Economic Policy Frameworks and Markets - PDF
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Added on 2021-05-30
Economic Policy Frameworks and Markets - PDF
Added on 2021-05-30
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Running head: ECONOMIC POLICY FRAMEWORKS AND MARKETSECONOMIC POLICY FRAMEWORKS AND MARKETSName of the StudentName of the UniversityCourse Id
1ECONOMIC POLICY FRAMEWORKS AND MARKETSTable of ContentsIntroduction......................................................................................................................................2Risk does slow low wage growth rate poses to the Australian economy........................................2Risks of low wage growth rate........................................................................................................6Conclusion.....................................................................................................................................10References......................................................................................................................................11
2ECONOMIC POLICY FRAMEWORKS AND MARKETSIntroductionThe present assignment provides an overview on the risks that slow growth rate in wagespose to the Australian economy. Australia has stable economic performance over the last fewyears while adjusting to mining investment booms and commodity price of the year 2000. In thepresent year, the recovery from all these shocks has further advanced in rapid way. Aggregatedemand in this nation has also led by huge growth in public investment amidst increase ininfrastructure expenditure and business investment but the growth in private consumption hasremained subdued. The growth in employment has strengthened over the last few decades, eventhough the economy is not back at the full employment. In the year 2017, the IMF (InternationalMonetary Fund) stated that growth of wage has been weak and inflation has been below its targetlevel. The present study also focuses on how slow growth rate in wages impacts on the aggregatedemand – aggregate supply (AD- AS), inflation and unemployment in the Australian economy. Risk does slow low wage growth rate poses to the Australian economyRecent evidences reflect that wage growth in Australia has declined significantly over thepast few years. The size of this decrease in this nation’s wage growth rate has been bigger ascompared to other developed nations. It has been opined by Daly and Hobijn (2015) that thepresent low growth rate in wage has not been unique in this country. There are several factorsthat influence growth of wage rate in this country. These factors are given as under-Low consumer price inflationLow workers demand levelLow growth in total productivity of labor
3ECONOMIC POLICY FRAMEWORKS AND MARKETSThe impact on prices of output owing to unwinding of mining boomUnderemploymentSpare capacity in labor marketOver the time periods, the wage growth rate in this country usually tends to highlight growthin labor productivity and consumer prices. The workers in this nation expected to havecompensation for the price inflation in order to maintain purchasing power of their wages. It hasbeen cited by Carneiro, Guimarães and Portugal (2012) that, low growth rate in wage can beexplained by low inflation prediction for the consumer prices. Even after taking into account lowinflation expectations, the RBA (Reserve Bank of Australia) found out that wage growth rate hasdeclined to zero. This suggests that inflation accounts for less part of overall decline. In addition,competition in labor services also assures that they attain a share for increase in productivity.Recent facts highlights that the annual growth rate in wages over the past two years in Australiawas 2.3% in comparison with 5.4%in preceding few years. Therefore, low labor productivityleads to considerable proportion of declining growth rate in wages. In the present years, this economy has been facing downturn, which in turn depresses wagegrowth rate. Even in this downturn, there are several sectors in this country where the employersface few constraints on hiring laborers. However, lesser employers are forced to give higherwages in order to hire laborers. As a result, the average wage growth rate in this economydeclines. Furthermore, unwinding of mining boom also brought to an end of increase in outputprices for this nation’s businesses. This nation faces huge decline in TOT (terms of trade),thereby leading to low profit margin for entities. This in turn imposes a huge constraint on totalcapacity of the employers to give higher wages to the laborers. The figure below reflects thatsince the year 2011, no growth has occurred in average output price level in this country.
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