Low Wage Growth in Australia

This report analyzes the issue of low wage growth in Australia, exploring its causes and potential risks. It examines macroeconomic theories like Aggregate Demand and Aggregate Supply, Unemployment, and Inflation, analyzing their impact on wage growth. The report also discusses the role of the Reserve Bank of Australia (RBA) in managing wage expectations and its implications for the Australian economy.

ECONOMICS

Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
Discussion of low wage growth in Australia:.........................................................................1
Risk of Low wage growth in Australia...................................................................................2
Theory 1..................................................................................................................................2
Theory 2..................................................................................................................................2
Theory 3:................................................................................................................................3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Macroeconomic is an essential branch of economics that deals with performance,
behavior and decision-making of a nation as a whole. It focuses on aggregate modification in an
economic such as unemployment, growth rate and gross domestic products. As per the mentioned
case study which is associated with increasing wage rate by the central banks for everyone is
being discussed under this report. There are various types of theories related with
macroeconomic are used to analyses all implication associated with the nation. By the help of
various charts and graphs the understanding and ability to evaluate topical issues are showed
effectively (Boserup, 2017).
TASK
Discussion of low wage growth in Australia:
Wage growth rate has provided a great importance about the implications for the macro
economy. Wages are the most source of household income and the more component of the
business costs, and have important implications for the consumer price inflation. Wage growth
has reduced in current years which has come to the least pace since 1990s, as per the wage price
index. Wage calculated along with the higher period of low wage growth since 1990s recession.
Throughout these calculations, rate of the annual wage growth is reduced to about 2-3 percent.
The slowing down in wage growth has emerged alongside higher growth in the labour
productivity. This also asset to moderate growth in the labour productivity. This can likewise
assist to moderate growth in the labour costs for the organisations, beyond the influence of lower
wage growth. Growth during the market growth in the labour cost of manufacturing of diverse
output such as unit labour costs or ULCs has likewise reduced significantly since 2012. Infect,
level of ULCs have been less changed for higher than the three years (Pigou, 2017).
Currently low wage growth does not common to the Australia. Globally, wage has been
lower than the forecasted for various developed economies in the recent years, covering where
labour markets which have tightened considerably. Diverse factors which have aimed to
elaborates this weakness, covering trends which have taken for few time and also have emerged
in the general reduction in the labour share of income. Although, reduction in the wage growth in
Australia has been seen in the recent years.
1

Diverse factors which have been appeared to elaborate highly reduction in the Australian
wage growth, and these are elaborated in the remainder of such article. There are so many factors
which have emerged to elaborates about the lowering in Australia wage growth. There are so
many critical factors appear to elaborates intense highly of the reducing in Australian wage
growth, and these are elaborated in the remainder of this article. There has been in enhance in
spare capacity in the labour market, and forecasting of future consumer price inflation which
have reduced to be the below average (Freeman, 2013). Inflation in the output prices in current
years which has been specifically subdued, in them ore part which have owing to the lesser terms
of trade and reduction in the mining investment in the current years means that economy needs a
lower actual exchange rate that has been in part delivered by the low wage growth. A statistical
model explains that these components does not completely elaborates the extent of reducing in
wage growth.
Risk of Low wage growth in Australia
Theory 1
Aggregate Demand and Aggregate Supply
Aggregate Demand and Aggregate Supply is one of the essential aspect in macro-
economic factors. There are some essential key points are considered in this theory which helps
to demonstrate the subject in split form. This basically relates the decisions which are made
about quantity to supply based profit and expected to earn.
Aggregate supply is considered as a total output firms which will produced and sold in the
other words and the real figure of GDP.
Increasing aggregate supply curve indicates towards upward sloping which is also considered as
a short run aggregate supply curve. It basically helps to show the positive relations between
the price and the level of real GDP in short run (Atkinson and Stiglitz, 2015).
Price levels for outputs are recorded as increased while the price make the level at various
levels. Opportunities for additional profits are also encourages for more production and
enhanced sales graph.
It is considered that the aggregate supply graph not only helps to determine the price level but
also enhanced GDP and full employment GDP.
Theory 2
Unemployment
2

As per report published by RBA the unemployment rate is 5.6% in February on a
seasonally adjusted basis. It is expected that the unemployment rate in mid-2020 as 5.25%. as per
forecasted report it is projected that the low growth rate is one of the main reason for of increased
unemployed rate. Apart from low wage rate, increasing petrol prices are also one of the essential
aspect in terms of unemployment rates (Tietenberg and Lewis, 2016).
Theory 3:
Inflation: Australian wages rate growth has been getting weaker as from longer period of
time. In accordance with increase in inflation the wages rate of employees would get reduces up
to a definite level. The sharp rush and fall in the terms of trade had a valuable effect on economic
growth an any nation. During past few year backs, central banks forecast for wage rate which
have been more persistently too strong. Inflation expectation are taken into account through
using a specific tends that are associated with mix of long term survey and financial market
measures of estimated inflation. Long term inflation expectation uses to determine more
effectively that is best fitted than shorter term inflection.
The GDP deflector consists to collect all necessary changes to growth in firms’ overall
prices. This can be motivated that labor productivity and producer real wage. The modification in
unemployment rate is consists to capture the wage growth pressure from quick changes to the
rate of unemployment at the time of global financial crises. In case spar capacity gets underneath
the tipping point a company have to take decision to pay maximum offers to hire people and pay
initially increasing again and inflation pick up.
wages price index Non-tradable inflation
3.5 1.5
3.1 2.4
3.6 3.1
3.7 2.2
3.6 4.2
3.8 4.1
3.5 4.5
3.6 3.5
3.8 3.8
3.5 3.5
3

3.6 3.4
1 2 3 4 5 6 7 8 9 10 11
0
1
2
3
4
5
3.5 3.1
3.6 3.7 3.6 3.8 3.5 3.6 3.8 3.5 3.6
1.5
2.4
3.1
2.2
4.2 4.1 4.5
3.5 3.8 3.5 3.4
Line chart
wages price index
Non tradable inflation
From the above charts, it has been seen that wage price index and inflation are inversely
related with each other. As wages rate is fluctuating at constant rate in accordance to this inflation
made maximum impacts on the economy of Australia economy.
The RBA
As per statistical report it is seen that the people of Australia wants to rise their wage rate
and waiting for a long time. It is expected that the labour growth rate will be increase till 2020
and the reports were released by RBA officials. As per forecasted results it is seen that the central
bank is taking quite a bit estimation in respect of expect wages to go. Wage rates has been
increasing gradually as per statements issued by RBA.
There are some theories are made in respect of risk of low wage growth theories such as
Wage fund theory
This is the main theory which was given by Adam Smith (1723-1790). this theory
basically remain associated around assumption as workers are paid out of pre-determined funds
for wealth. Demand for labour and rate of wages remain depend on the size of wage funds. As
per the funds it is considered as a large wage and vice versa (Brue, McConnell and Macpherson,
2016).
Substance theory
This theory was based upon the labour paid to enable the manpower to subsist and
perpetuate the race without increasing and diminution. This payment is considered as a
subsistence wages,
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Marginal productivity
This is the theory which determine the production contributed by the last worker. This is
also known as the marginal production.
CONCLUSION
From the above project report, it has been concluded that role of Central banks of
Australia is to regulate effectively the wages rate implications that are arise in specific country. In
respect to determine all factors of macroeconomic, managers need to make use of various
theories that are helpful in generating more revenue and stability in the nation.
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REFERENCES
Books and Journals:
Boserup, E., 2017. The conditions of agricultural growth: The economics of agrarian change
under population pressure. Routledge.
Pigou, A., 2017. The economics of welfare. Routledge.
Freeman, C., 2013. Economics of industrial innovation. Routledge.
Atkinson, A. B. and Stiglitz, J. E., 2015. Lectures on public economics. Princeton University
Press.
Tietenberg, T. H. and Lewis, L., 2016. Environmental and natural resource economics.
Routledge.
Brue, S. L., McConnell, C. R. and Macpherson, D.A., 2016. Contemporary labor economics.
McGraw-Hill Education.
Online
RBA. 2018.[Online]. Available through: <http://www.news.com.au/finance/economy/australian-
economy/rba-warns-australian-wages-will-be-stagnant-until-2020/news-story/
9de7e94d15d6baafc4a902f6e1f91936>.
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