Economics Policy Framework and Market
Added on 2021-06-16
15 Pages2105 Words20 Views
Running Head: ECONOMICS: POLICY FRAMEWWORK AND MARKETEconomics: Policy Framework and MarketName of the StudentName of the UniversityCourse ID
ECONOMICS: POLICY FRAMEWORK AND MARKET1Table of ContentsIntroduction......................................................................................................................................2Low wage growth in Australia........................................................................................................2Risk of low wage growth.................................................................................................................6Aggregate supply and aggregate demand....................................................................................6Low wage growth and inflation...................................................................................................8Wage growth and unemployment................................................................................................9Conclusion.....................................................................................................................................11Reference list.................................................................................................................................13
ECONOMICS: POLICY FRAMEWORK AND MARKET2Introduction The rate of change in wages has important implication for the economy. For most of thehousehold a major source of income is the wage income. For firms also wage cost represents animportant part of business cost. In recent years, Australia has accounted weak wage growth alongwith a lower than targeted inflation rate. A report published by IMF suggests that since the endsof mining boom in 2000s Australia has recorded a robust economic performance. The economyhowever has yet not returned to the full employment level. It is still exposed to risks ofhousehold debt and imbalances in housing market (rba.gov.au 2018). The low wage growth inAustralia is unique to the economy. The paper discusses trend of wage growth in the last fewyears with reference to the likely cause of existing trend. The risk of low wage growth has beendiscussed using relevant macroeconomic theories. Low wage growth in Australia Different measures of aggregate wages indicate that labor market in Australia hasaccounted a slow wage growth. A pure measure of wages based on price is wage price index.The index measures salaries and wages keeping quantity and quality of labor constant. In thethird quarter of 2017, wage price index rose by 1.9 percent (static.treasury.gov.au 2018). This isthe lowest rate since 1997.
ECONOMICS: POLICY FRAMEWORK AND MARKET3Figure 1: Average wage growth in Australia (Source: static.treasury.gov.au 2018)A low growth is accounted in Average Earning National Accounts (AENA). The index rose by0.1 percent in 2017. AENA is a wider index a wider measure of wage growth as compared toWPI. AENS is an average measure of compensation received by the workforce which includeboth salaries and wages and other contribution in forms of pension and superannuation. AverageWeekly Earnings (AWE) is another measure of capturing trend in wage growth. It measures theweekly earnings of workers on an average basis and is affected from varying level of occupation,skills and labor hours worked. Average Weekly Ordinary Earning (AWOE) and AverageAnnualized Wage Increase (AAWI) are two other measures capturing movement of wages(Jacobs and Rush 2015). As shown from the above graph all the measures accounted a decliningtrend in the last few years.A low wage growth has been experienced by all the states and territories over the last fiveyears as compared trend in wages in to previous decade. Almost all the states except WesternAustralia and South Australia have accounted a wage growth of around 1.5% in recent years.
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