We hear economists and politicians bang on and on about the economy. Specifically, they talk about economic growth.
Economic growth, it seems, is this magic thing that, if it keeps keeping on, will make us all content and happy.
Now of course I’m being facetious, but I’m keen to hit on a point: what good is economic growth if you or I don’t experience the benefits of it? It fundamentally goes to the heart of capitalism.
Last week the Bureau of Statistics spat out two really key economic indicators: the Wage Price Index (national pay rise index); and the unemployment rate. Both, in my view were disappointing, and both point to something quite wrong with the economy… something that’s existed for way too long.
That is, we’re still not enjoying the spoils of economic growth.
Let’s take a closer look.
Wage Price Index (WPI)
The official definition of the WPI is that it measures changes in the price of labour services resulting from market pressures. That’s a very formal way of saying it measures wages which are determined by the ability of workers to bargain for pay rises.
There are other measures of pay – some of which measure the total amount of new jobs and pay (at the same time). For example, one measurement shows the increase in the total amount of payroll. Now, with the number of new jobs created, that obviously shows a big increase in “pay”, but make no mistake, most Australians are living without having had a sizeable pay rise in years.
There’s a serious problem when the pace of wage rises is only just keeping pace with inflation. Why? Well, if you think about it, it’d be nice to know that the harder you work, the more reward you can expect to receive. The reason this issue makes my blood boil is that it’s a serious impediment to the work ethic of millions of Australia. We need a system/economy that works. An economy that rewards hard work. You could argue the Australian economy doesn’t do that right now.
That bring us to the unemployment rate.
Our national leaders, and Reserve Bank of Australia, have reassured us that the economy is growing just fast enough that the unemployment rate should move down over time.
That is, it’s growing fast enough to create jobs.
Amazingly, that’s true. Since the Coalition came to power, over a million jobs have been created.
July’s unemployment release was a little disappointing. It showed, overall, jobs were shed in the month. Nearly 4000 jobs actually. Plenty of full time jobs were created but even more part time jobs were lost.
The thing is that quite a number of Australians gave up on the search for a job. With fewer people in the labour force, and more jobs created, the way the unemployment rate is worked out meant the unemployment rate fell.
Anyone can see though that it doesn’t inspire great hope for a further big drop in the jobless rate – which is precisely what’s needed to get any meaningful upwards pressure on wages.
Either we employ a circuit breaker, perhaps an artificial lift in wages across the board, or we all just accept the economy we work in can’t deliver pay rises anymore… at least until there are so few people looking for work that demanding a pay rise is relatively straight forward.
Drought a wild card
Finally, I want to touch on something that hasn’t received much press – the impact of the drought on the economy.
Two big names in business have already come forward to express their concerns.
The Reserve Bank said that “the drought has led to difficult conditions in parts of the farm sector” and Citi warned the result of the drought could cut more than half a percentage point from GDP growth in 2018-19.
These sorts of ‘incidents’ can be absorbed by a strong, healthy economy, but not an economy relying on one-off growth factors like a construction boom, or government spending, or an LNG project.
We’re still chasing “sustainable” economic growth
The drought should serve as a good reminder that it’s not enough to just keep pushing an economy along. You need to have an economy that thrives on sustainable growth factors.
An economy that is built on a solid foundation like that will ensure you not only dodge the occasional environmental bullet, but that its participants (you and me) enjoy the fruits it bears – pay rises for working hard, and a sense of contributing to something greater than ourselves.