Subdued wages growth has been a feature of the Australian and US economies in recent years, posting the slowest growth on record on some measures. This has led many to question whether workers are sharing in the benefits of increased productivity and greater economic prosperity.

A new report released today by the United States Studies Centre (USSC) and written by the director of the USSC's Trade and Investment Program, Dr Stephen Kirchner, examines the relationship between productivity and compensation in Australia and the United States. In particular, it replicates work by former US Treasury Secretary Larry Summers and Anna Stansbury on the productivity and compensation link, but using Australian data. 

"The report finds the link between productivity and compensation in Australia remains robust under existing institutional arrangements, although this does not preclude the possibility of further reforms that could boost productivity, worker compensation and improve the distribution of productivity gains," Dr Kirchner said.

"The long-run increase in the capital share in the United States, other G7 economies and Australia is largely driven by the housing component of the capital share. This in turn reflects the increased scarcity of housing driven by excessive regulation of land use and dwelling construction."

Dr Kirchner will launch his research at an event this evening at the University of Sydney, featuring the Global Head of Economic Research at, Martha Gimbel. Media wishing to attend the event can register via the contact below.

Key points

  • Policymakers concerned about income inequality should focus on improving housing supply rather than workers’ bargaining power.
  • The cyclical variation in the labour share is a consequence of the relatively greater volatility of the capital share and not changes in workers’ bargaining power.
  • Monetary policy can also play a role in improving nominal wages growth by returning inflation to the central tendency of the Reserve Bank’s inflation target.

View report

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