Last Thursday the AFR published a piece titled, “No wage rise without productivity: IMF“. 

If you’re an Australian worker and you started to read the above AFR article, you’d quickly get the impression that Australian workers should increase their productivity (essentially increase their output per hour) if they want to enjoy the benefits that come with increased wages.

The first paragraph of the AFR article reads:

Stagnant wages across Australia and the developed world is primarily caused by weak productivity and not the “robots and foreigners” increasingly blamed for the decline, the International Monetary Fund says. 

Why is a lack of wage growth a problem for workers in Australia? One reason is that house prices have been rising faster than wages for many years, so subdued wage growth relative to rising house prices makes it increasingly difficult for Australians to achieve homeownership. For example, if you’re putting aside money each month for a deposit and house prices are rising faster than you can save, then it gets increasingly difficult for you to buy your first home as time goes on. 

Jacob Greber quotes the IMF (emphasis added): 

Of these three factors, productivity is by far the most important, the report suggests, pointing to modelling of advanced economies that shows a 1 percentage point improvement in trend productivity growth leads to a 0.7 percentage point increase in nominal wages. 

The IMF was looking at the statistical significance of changes in the unemployment rate, lagged inflation and the trend productivity growth rate to changes in wages. 

The IMF was not saying that the only way wages can rise is if there is increased productivity. 

What’s the difference? 

The AFR have used their headline and their first paragraph to give the impression increased worker productivity is a requirement for increased wages. 

Did the IMF study look at the influence unions can have on increasing wages? Of course not.

From my personal experience working in Melbourne over the years, there have been times at which I’ve been paid less than the award rate in various jobs because:

1. I’m being paid to my ABN a rate that is less than the award rate and that’s before I’ve even taken out super and tax.
2. The employer has to compete with other companies who regularly underbid to win contracts, in such a way whereby they could only be paying their staff less than the award rate.
3. Colleagues lack understanding about what the award rates are.
4. An employer is paying less than the award rate despite not having an enterprise agreement in place.
5. A new employer is trying to pay all staff a rate less than the award rate, by quoting an enterprise agreement that has expired while pretending it is still in force.
6. Despite reporting the above to FairWork Australia, nothing changed.

If you’re a worker in Australia and you’re tired of low wage growth vs high house price growth, you don’t need to take much notice of what the IMF may prescribe. 

As an entree you could start with:

1. Giving the Fair Work Commission more teeth and resources to pro-actively enforce minimum wage rates
2. Stop allowing businesses to negotiate wage rates to be less than the minimum award rate via enterprise agreements

The source of the research Jacob was referring to, which was published on Wednesday 27 September 2017, was titled “The Disconnect Between Unemployment and Wages“. This was essentially an introduction to Chapter 2 of the IMF World Economic Outlook October 2017, titled, “Recent Wage Dynamics in Advanced Economics: Drivers and Implications“.