a simplistic theory inapplicable to complex systems reality.

    Note 1 – What do I mean by a “philosophical turn”? I mean an awareness that the world is far more complex than our theories about it. I also mean an awareness that one must question assumptions especially the base assumptions (a prioris) of one’s own position. I fall short of these standards myself of course but I keep working on it.

    Note 2 – “The term (economism) is often used to criticize economics as an ideology in which supply and demand are the only important factors in decisions and outstrip or permit ignoring all other factors. It is believed to be a side effect of neoclassical economics and blind faith in an “invisible hand” or laissez-faire means of making decisions, extended far beyond controlled and regulated markets and used to make political and military decisions. Conventional ethics would play no role in decisions under pure economism, except insofar as supply would be withheld, demand curtailed, by moral choices of individuals. Thus, critics of economism insist on political and other cultural dimensions in society.” – Wikipedia.

  4. Ikonoclast, You quote:

    ““The term (economism) is often used to criticize economics as an ideology in which supply and demand are the only important factors in decisions and outstrip or permit ignoring all other factors. It is believed to be a side effect of neoclassical economics and blind faith in an “invisible hand” or laissez-faire means of making decisions, extended far beyond controlled and regulated markets and used to make political and military decisions. Conventional ethics would play no role in decisions under pure economism, except insofar as supply would be withheld, demand curtailed, by moral choices of individuals. Thus, critics of economism insist on political and other cultural dimensions in society.” – Wikipedia.”

    I wonder who this quote refers to. My guess is the empty set. It certainly does not refer to Adam Smith who claimed his best work was “Moral Sentiments”, a book-length treatment of virtue ethics which consider the non-economic drivers of human behaviour. The book itself virtually covers all of the basic ideas in modern behavioural economics. If the quote is a snide shot at me then it missed its targets. i taught “Economics and Ethics” as a subject in the university, alternative ways of assessing ethical positions in economics including utilitarian cost-benefit approaches and deontological approaches that emphasised principles and Kantian categorical imperatives. For example I showed that the paradoxes of the Prisoner’s Dilemma disappeared when the values of the players followed the Kantian categorical imperative. If the quote is directed at modern welfare economics then, again, it misses its targets. Kenneth Arrow, one of the founders of modern welfare economics, endorsed socialism. His “Second fundamental theorem’ (the one Ernestine seems unable to get his head around) provided a logical foundation for market socialism by splitting the issue of a fair distribution of income (which could be determined by values and politicians) from the use of markets which would realise this desire economic distribution without waste.

    Maybe you are concerned with right-wing figures like Milton Friedman. I always respected Friedman because he took the basic ideas of supply/demand and of free choice o their logical conclusions. He was a voice to answer and some of his arguments – the “negative income tax argument” for example, seem isomorphic with John Quiggin’s proposal for a guaranteed minimum income.

    It’s logically OK to make claims about the empty set because they are always, by definition, true. The difficulty, I guess, is that some might not recognise that the set is empty so that you claims do in fact reflect real views about the world out there.

  5. Harry,

    The set is not empty. Neoliberals are always and everywhere against pay rises, one might say. They talk about productivity gains being necessary. Even when these have occurred, no minimum wage real pay rises ever seems to be actually countenanced. Then later on, it’s “not the time.” It’s never the time for basic wage pay-rises under neoliberal governance.

    You seem unconcerned about issues I have raised before. The issue of profit push inflation, you ignore. The issue of churning and admin. overhead (taxing to top up poor wages) you ignore.The issue of moral hazard (people running cheap businesses which pay minimal or even illegal low wages getting welfare-subsidized labor) you seem to ignore too.

    You are not entirely a neoliberal it seems to me. On other issues we agree. But on the minimum wage issue we are never going to agree.

  6. Harry, you write:
    “Kenneth Arrow, one of the founders of modern welfare economics, endorsed socialism. His “Second fundamental theorem’ (the one Ernestine seems unable to get his head around) provided a logical foundation for market socialism by splitting the issue of a fair distribution of income (which could be determined by values and politicians).”

    You are wrong. While I assumed in my first objection to your assertion you simply made a little error, I now believe I have been too generous. Moreover, you do not provide a reference for your narrative.

    But first the easy bit. Contrary to your statement, “Ernestine” is not a he but a she.

    Second, it is you who does not understand the second fundamental welfare theorem and you didn’t even bother to check with Wikipedia. That is, you didn’t check with the proof of the theorem. The proof of the theorem is introduced exactly how I had put it, namely one starts of with a Pareto efficient allocation and then asks can this allocation be decentralised by means of a price system and an adjustment to ‘initial endowments’ assuming they are known.
    To quote: The second theorem formally states that, under the assumptions that every production set {\displaystyle Y_{j}}Y_j is convex and every preference relation {\displaystyle \geq _{i}}\geq _i is convex and locally nonsatiated, any desired Pareto-efficient allocation can be supported as a price quasi-equilibrium with transfers.[36] Further assumptions are needed to prove this statement for price equilibria with transfers. End quote
    https://en.wikipedia.org/wiki/Fundamental_theorems_of_welfare_economics

    The method of proof in the article corresponds to the method of proof in Debreu (1959) which I had referenced. (Why am I so sure, you may ask. Simple, I was awarded a PhD in the 1980s for an extension of the Arrow-Debreu model to the case of a partially segmented economy with multinational producers. Yes, I did present this in the presence of Prof Debreu on the occasion of his visit to the University of Sydney.)

    You used the phrase ‘the second fundamental theorem suggests’. I followed your usage when objecting to your first lot of assertions. I assumed you pick the point that a suggestion is not the same as a theorem. Apparently you did not notice the distinction. A “suggestion” is hand waving until the truth content of it has been established. You have not done so.

    And while I am at it, you adjudged my statement about results from the theory of incomplete markets as hand waving and you advised I should read Stiglitz. As it happens, the above wiki link also contains a section on the Greenwald-Stiglitz theorem:
    “In their 1986 paper, “Externalities in Economies with Imperfect Information and Incomplete Markets”, Bruce Greenwald and Joseph Stiglitz showed that the fundamental welfare theorems do not hold if there are incomplete markets or imperfect information.” If you read further you’ll find a statement on ‘generic inefficiency’

    Side products, which degrade the natural environment are negative externalities. Hence the theoretical results on incomplete markets are relevant.

    I referenced Quinzii and Magill because they have produced original work in this area and I took their 6 weeks lecture series during a sabbatical in 1990.at the University of Bonn.

    I tried a polite way to help you out. But it didn’t work. So, this is my firmer response.

  7. Scott Morrison has conceded the election and congratulated Anthony Albanese to become the next Prime Minister of Australia.

    Relating this outcome to the “Second Fundamental Welfare theorem” isn’t all that difficult. The voting public decided the society is NOT in a Pareto efficient state and therefore this theorem is irrelevant even for the complete market case (cannot be applied). Given the green vote (Party and independents), a growing number of people understand that ‘the market is incomplete’ and requires policy action (people are realistic in the sense of not expecting to reach a state of Pareto efficiency with a probability non-trivially above 0).

    Increasing the minimum wage to aim at maintaining the standard of living of the least wealthy isn’t something that scared voters. Without wishing to overinterpret the election outcome, I’d say the post 1950s theoretical results on conditions (minimum wealth condition) under which ‘an equilibrium’ is conceivable are closer to the voters’ notion of how an economy works then some appeal to ‘market clearing’ (and the method of counting the number of equations and the number of unknowns).

    None of the above entails the claim of knowing why the electorate voted the way they did. It is merely an exercise in relating observables to some econ theories.

  8. Student Harry Clarke

    Please discuss your cognitive dissonance:

    Title: “Why economics 101 goads us to be greedy, and forget the needy” …

    Considering “Pareto originally used the word “optimal” for the concept, but as it describes a situation where a limited number of people will be made better off under finite resources, and it does not take equality or social well-being into account, it is in effect a definition of and better captured by “efficiency”.[2]” Wikipedia

    Marking Rubric
    1) Your dissonance is to be discussed. 40%
    2) Lesson Two examples 20%
    3) Revelations of dissonance & biases 40%

    Reading 1;
    “Why modern politics goads us to be greedy, and forget the needy
    https://www.theage.com.au/business/the-economy/why-modern-politics-goads-us-to-be-greedy-and-forget-the-needy-20220517-p5am0g.html

    Reading 2:
    “Cognitive bias cheat sheet
    Because thinking is hard.
    Buster Benson
    https://betterhumans.pub/cognitive-bias-cheat-sheet-55a472476b18

    Reading 3:
    Economics in Two Lessons by Quiggin

    Reading 4:
    Zombie Economics by Quiggin

    Growth-fessor Self Epistemology Empty Cup suggests as a mindset before attempting:
    “Soon, it became obvious that the scholar was full of his own opinions and knowledge. He interrupted the master repeatedly with his own stories and failed to listen to what the master had to say.

    “The master calmly suggested that they should have tea.
    So the master poured his guest a cup. The cup was filled, yet he kept pouring until the cup overflowed onto the table, onto the floor, and finally onto the scholar’s robes.

    “The scholar cried “Stop! The cup is full already. Can’t you see?”

    “Exactly,” the Zen master replied with a smile. “You are like this cup — so full of ideas that nothing more will fit in. Come back to me with an empty cup.”
    View at Medium.com

  9. The economism case for better weighting, ranking and small effects ignored:

    This mentions JQ 2010;
    Contribution to GTI Roundtable “On Economism”
    An exchange on the essay The Church of Economism and Its Discontents
    John Barry
    December 2015

    “Norgaard rightly points out how fragile the assumptions behind market economics are. Here are some more suggestions to add to the ones he outlines.

    “Twelve Theses on Neoclassical Economics”
    [1-12]

    “The ideological power of capitalist economics cannot and should not be underestimated. Its comprehensive failure to predict the current global economic crisis has led neither to its displacing as a useful paradigm nor to the reforming and reformulating of the paradigm. Rather, we have witnessed what John Quiggin provocatively but correctly labels “Zombie economics.”6 That is, dead, analytically useless (but politically and ideologically powerful) ideas and nostrums still reign over us in terms of informing everything from “common sense” and everyday understandings of the economy, to state economic policy, to the political platforms of political parties. This entails recognizing the “common sense” and “taken for granted” nature of capitalist economics and its emphasis on growth, i.e., that almost everyone seems to at least tacitly, if not explicitly, accept it.

    https://greattransition.org/commentary/john-barry-church-of-economism-richard-norgaard

    Norgaard “…is considered one of the founders of and a continuing leader in the field of ecological economics.”
    https://en.wikipedia.org/wiki/Richard_B._Norgaard

    “Probability weighting and Ergodicity Economics
    Ole Peters in Uncategorized March 6, 2020 1,806 Words

    “One key observation that helped launch the field of behavioral economics into stardom is called probability weighting: a human cognitive bias to assign higher probabilities to extreme events than … well, than what? Than what someone else thinks the probabilities should be. Below, I will present a very simple mechanistic explanation, most of all for the iconic probability weighting figure in (Tversky and Kahneman, 1992). The result is a now familiar theme: (behavioral) economics expresses a more or less robust observation in psychological terms, as a persistent cognitive error. Ergodicity economics explains the same observation mechanistically, and as perfectly rational behavior.”
    https://ergodicityeconomics.com/2020/03/06/probability-weighting-and-ergodicity-economics/

    From JQ:
    “The underlying reasoning is that, in a dynamic process repeated over time, taking low-probability extreme risks will (very probably) catch up with you. I’m pretty sure I made an argument of this kind in support of RDU back in the 1980s, but I haven’t been able to locate it for now”
    https://johnquiggin.com/2020/12/13/ergodicity-economics-and-rank-dependent-utility/

  10. Interesting post by David Walker at Clubtroppo, with supporting/ opposing views and comments, re wages & Econ 101, and Card Nobel, problems with “the paper data and natural experiment”.

    Plus Andrew Leigh research shiwing wage rise /cut to employment. As ever, the devil will be in the incentives and supports detail, with only time it seems to provide an answer.

    “A Nobel Prize leaves the minimum wage question open

    “We also have some Australian research, though not a lot. The best comes from widely admired economist Andrew Leigh, and it was done before he left the ANU for the national parliament. He is now a Labor federal MP, and doesn’t seem to be talking as much as he used to about the problems with the minimum wage. But some of Leigh’s work, based on Western Australian data, has suggested that a 1.0% increase in the minimum wage could be expected to cut employment by between 0.15% and 0.39%. A 3% minimum wage rise, then, would cut 60,000 jobs or more. This is not a jobs catastrophe, but it’s not trivial, especially if your job is one of those that disappears.”

    “My argument here is that you should try to distrust your certainty a little. As Richard Feynman argued: even at their best, the social sciences are nothing like physics.”
    https://clubtroppo.com.au/2021/10/14/a-nobel-prize-leaves-the-minimum-wage-question-open/

  11. “Card & Krueger cleverly gave us evidence that raising the minimum wage might not always have the result many economists expected.” [Source: clubtroppo….. referenced by KT2]

    And this is what one would expect from a general equilibrium perspective that starts from the position of ‘the economy’ is not in equilibrium (as assumed in Econ 101 – well roughly speaking)

    First, the percentage change in the minimum wage (set by regulation), relative to all other incomes surely matters. To make the point all too obvious, suppose the minimum wage is changed to Elon Musk’s hourly wage, however roughly approximated. Then, I would bet my last Dollar ‘economic activity’ would cease very quickly or some sort of revolution would happen.

    Second, what would be sensible minimum wage rate increases? What point of reference could be used? It depends. It depends on the initial conditions (contrary to comparative statics, one has to start from where we are and not compare alternative theoretical economies). If the existing minimum wage rate allows people to provide their labour services at this wage rate to cover all living expenses that afford what is considered to be a ‘decent way of living’ (very little but some discretionary expenditure) in a particular society, including transport costs due to privatised toll roads that have to be incurred to get from home to work, then an increase of the minimum wage rate to compensate for ‘inflation’ – the change in the prices of goods and services that are bought to afford a ‘decent way of living’ – seems to me to be a sensible increase. However, if the existing minimum wage rate is such that people cannot afford a ‘decent way of living’ then an increase above the appropriate inflation ration rate seems to me to be a sensible increase. Finally, if existing minimum wage rates keep workers only at the survival constraint (alive but in a brutish way), then a substantial increase in this minimum wage rate may well upset the apple cart for some ’employers’ but benefit others and result in an increase in ‘economic activity’ overall. All this would depend on the quantitative relationships.

    I often write about the minimum wealth constraint, which is clearly characterised in post 1950 general equilibrium models (of competitive private ownership economies) but not in Econ 101. In an applied context, this constraint needs to be interpreted within the context of an actual society at a particular time. The above paragraphs are aimed to give some examples.

    IMHO, Economics is not a field of inquiry that can be treated like natural sciences. That is, the testing of theories as done in natural science is not possible. Thing change too quickly. Empirical studies are nevertheless one input for decision making. But, IMHO, another ‘input’ should be what kind of society do the members of this society wish to live in? A society where stepping over destitute people on the footpath on the way to an expensive restaurant? Or a society where income and wealth differences are accepted but within some generous limits. The minimum wage seems to me to be a crucial variable. Let the rest of the prices adjust to what a ‘decent society’ wants.

  12. A couple of comments.

    Apologies to Ernestine for the inadvertent gender switch and thanks for the succinct and clear proof of the Second Theorem of Welfare Economics- in my classes I always used the separating hyperplane theorem but this new proof will prove a source of illumination for some.:

    “To quote: The second theorem formally states that, under the assumptions that every production set {\displaystyle Y_{j}}Y_j is convex and every preference relation {\displaystyle \geq _{i}}\geq _i is convex and locally nonsatiated, any desired Pareto-efficient allocation can be supported as a price quasi-equilibrium with transfers.[36] Further assumptions are needed to prove this statement for price equilibria with transfers.”

    Not quite sure how you can draw policy implications out of this proof but I will work on it.

    On KT2’s discursive narrative. In communicating with you I often feel I am on a psychoanalytic couch free associating ideas that I guess come together eventually like some grand fugue. Its a great deal better than scientology. But one thing I did differ slightly on was the accusation that I should come to grips with my cognitive dissonance. I wouldn’t put it in quite those terms but prefer the glass half full/glass half empty dichotomy. I think KT2 you see Australian society as a glass only 40% full whereas I see it as 70% full. I don’t see starving millions who can’t even afford their monthly FOXTEL subscriptions. To the contrary I see an overwhelmingly prosperous society with substantial individual freedoms but with pockets of real poverty and disadvantage that do not require seismic shifts in the body politic but rather minor reforms. I think our climate change policy was reasonable but hopefully will be made much stronger with the new government. I support moderate Keynesianism for dealing with deficient demand over the business cycle but absolutely reject MMT and any lack of concern over public debt. I don’t want a society where government “looks after” us from ‘cradle to grave” but would prefer a society where people mainly determine their own futures and where government plays a specific role of delivering core public goods and where it has a moderately progressive tax system that comes to the defence of the small minority of really poor people but which, in the main, encourages and helps them to do paid work. We should not automatically react to every issue by supposing government needs to come to the rescue with handouts. I don’t think these attitudes are cognitive dissonance but rather it is sensible liberalism.

  13. Ernestine said “Or a society where income and wealth differences are accepted but within some generous limits” – yet it seems the FWC has built in dogma against such generosity of spirit.

    From “Lifting the minimum wage is anything but reckless – it’s what low earners need” by Peter Martin…

    Is anyone able to point to research to back this assertion? – ” It was also reluctant to grant a flat dollar increase that would boost the position of low earners relative to higher earners, saying past flat dollar increases “compressed award relativities and reduced the gains from skill acquisition”.

    What! “reduced the gains from skill acquisition ” goes completely against your questions Ernestine,in culture war grounds empiricism be damned. The devil is always in the formula and what is not in the specification.

    The poor get to subsidise non discretionary spending, and clean the rich houses and wipe their aged parents arses too.

    More women than men. Who didn’t get calculated into wages for all their free child raising and chores. Not high in the niceness scale. A “women” stiIke?

    Oh, no nice in wage parity or Econ 101.

    Who was it who said year 1 Econ student share more in ultimatum game than older “more learned in economics” students?

    “The commission says low income households spend more of their income on essentials than higher earning households, making “non-discretionary” inflation especially relevant. Non-discretionary inflation is running at 6.6%.”

    https://theconversation.com/lifting-the-minimum-wage-is-anything-but-reckless-its-what-low-earners-need-183643

    Q: which contributes more to inflation- discretionary or non discretionary spending?

  14. Ernestine, our current “Young Australian of the Year” Dr Daniel Noor, started Street Side Medics, precisely because he was on the way to a restaurant and was “stepping over destitute people on the footpath on the way to an expensive restaurant?”
    https://www.streetsidemedics.com.au/what-we-do

    And Robert H Frank imo would endorse you questions re walking over the destitute.

    On Robert Frank’s Wikipedia page under the “Prisoner’s dilemma and cooperation” tab;

    “First year economics students, and students doing disciplines other than economics, overwhelmingly chose to cooperate. But 4th year students in economics tended to not cooperate. Frank et al. concluded, that with…
    “an eye toward both the social good and the well-being of their own students, economists may wish to stress a broader view of human motivation in their teaching.”

    https://en.wikipedia.org/wiki/Robert_H._Frank

  15. The Guardian today:
    “Anthony Albanese has some tough economic problems on his plate. Here are seven of them”
    Greg Jericho

    “Wages
    “It means even if this government was able to oversee real wages rising at the speed they did during the mining boom, we won’t get back to pre-pandemic levels until 2027. Conversely if the speed is more like that since 2013, we won’t get back there until next decade:

    “Chart: Greg Jericho, Centre for Future Work  Source: ABS 6345.0,6401.,RBA, derived  Get the data  Created with Datawrapper

    https://www.theguardian.com/business/grogonomics/2022/may/26/anthony-albanese-has-some-tough-economic-problems-on-his-plate-here-are-seven-of-them
    ***

    “The Wages Crisis Revisited
    May 11, 2022 
    … 
    [Support for JQ’s 2-4-6 solution]
    “The authors suggest that nominal wages should grow faster than 4% per year in coming years, to restore healthy relationships with productivity growth, inflation, and national income distribution. But a resuscitation of wage growth will not occur without proactive wage-boosting policies.”

    2024.https://australiainstitute.org.au/report/the-wages-crisis-revisited/

    Report:
    “The Wages Crisis:
    REVISITED”
    Andrew Stewart
    Jim Stanford
    Tess Hardy

     [A standout statement by the authors imo, revealing the president of FWC has too much sway] …”there is no guarantee that the tribunal’s recent willingness to lift minimum rates will continue. Much will depend on who is appointed as the President of the Commission to replace Justice Iain Ross, who is due to retire in January 2024.”…

    Click to access Wages-Crisis-Revisited-WEB.pdf

  16. Harry, you don’t need the second fundamental welfare theorem at all for the purpose of what you wish to argue. You only need the result that the concept of Pareto efficiency is insensitive to the wealth distribution. Re-distribute endowments (wealth distribution) and, subject to all other conditions for a Walras equilibrium to exist (ie including the minimum wealth condition) before markets open, then the ‘new’ (really an alternative economy) will reach a Pareto efficient allocation. (This is of course exactly where a separating hyperplane is used, assuming linear pricing and convexity.)

    The only policy implication I would draw from such theoretical considerations is that all those who scream ‘free markets’ and the sky will fall down if there is mild income or wealth redistribution to achieve something not too far away from the minimum wealth condition (sensible interpreted in the local context) are not to be taken serious. Alternatively put, I don’t understand their notion of ‘free market’. I say ‘mild income and wealth redistribution’ at a point in time or a short period because a radical redistribution in an economy with a financial sector, including banking sector, might not only upset the apple cart but lead to cascading bankruptcies with the outcome that everybody would be worse of. (Somehow one has to keep in the back of ones mind the distinction between local and global stability and the relatively sure knowledge that reality is rather murky and I don’t know anybody who has ever announced a ‘Pareto efficient state’.)

    PS: I can’t think of any work by K. Arrow that would indicate he considers himself a socialist. However, the post-1950 general equilibrium theory, specifically Arrow-Debreu, contains two approaches for proving existence of an equilibrium (the system has a solution). One works via excess demand functions. The other one explicitly models the system as a ‘social system’ and calls it a social system. For a differentiable approach see MasCollell
    https://www.goodreads.com/book/show/923280.The_Theory_of_General_Economic_Equilibrium

  17. Apologies for misrepresenting your gender. That said I am increasingly convinced that you don’t know what you are taking about and don’t make much of an attempt to find out. A trivial example – Arrow has described himself as a democratic socialist all his life. he explicitly linked the Second Theorem to a case for market socialism – get the distribution right by making changes in endowments that are as close as possible to lump sum and then to allow markets to rip to achieve efficiency. An example of his approach to socialism is:

    Click to access 1426269747ACautiousCaseforSocialism.pdf

    The problem is you waffle on about general equilibrium theory but don’t seem to understand what it implies or indeed what it means. Nor am I convinced you understand the analytics. For example you don’t seem to know that the standard proof of the Second Theorem is using a Separating Hyperplane argument although the meaningless outline of a “proof” you cite might be that. I cannot tell.

    The standard criticism of the use of the Second Theorem (I’ll provide valid arguments for you to critique my arguments rather than your nonsense) are that the transfers required change behaviour so that the issue of efficiency cannot be separated from that of distribution. Taxes affect work incentives and investor behaviour while positive transfers affect incentives to work. That is a valid critique of my view – and one made in every undergraduate text – to which I would respond that the transfers need to be as close to non-distorting as possible and that incentive effects on work/leisure choices are often exaggerated. There are papers which consider “third best” arguments for separability when there are efficiency distortions induced by distorting taxes and transfers.

    I am not an unrestricted enthusiast for free markets but will use them in preference to bureaucrats where I can. I prefer pollution taxes to non-traded quantitative controls. I don’t want Australia Post privatized though parts of the business can be etc etc.

    I fear these comments won’t end things for you but they will for me.

  18. Harry, no apology required for misrepresenting my gender.

    From your posts I take it you have never studied the Arrow-Debreu model (including the proofs) from the 1950s, from which subsequent work in what is also referred to as ‘analytical economics’ developed. That is fine. However your conviction, that I am a waffling idiot because what I say is unfamiliar to you, is your problem, not mine.

    Thank you for the link to the paper by Kenneth Arrow, “A Cautious Case for Socialism”, a lecture given in 1978. It is an autobiographical lecture and, IMHO, a valuable example of the workings of the analytical (“intelectual”) mind of one of the greatest economists of the 20th century.

    I could not read into this article what you had written, namely that Arrow considered himself as a socialist.

    In this article, Arrow deals with issues that are also of interest to Ikonoclast. For example:
    The avoidance of war and other political corruptions of the pursuit of profits.
    The achievement of freedom from control by a small elite.
    Quality of income and power.
    Encouragement of cooperative as opposed to competitive motives in the operation of society.

    Arrow discusses these issues from the perspective of economic thought (capitalism) of the 19th and early 20th century and from the perspective of ‘socialism’ (Marx’ critique of capitalism). And then he compares the realities of both ‘schools of thought’ over time. A beautifully written lecture on analytical thought.

    The point I am trying to make is, the fact that some people, like Ikonoclast have never studied undergraduate economics doesn’t mean they are ignorant. People try to make sense of reality (observables) in the light of whatever conceptual framework they start off with. Some progress, others don’t .

  19. “Ultra low wage growth isn’t accidental. It is the intended outcome of government policies

    John Quiggin
    March 18, 2019

    “Finally, macroeconomic management has operated on the basis that any increase in wages is a danger signal requiring a tightening of fiscal and monetary policy. A notable example, was the warning by then Employment Minister Eric Abetz in January 2014 months after taking office that Australia faced a “wages explosion”.

    “Far from “exploding”, wage growth slid and hasn’t recovered.

    “More striking than his failed prediction, was Abetz’ assumption, taken for granted in policy debate, that any substantial increase in wages would be disastrous.

    “It is only in the last few years that this assumption, inherited from last century, have been challenged.

    “The Reserve Bank in particular has become an advocate for higher wage growth.

    “Yet as Cormann’s incautious outbreak of truthtelling has shown, the view has yet to percolate through to Australia’s elites.”

    https://theconversation.com/amp/ultra-low-wage-growth-isnt-accidental-it-is-the-intended-outcome-of-government-policies-113357

  20. US FED researchers said “”We find little evidence that changes in labor costs have had a material effect on price inflation in recent years, even for compensation measures where some degree of passthrough to prices still appears to be present.”
    *

    “The Passthrough of Labor Costs to Price Inflation

    Finance and Economics Discussion Series (FEDS)
    June 2015
    Last Update: June 19, 2020

    Ekaterina V. Peneva and Jeremy B. Rudd

    Abstract:
    “We use a time-varying parameter/stochastic volatility VAR framework to assess how the passthrough of labor costs to price inflation has evolved over time in U.S. data.

    “We find little evidence that changes in labor costs have had a material effect on price inflation in recent years, even for compensation measures where some degree of passthrough to prices still appears to be present.

    “Our results cast doubt on explanations of recent inflation behavior that appeal to such mechanisms as downward nominal wage rigidity or a differential contribution of long-term and short-term unemployed workers to wage and price pressures.”

    Keywords: Prices, business fluctuations, and cycles, wages, and compensation

    DOI: http://dx.doi.org/10.17016/FEDS.2015.042

    PDF: Full Paper

    Click to access 2015042pap.pdf

    *

    Via –
    …with comments eg “but nairu!”… and prize – doughnut:

    Thursday, June 18, 2015
    ‘Wage Increases Do Not Signal Impending Inflation’
    This note from Carola Binder was intended for the Fed meeting earlier this week, but it applies equally well to meetings yet to come:

    “Wage Increases Do Not Signal Impending Inflation: When the FOMC meets…, they will surely be looking for signs of impending inflation. Even though actual inflation is below target, any hint that pressure is building will be seized upon by more hawkish committee members as impetus for an earlier rate rise. The relatively strong May jobs report and uptick in nominal wage inflation are likelyto draw attention in this respect.

    Hopefully the FOMC members are aware of newresearch by two of the Fed’s own economists, Ekaterina Peneva and Jeremy Rudd, on the passthrough (or lack thereof) of labor costs to price inflation. The research, which fails to find an important role for labor costs in driving inflation movements, casts doubts on wage-based explanations of inflation dynamics in recent years. They conclude that “price inflation now responds less persistently to changes in real activity or costs; at the same time, the joint dynamics of inflation and compensation no longer manifest the type of wage–price spiral that was evident in earlier decades.” …

    Posted by Mark Thoma on Thursday, June 18, 2015 Comments (31) 
    https://economistsview.typepad.com/economistsview/2015/06/wage-increases-do-not-signal-impending-inflation.html

  21. K2T, Up to 2020 there was negligible wages growth so that the notion it would lead to higher inflation – of which there was also close to zero – is unsurprising. It’s nothing causing nothing so no conclusion is possible. I am strongly opposed to this silly econometrics. Even if there were large wage hikes (there were not) it might be difficult to translate these changes into predictable large price increases (again there were not). Wages and prices have varying degrees of stickiness due to longer term contracting so it might be difficult to sort out a mechanical relationship. But wages are a major production cost and if wages were to rise substantially then firms will change their behaviour by raising prices or decreasing output. This intuition makes much more sense than ploddy ploddy econometrics that feeds stupid numbers into a computer and yields no evidence of a relationship. It is just as plausible to suppose bad estimation technology leads to a failure to detect a relationship even if there were enough sample variability to support such an investigation. And of course those of us with memories of the horrific stagflation of the 1970s and 1980s are under no illusion that huge money wage increases lead to rapid inflation and terrible unemployment outcomes.

  22. Exhibit 1. Look at the “Wage Growth vs inflation” graph in this article.

    https://www.news.com.au/finance/economy/cost-of-living-graph-exposes-big-issue-as-independent-tribunal-weighs-up-minimum-wage/news-story/a391f8cd178fd508c05b2de3c89595cf

    The latest inflation spike from June 20 to Mar 22 has clearly led wage growth. The cause and effect relation appears to be the inflation causing the wage growth. The large drop in inflation from Mar 2020 to June 2020 was the exogenous shock of the pandemic reducing activity (demand).

    Then, high government deficit spending led to inflation by increasing demand. That inflation then appears to have caused a moderate rise in inflation still not matching total inflation. Total inflation is dragging wages up. Wage rises are lagging but these modest wage rises could begin to feed into inflation.

    Unfortunately, we don’t have a business profits graph line overlayed on this graph. We would really want to know what business profits are doing, including the windfall business profit of overpayed jobkeeper payments, not payed back to the government by business.

    And voila! We can produce an historical business profits graph and some data for 2020. Since, I can’t post another link, search for:

    “Why company profits have jumped in Australia during COVID-19 while workers are taking home less” – ABC

    The graph is historical from 1959 to the pandemic. That is one issue I won’t discuss at length here. But the text says:

    “… the Bureau of Statistics released its June quarter gross domestic product (GDP) data.

    The data showed economic activity across April, May and June shrank by 7 per cent, the biggest quarterly contraction in 60 years.

    But the ABS noted something else.

    It said company profits jumped by a massive 14.9 per cent in the quarter, while the total wages-and-salaries bill for workers (categorised as “compensation of employees”) fell by a record 2.5 per cent.

    That meant the labour share of income has fallen below 50 per cent for the first time in decades, while the profit share hit record levels.” – ABC.

    Jobkeeper is named by the ABC as the main cause of profits being up (again).

    Some problems have occurred which are not necessarily the “fault of”, or caused by, business or labor. There is an external shock (the pandemic) and some less than wise government action, namely the failure to recoup overpayed Jobseeker payments. The shock and the government’s belated mistake with Jobkeeprr may have played into inflation taking off. Also, business profiteering may have played into inflation taking off – as profit push inflation.

    However, we should not act as if inflation is the greatest ill possible. Surely, the greatest ill possible is mass population disruption. With no government adjustments, a significant portion of the population may have been unable to meet essential living costs. That could lead to mass privation and mass civil and industrial unrest. That, added on to pandemic dangers would be the greater ill and danger.

    So, the inflation outbreak following the pandemic, following the pandemic-caused supply bottlenecks and following the Ukraine war-caused energy disruption can be looked at as a combination of these forces plus, in Australia:

    (a) necessary actions to prevent a greater danger (mass privation and mass civil and industrial unrest);
    (b) some Government mistakes at the tail end of the Jobkeeper program;
    (c) some profiteering or at least some profit push, causing profit push inflation.

    So we need to look at some inflation as necessary (except for the profit push component): a necessary evil to stave of worse outcomes. It’s a cost we pay to avoid worse outcomes. The cost now has to be paid to control inflation or at least keep it to about 5% which seems reasonable to me and some top economists, I might add. But some, like Harry, seem to advocate that minimum wage workers should wear the bulk of this cost, this belt-tightening. This strikes me as both fundamentally unfair and unnecessary, especially when profits are up. There are other options.

    Harry seems unwilling to explore or countenance the other options. Instead he fixes on making those on minimum wages bear the bulk of the inflation fighting pain. To Harry’s credit (in my opinion) he has called for the illegal or “unlegal” Jobkeeper windfall to be repaid. However, he has not said a word that I can recall about profiteering or profit push inflation. Harry may have said something about all the other causes of inflation, meaning the exogenous shocks. I don’t recall the whole discussion.

    I think it comes down to this. We can point to multiple causes of this inflation outbreak in Australia. I have done so above. The one cause conspicuously absent is wage rises preceding the inflation. So why should the minimum wage earners now pay the major cost of moderating inflation? This seems enormously unfair. It also seems unnecessary as I have said above. There are other options, including tolerating some moderate inflation. Capitalists and rentiers are doing extremely well. Too well actually and they could bear to pay a significant cost via taxes and lowered profits to benefit the nation and the people as a whole.

  23. Harry says “it is just as plausible to suppose bad estimation technology leads to a failure to detect a relationship” making all your bluster seem to be opinion not fact.

    Harry, considering you said “that feeds stupid numbers into a computer and yields no evidence of a relationship”, and “”Even if there were large wage hikes … it might be difficult to translate these changes into predictable large price increases”, perhaps you know all about wage calculation inclusions and initial conditions and can answer how and by how much;

    Q1: Do wage rise calculations of potential high earners, superannuation,  profit sharing, salary sacrificing etc, effect negatively low wage earners potential perceived effect of rise and actual given pay rises? 

    Q2. How can the “Australian conceptual framework for measures of employee remuneration” allow a disentangling of Ikonoclast’s 
    “… a significant portion of the population may have been unable to meet essential living costs…” as you state “it is just as plausible to suppose bad estimation technology leads to a failure to detect a relationship”.

    Q3. Harry, how do you disentangle in your mind the difference between productivity, wages & inflation when workers at Microsoft or HSBC are included in wage calculation along with aged care workers, considering your statement  “firms will change their behaviour by raising prices or decreasing output”?

    Harry, you also said above (in a derisive reply to Ernestine-May 30, 2022 at 8:45 am)…
    “to which I would respond that the transfers need to be as close to non-distorting as possible and that incentive effects on work/leisure choices are often exaggerated.”.

    Harry, as can be gleaned from below,  the inclusions in the wage calculations force initial conditions of a wage calculation to be distorted against minimum wage earners,  and incentive effects on work leisure choices of those on a minimum wage are at best vaniahingly small compared with other types of wage eaners included below. 
    *

    Inclusions in the “Australian conceptual framework for measures of employee remuneration”,  seem to me to make wage rise calculations of potential high earners effect negatively low wage earners potential perceived effect of rise. And therefore any effects on productivity or inflation able to be blamed on low wage earners due to inability to disentangle non wage bonuses across manufacturing and services. Nor reveal tax & transfer treatment inequalities or perverse incentives for specific groups not including Harry, your continually mentioned .

    Retirement income aka “the pension” seems to be subsumed into wages calculation. As is superannuation and profit sharing, salary sacrifice (low wage earner says why is this included?)

    Q4. How does the ” Australian conceptual framework for measures of employee remuneration” effect wage productivity & inflation? 

    Was “the pension” included in wage calculations in the past? If and when did this change take place and why?

    As there are 3 types of “wages” award, individual and contract, the inputs to wages all see to be enmeshed, confusing and hindering a basic wage earner from a services contract wage earner with bonus or productivity multiplier. 

    Eg – 
    1. I wipe bottoms and no chance of extra, contrasted with 

    2.I sell bezzle effected securities in a bucket shop and get a huge bonus. And have my “”…commissions, gratuities and tips, income tax, regular bonuses, regular payments under profit-sharing schemes, and all salary sacrificed (including associated taxes e.g. fringe benefits tax and superannuation contributions tax). Irregular includes irregular payments such as: irregular bonuses and incentive payments, and irregular payments under profit-sharing schemes”, included in wages calculations. 

    Experts?  Harry, do you know, as you state “feeds stupid numbers into a computer and yields no evidence of a relationship. It is just as plausible to suppose bad estimation technology leads to a failure to detect a relationship even if there were enough sample variability to support such an investigation.*

    Australian Bureau of Statistics “Australian conceptual framework for measures of employee remuneration”

    Flowchart  [may not load?] & Description.

    https://www.abs.gov.au/system/files/styles/complex_image/private/2020-07/Employee%20Remuneration.jpg?itok=Dmh93k1L

    Australian conceptual framework for measures of employee remuneration

    This image contains the Australian Conceptual Framework for measures of employee remuneration.

    “Labour costs flow down to Compensation of employees(a) and Other labour-related costs (other costs incurred by employers in relation to employees). Other labour-related costs include payroll tax, training costs, recruitment costs, and wage subsidies from government (negative costs).

    “Compensation of employees(a) flow down to Wages and salaries and Employer’ social contributions (contributions by employers to secure social benefits for their employees). Employers’ social contributions include employer superannuation contributions (other than through salary sacrifice), workers’ compensation premiums, and provisions for severance, termination and redundancy payments. 

    “Wages and salaries flow to Wages and salaries in cash and Wages and salaries in kind(b). Wage and salaries in kind(b) include benefits such as free or subsidised accommodation, travel, food or motor vehicle (other than through salary sacrifice) and fringe benefits tax on goods and services provided by employer (other than through salary sacrifice). 

    “Wages and salaries in cash flows down to Regular(b) and Irregular. Regular(b) includes regular and recurring payments such as: ordinary time and overtime payments, payment by result, taxable allowances, commissions, gratuities and tips, income tax, regular bonuses, regular payments under profit-sharing schemes, and all salary sacrificed (including associated taxes e.g. fringe benefits tax and superannuation contributions tax). Irregular includes irregular payments such as: irregular bonuses and incentive payments, and irregular payments under profit-sharing schemes”
    https://www.abs.gov.au/articles/methods-changes-during-covid-19-period

  24. Harry it is time you rebutt Quiggin & Stanford, and justify or fault productivity calculation anomalies and factor fudging.
    *

    “This claim [by Treasury] is empirically false: as indicated below, the labour share has indeed declined since 1990 (although not as rapidly as during the 1983-1990 period), falling by about 3 percentage points of GDP over the last quarter-century.” Stanford in;

    ‘The Declining Labour Share in Australia: Definition, Measurement, and International Comparisons’
    Journal of Australian Political Economy No. 81, pp. 11-32.
    Stanford, J. (2018)

    “The Treasury Department in Australia (2017) also considered the evolution of the labour share of GDP, as part of a recent review of the slowdown in wage growth. This report correctly describes the arithmetic of movements in the labour share – driven by differences in relative growth rates of real wages (deflated by producer prices or the GDP deflator, rather than by the consumer price index) versus real productivity. But then, curiously, the report denies that there has been any downward trend in the labour share in Australia at all since the early 1990s; the authors suggest Australia’s experience has differed from other OECD economies (where they acknowledge the labour share has declined). This claim is empirically false: as indicated below, the labour share has indeed declined since 1990 (although not as rapidly as during the 1983-1990 period), falling by about 3 percentage points of GDP over the last quarter-century. Despite denying any recent decline in the labour share of GDP, the Treasury paper catalogues several potential reasons why it might decline. Like the IMF, the Treasury paper highlights market adjustments in relative factor prices (and in particular a supposed decline in the relative price of capital). The paper also mentions the market power of ‘superstar’ firms which control large market shares in specific industries (such as high-tech sectors), and this might boost the profit share.8 The Treasury report acknowledges that the compositional shift in production toward more labour-intensive service sectors should be lifting the labour income share of total output, but suggests that this trend must be overwhelmed by other factors. There is no reference to the institutional or political-economic context of factor income distribution in explaining the decline of the labour share.

    Quiggin (2018) has critiqued an especially one-sided analysis of changes in the labour share prepared by another Australian government agency: the Department of Industry, Innovation and Science, which recently published a report celebrating the legacy of neoliberal policy reform in Australia since the 1980s (Office of the Chief Economist, 2018). This report criticised the rise in the labour share that was experienced in the initial postwar decades; it then credits more ‘flexible’ and procompetitive labour policies (starting with the Prices and Incomes Accords of the early 1980s) with reestablishing a healthier equilibrium:

    JQ: “Australian wage growth ran ahead of GDP per capita growth throughout the 1950s and 1960s which was a major source of underlying inflation. The gap opened wider in the 1970s and 1980s. This further drove up domestic inflation. ‘Imported inflation’ from global trading partners increased inflation yet more. During the operation of the Prices and Incomes Accord, real wages and GDP per capita were gradually brought into alignment and alleviated inflationary pressures in the economy (p. 9).”

    “The asymmetry of the analysis is clear. When wages rise faster than productivity, it is a problem (allegedly causing inflation, among other ills), but when wages rise more slowly than productivity (as has usually been the case since the early 1980s), this is said to restore ‘alignment.’ (In reality, wages growth and productivity growth were not ‘aligned’ after the early 1980s; the former has consistently lagged the latter, as is described below.) In short, in the government view, an ongoing decline in the labour share is considered healthy. At least this report implicitly hints at the relevance of shifting regulatory and institutional factors in explaining the decline in the labour share (mentioning in particular the erosion of collective bargaining in Australia over this period); however, this trend is interpreted as the restoration of some ‘normal’ market equilibrium, rather than a matter of concern.

    “Heterodox economists, in contrast, recognise both the fluidity of factor shares (instead of assuming their fixity), and the importance of changes in factor distribution to other economic and social outcomes.”…

    Click to access Labour_Share_Symposium_Stanford.pdf

    *

    Australian System of National Accounts
    Reference period
    2020-21 financial year
    Released 29/10/2021

    Real unit labour costs
    2016-17   -4.0
    2017-18    0.1
    2018-19   -0.7
    2019-20   -1.7
    2020-21   -2.9
    https://www.abs.gov.au/statistics/economy/national-accounts/australian-system-national-accounts/latest-release
    *

    The Calculations!

    “5206.0 – Australian National Accounts: National Income, Expenditure and Product, Mar 2019 Quality Declaration 

    ARCHIVED ISSUE 
    Released at 11:30 AM (CANBERRA TIME) 05/06/2019  

    Calculation of;
    “Real unit labour costs”
    https://www.abs.gov.au/AUSSTATS/abs@.nsf/featurearticlesbytitle/207D830DCBDEE2EFCA2584C5000E5539?OpenDocument

  25. “4. On the internet, fighting about what has happened is far easier than imagining what could happen.

    “Because we live in the past when we are online, we will find ourselves fighting over the past. Because our fighting is itself inscribed and inscriptions cannot be defeated only overwhelmed, it very quickly becomes part of what is fought over. The casus belli recedes inexorably from view as it is layered over by the cascading inscriptions, which themselves become things to be fought over. Soon, it becomes impossible to map the course of the conflict or even make sense of it. And nothing changes.”

    https://theconvivialsociety.substack.com/p/we-are-not-living-in-a-simulation

    Any “what could happen” ideas? Not the past. JQ posted a couple. Any supoort or suggestions?

  26. Any “what could happen” ideas?” Glad you asked.
    *
    John Quiggin et al 2020
    and
    Bertrand Russell 1914
    *

    Russell 1914
    “[T]he plan we are advocating amounts essentially to this: that a certain small income, sufficient for necessaries, should be secured to all, whether they work or not, and that a larger income, as much larger as might be warranted by the total amount of commodities produced, should be given to those who are willing to engage in some work which the community recognizes as useful.”

    Ch. IV: Work and Pay, discussing Universal Basic Income (UBI)
    https://en.m.wikiquote.org/wiki/Bertrand_Russell
    *

    Quiggin et al 2020

    “In this paper, we have outlined a practical and fiscally affordable approach to a Liveable Income Guarantee. Its implementation would allow us to be better prepared in the event of future disruptions, such as the pandemic currently affecting the global economy and societies more broadly. Beyond that, the LIG provides the support that allows us to aspire to be a society where everyone has an income sufficient to live a comfortable and dignified life. This will increase individual freedom, and thus allow us all to be better able to make a positive contribution to the common good.”

    Tax and Transfer Policy Institute
    Liveable income guarantee
    TTPI – Policy Brief 4/2020 September 2020
    John Quiggin University of Queensland
    Elise Klein Australian National University
    Tim Dunlop Independent Researcher
    Troy Henderson Sydney University
    Jane Goodall University of Western Sydney

    Click to access complete_liveable_income_sep_2020_0.pdf

  27. Here is why we are stuck in culture & dogma. Just look at “Dissenting report by Liberal and National Senators
    – Nothing more than a stunt”
    & (groan) Malcolm Roberts ” Additional comments”.

    And we do not know casualisation workforce as the ABS just uses “no annual leave” as a proxy for casualisation of workforce.

    With framing due not to sovereignty or Commons, but Amazon & Uber!
    *

    “The job insecurity report”
    © Commonwealth of Australia
    February 2022

    Chapter 11—Conclusions and final recommendations

      Codifying job security
      Incentivising secure job creation
      Supporting disadvantaged workers
      Continuing the committee’s work

    Dissenting report by Liberal and National Senators
    – Nothing more than a stunt
    Notes on recommendations from this report
    Employment truths expose Labor’s lies 
    Agricultural workforce issues 
    The Labor lie of ‘same job, same pay’ 

    Additional comments from Senator Malcolm Roberts

    Summary
    Discussion and Recommendations
    Conclusion

    https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Job_Security/JobSecurity/Fourth_Interim_Report

  28. Is this you- “more Numerate subjects would use their quantitative-reasoning capacity selectively to conform their interpretation of the data to the result most consistent with their political outlooks.”?
    *

    …”But contrary to the prediction of SCT ( Science Comprehension Thesis), such polarization did not abate among subjects highest in Numeracy; instead, it increased. This outcome supported ICT (Identity-protective Cognition Thesis), which predicted that more Numerate subjects would use their quantitative-reasoning capacity selectively to conform their interpretation of the data to the result most consistent with their political outlooks. We discuss the theoretical and practical significance of these findings.”

    “Motivated Numeracy and Enlightened Self-Government”

    Behavioural Public Policy, 1, 54-86
    Yale Law School, Public Law Working Paper No. 307

    Posted: 8 Sep 2013
    Last revised: 5 Jun 2017

    Dan M. Kahan
    Yale Law School

    Ellen Peters
    Ohio State University – Psychology Department; Decision Research; University of Oregon

    Erica Dawson
    Cornell University

    Paul Slovic
    Decision Research; University of Oregon – Department of Psychology

    September 3, 2013

    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2319992

  29. Harry, anyone, do you wish to respond to JQ in The Conversation today:-

    “Despite the obvious absence of wage-push, many commentators are still working on the wage-price spiral model, and arguing against allowing wages to rise in line with inflation.

    “Such a policy would not only be unfair, it would be economically disastrous – similar to the austerity policies introduced in many countries in the wake of the global financial crisis, and earlier, when Britain returned to the gold standard in the wake of World War I, helping precipitate and deepen the great depression.

    “In the current context, real wage cuts brought about by less than full compensation for inflation would lead workers to quit and seek new jobs, worsening labour shortages.

    “It is striking that many of the same employer representatives who are saying wage increases are unaffordable are also complaining it’s hard to find workers.

    “The correct response to the huge expansion in the amount of money in the economy during the crisis is to accept a once-off increase in prices and wages, as well as incomes indexed to wages and prices, such as pensions.

    “For now, prices should flow through into wages

    “This would share the real costs of the pandemic spending more evenly across the community than if wage-earners were expected to bear the burden.

    “Later, we can return to the use of monetary policy, based on adjustments in the Reserve Bank cash rate, to maintain inflation at an acceptable level. But what should that level be?

    https://theconversation.com/why-the-rba-shouldnt-obsess-over-inflation-when-it-sets-interest-rates-184380
    *

    Easier to read JQ, than 346 pages with 23 contributors. But in the sake of full disclosure, and to assist debate (and confirmation bias), here is just about every position relating to wages:

    “THE WAGES CRISIS IN AUSTRALIA
    “What it is and what to do about it”
    Edited by
    Andrew Stewart,
    Jim Stanford and
    Tess Hardy

    DOI: https://doi.org/10.20851/wages-crisis

    https://www.adelaide.edu.au/press/titles/wages-crisis
    *

    Follow up wages with competition- “the Chicago School’s faith in the ability of markets to self-correct and deliver competitive outcomes was misplaced”

    “A Giant Problem: The Influence of the Chicago School on Australian Competition Law, Economic Dynamism and Inequality”

    Adam Triggs, 
    Andrew Leigh
    September 17, 2019 

    “The growing body of research and experience, however, shows that the Chicago School’s faith in the ability of markets to self-correct and deliver competitive outcomes was misplaced. There is a strong progressive case for repositioning how we think about competition. Focusing more on the competitive process, the structure of markets and the incentives those structures create for firms will play an important role in reducing inequality.””
    https://journals.sagepub.com/doi/abs/10.1177/0067205X19875031

  30. I don’t think that government should try to set the level of real wages for effectively 25% of the private sector workforce. I think these are and should be mainly determined in labour markets and that across-the-board wage increases are ineffective (only nominal wages can be set by government in the short run, real wages are determined by supply and labour productivity) and that they promote inefficiency. What you seek are wage increases in industries with an excess demand for labour and no increases in industries where there is an excess supply.

    The only mechanism the government has to help influence real wages is to reduce labour supplies by permanently reducing immigration intakes to more sustainable levels. This is a policy I support but a policy I think has not a chance of getting up.

    I am not confident that a wage-price spiral will not develop. Inflation has taken off in Australia – admittedly not to the same extent as the US – and awarding workers large nominal wage increases are the first step of a wage price spiral. The Labor Party is worried about this with the Treasurer saying that the current intervention (after some changes in policy Labor does seem to support at least a 5.1% increase in the minimum wage) must be a “once off”. If it is a once-off then it is difficult to see the point of it since employers will react to an increase in their costs by either increasing prices or reducing output – in either case disadvantaging the workers whose welfare was supposed to be improved. If it isn’t a once-off but is repeated as workers argue the nominal wage increase is illusory since prices are rising then you have embarked on a wage price spiral.

    A wage-price spiral will require tighter monetary policy and higher interest rates than would otherwise prevail – they will steadily increase over the next year or so regardless – reducing investment and eliminating high levels of employment we currently have. Lack of concern about inflation seems to go hand-in-hand with a lack of concern over debt. Not a view I share – accommodating monetary policy will help foster a wage-price spiral and higher levels of debt leave us less capable of meeting the next crisis (global economic collapses, wars, epidemics).

    I don’t understand the wage outcomes that have been observed over recent years and am suspicious of official data. Certainly tradies and those in the building industry are not suffering from stagnating wages. Nor are the dishwashers demanding $50/hour for work on Sundays. Almost every service industry seems to be advertising for low skilled workers – outside factories and shops, you see everywhere. Unemployment is at record lows and the only way employers can meet the demands of a surging economy is to bid up wages. I am puzzled the official data does not seem to show this but it will.

  31. Harry, Dr Steven Kennedy PSM Secretary to the Treasury says “we do not see a significant risk of a wage-price spiral”.

    And Harry, the AFR says “The intensification of work doesn’t seem to be making us richer, but it does appear to be making us sicker.”.

    Harry, after you have read the Treasury Address and AFR article below, and we get Fair Work Commission minimum wage ruling today, let’s chat.
    *

    The “Post-Budget economic briefing – opportunities and risks” by Dr Steven Kennedy PSM Secretary to the Treasury”, was delivered, not to the 2.5m low wage earners but to;
    “Address to the Australian Business Economists” on 8 June 2022.

    175 “Australian Business Economists” are making decisions for shareholders not welfare, justice, equity of life etc?

    The “Post-Budget economic briefing – opportunities and risks” shows that;

    – we are having a faux debate about taxation being around 24.5% to 26% of GDP and

    – “we do not see a significant risk of a wage-price spiral”
    *

    Post-Budget economic briefing – opportunities and risks

    Dr Steven Kennedy PSM Secretary to the Treasury

    Address to the Australian Business Economists
    8 June 2022

    “With inflation expectations remaining well-anchored, we do not see a significant risk of a wage-price spiral, but policy makers must always remain vigilant.” pg10.

    ” Second, it can raise additional tax revenues. The larger size of government will need to be balanced against the associated costs, including disincentives associated with some taxes to work or invest. The effects of a larger tax take can be minimised by ensuring the design of the tax system is optimal.

    “Personal income tax receipts
    The improvement in the budget balance in the medium term relies largely on increases in receipts from personal income taxes (Chart 12).” pg13

    “in the light of spending pressures and the pressure on income tax arrangements, there seems to be little case to lower taxes elsewhere including company taxes. In fact, in some countries, such as the UK, governments are increasing company taxes and applying tax measures to highly profitable parts of the economy.
    The case for maintaining company tax rates is made even more compelling in Australia’s case, where we are experiencing a record level in the terms of trade and the banking sector is highly profitable. The banking and mining sectors made up around 45 per cent of company tax revenue in the 2019-20 income year.”pg14

    ” Ongoing review of the tax base and tax expenditures to ensure the tax system remains adequate to fund spending commitments and is equitable including from an intergenerational perspective will be important given the pressures to raise more revenue over time.”pg15

    https://treasury.gov.au/speech/address-australian-business-economists-0
    *

    Australian Business Economists “enjoy a range of benefits including:
    – functions with access to senior policy makers”

    “Membership
    “You are invited to join the 175-strong members of Australian Business Economists. ABE members represent a variety of industry sectors including: banking, financial services, government and industry.

    “Members enjoy a range of benefits including:
    – functions with access to senior policy makers
    – function discounts
    – networking opportunities
    – member-only events https://www.abe.org.au/membership.aspx
    *

    “Why are we all working so hard?

    “The intensification of work doesn’t seem to be making us richer, but it does appear to be making us sicker.”

    https://www.afr.com/work-and-careers/workplace/why-are-we-all-working-so-hard-20220607-p5artq

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