Impact of Low Real Wage Growth on Macroeconomic Equilibrium in Australia

This article analyzes the impact of low real wage growth on macroeconomic equilibrium in Australia. It discusses the consequences and implications of low wages on the economy.

Running head: Economics for business
ECONOMICS FOR BUSINESS
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Economics for business
Table of Contents
Question 1: Analyse four components of GDP...............................................................................3
Consumption....................................................................................................................................3
Investment........................................................................................................................................5
Government expenditure.................................................................................................................7
Net exports.......................................................................................................................................8
Question 2: Impact of a period of low real wage growth on macroeconomic equilibrium in
Australia.........................................................................................................................................10
Reference list.................................................................................................................................14

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Economics for business
Question 1: Analyse four components of GDP
The four components of GDP is the consumption, income, government expenditure and
the net exports. Through the analysis of these four factors will define the development of the
resources that will not only induce the government to identify the development that are mainly
required for the economy to increase their rate of productivity. On the other hand, through the
development of resources, the Australian economy will be mainly aiming to increase the
development of resources through utilization of better techniques.
Consumption
Total 1987
Total 1989
Total 1991
Total 1993
Total 1995
Total 1997
Total 1999
Total 2001
Total 2003
Total 2005
Total 2007
Total 2009
Total 2011
Total 2013
Total 2015
Total 2017
0
200000
400000
600000
800000
1000000
1200000
FINAL CONSUMPTION EXPENDITURE: Current
prices
FINAL CONSUMPTION EXPENDITURE: Current prices ;
Question 1 (10 marks)
Figure 1: Final consumption expenditure
(Source: Abs.gov.au, 2019)
The above diagram is showing the fact that consumption of household is increasing and is
showing a continuously upward rising trend. The study has taken into consideration 1987-2017.

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However, from this above diagram it has been seen that Australians spend almost 2/3rd of their
income on food, transport, housing and recreation. These have been identified as the four
important component of the Australian consumption pattern. This is important because of the
fact that in the Australia, in recent time’s problem is surging regarding the demand of housing.
Even most of the people who are living in Australia are not having enough income to afford
houses and they are choosing shared dwelling. However, the individual consumption on housing
is increasing gradually. In 2018, the retail industry growth increased by 2.8%. In NSW, the
dwelling values have declined by 1.7%. On the other hand, the dwelling industry is not
improving and it requires government monitoring. However, it has been seen that in order to
increase the growth of the economy, the Australian government is trying to improve the policies
that are helping in the development of housing industry. Through the improvement in the
development of the economy, the development of strategies that will not only induce the
improvement in the consumption pattern but will also induce the government to bring down the
prices of goods and services.

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Economics for business
Investment
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-6
-4
-2
0
2
4
6
8
investment % of GDP
investment % of GDP
Figure 2: Investment as percentage of GDP
(Source: Abs.gov.au, 2019)
The investment data is showing the fact that investment in Australia was going at
constant rate but after the 2005, the economy of Australia witnessed fall in the level of
investment. On the other hand, the main investment was seen in the Australian economy was in
the mining and mineral industry. This is highly important in the sense that through the
development of the economy, the Australian economy will highly improve the development of
better accessibility. The investment in the mining industry rose to about 9% from 2012/13
approximately 2% in the year 2000. On the other hand, through the development of the
resources, it will be highly influential in the sense that it will be automatically improving the
economic structure of the economy. In monetary terms, the amount of investment that took place
in the mining industry is around $136 billion in the year 2012/2013 compared to around $41
billion in the year 2000.

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Economics for business
Figure 3: Investment in the LNG, gas and oil
(Source: Governor, 2017)
The above figure is showing the fact that among the mineral industry; the highest number
of investment is being done in the oil and natural gas industry. This is highly important in the
sense that through the development of the economy through the increase in the investment in
other forms of industry in the form of iron ore and other metal ones and coal industries will also
bring improvement in the growth in GDP that will bring stabilization within the Australia.

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Economics for business
Government expenditure
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
16
16.5
17
17.5
18
18.5
19
19.5
Government spending
Government spending
Figure 4: Government spending as percentage of GDP
(Source: Abs.gov.au, 2019)
In the initial period, the government spending is having high values and the amount of the
government spending is going to fall in the recent years until 1991-1992. Last phase of increase
in the government spending is mainly increased during the year of 2017. Through the utilization
of commercial spending of the economy, the government spending is going to increase the
development of the government spending as percentage of GDP. This is highly important in the
sense that through the improvement in the economic background and indulgent in the
government policy that the economy is going to increase the amount of the investment in the
form of government purchase that will not only increase the development of resources. Through
the improvement in the investments on the economic development made by the government will
increase the performance of the economy. Improvement in the resources development like roads,
railways and better transports will increase the level of investment in the economy through

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smoothing of trade and commerce. The increase in the government spending is indulged into the
development of economic performances indicators. Australia is planning to increase the
investment in the solar and other energies that are going to increase the employment within
economy and taking cost minimization policy is possible.
Net exports
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
5
10
15
20
25
Net Exports
Net Exports
Figure 5: Net Exports as percentage of GDP
(Source: Abs.gov.au, 2019)
The development of the net exports is going to increase the development of economic
performances in the sense that better trade and commerce is going to improve if the economy can
increase the participation of FDI. Increases in the net exports are going to increase the demand
from within the economy that will force the consumers to demand more. With the increase in the
net exports the foreigners will also get an opportunity to come and invest in the Australian
economy that will not only increase the level of employment but will also increase the GDP
growth of the economy. The improvement in the economy will be beneficial for the whole

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economy regarding the development of resources. Moreover, the resources utilization will
automatically indulge the economy to bring in enough innovations in the technologies that will
increase the production rate of the economy. Moreover, the economy is going to increase and
improvement in the tastes and preference of the consumers and they will be able to indulge the
development of better policies. Through the extensive policy of trading, the economy will be
aiming to indulge in better accessibility of resources.

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Question 2: Impact of a period of low real wage growth on macroeconomic equilibrium in
Australia
Currently the Australian wage market is showing bit of drama. Private Sector wages are
marginally higher in the second quarter after receiving continuous low growth in six consecutive
quarters. The annual inflation rate is about 1.83% real wage did not have the scope to move
freely. The real wage growth is lagging well beyond the productivity rate and wage share in the
national income is very less. The seasonall7 adjusted real wage index rose to 0.5% in the quarter
of September in the year 2017 and the wage index was around 2% throughout the year. The
second quarter of March witnessed negative growth of -0.3% and June quarter witnessed growth
of about -0.2%. On the other hand, through the development of resources, the economic
involvement is mainly going to highlight the consequences that economy of Australia are having
due to low real wage growth (Governor, 2017).
From the economic point of view, the fall in real wage should have been beneficial for
the whole economy of Australia, as the fall in price of labor within the economy should have
increased the demand of labor that would have increased the employment rate within the
economy. However, the real life situation is quite different. The presence of high inflation rate is
helping the money to decrease their values. The households are being indulged in high debt as
the increased level of inflation is taking away all the income from the households. The shift in
equilibrium level has been shown in the following diagram.

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Figure 5: Real wage rate and equilibrium level
(Source: Created by Author)
The impact of the inflation rate is failing to increase the development of resources. On the
other hand, the economies of Australia are not having that much level of income that can absorb
the negative effect of inflation rate. The slow growth of the economy is one of important factor
that is also inducing the economy to increase the development of income of the employees and
wage of the employees. Through the utilization of better accessibility of government policy, the
Australian economy will be aiming to increase the development of resources and the
development in the inflation rate is considered as failure of monetary policy that is not at all
accepted from the Central Bank of Australia. On the other hand, the economy needs to take
certain level of the policies that the economy will be able to minimize the inflation rate. This is
important in the sense better government policy is going to indulge deeply the share of income in
the national income. On the other hand, through the development of the economy, improvement
in the inflation rate is going to increase the resource utilization. This is important in the sense

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that through the incorporation of better accessibility will not indulge the economy to grow and
respond. It is important in the sense that through the increase in government policy will induce
the economy to bring in better improvement within the Australian economy. Through the
incorporation of low wage rate, the employee demand and supply will not fall and this is one of
reason that income and expenditure is not going same to same. The above graph is showing the
fact that both the demand and supply is not going to shift anywhere. On the other hand, demand
is not increasing and that is not increasing the internal demand. Through the incorporation of
better accessibility of government policy, the economy will not only increase the resource and
will better help the incorporation of shift in supply curve.
Figure 6: growth in real wage
(Source: Australian real wages growth flat – the rip off of workers continues, 2017)

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The above data is showing the fact that RBA inflation rate is going well above the annual
growth in wage price index. It has shown the fact that in order to increase the efficiency of the
resource development the inflation rate the interest rate is going upwards and the development of
inflation rate is important for the economy to increase the government policy. Through the
incorporation of better accessibility is going to increase the improvement and shift in the real
wage is going to increase. The above graph is going to highlight the importance of government
policy so that the interest rate and the inflation rate can be controlled. On the other hand
increasing that level of productivity will not hamper the macroeconomic growth within the
economy.
The economies of Australia are going to increase the involvement of government so that
the economy will be able to identify the four components of GDP in the form of consumption,
investment, government purchase and many more. On the other hand, through the introduction of
investment and consumption the economy is going to improve the resource development and will
definitely allow the improvement in the demand and supply of goods and services. It is highly
important in the sense that through the development of economy it will be highlighting the
demand of economy so that consumption increases. The government must increase in policies so
that the real wage and income of the consumers can increase. Through the development of better
policy the investment will increase and it is highly important in the sense that through the
innovation in the technology will definitely increase the interest rate.

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Reference list
Australian National Accounts: National Income, Expenditure and Product, Dec 2018. (2019).
Abs.gov.au. Retrieved 11 May 2019, from
https://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5206.0Dec%202018?
OpenDocument
Australian real wages growth flat – the ripoff of workers continues. (2017). Bill Mitchell -
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