"wage growth is weak and inflation is below its target range" for the Australian economy.

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In February 20 this year, the International Monetary Fund (IMF) stated that "wage growth is weak and inflation is below its target range" for the Australian economy. What risks does a slow growth rate in wages pose to the Australian economy, and why are economists and governments so eager to see a general rise in wages for everyone?

The following theories in Macroeconomics may be used to analyse this topic:

  • Aggregate Demand and Aggregate Supply
  • Unemployment
  • Inflation
  • The RBA

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  3. adds to your analysis

Additionally, this essay should be submitted in essay format, using Harvard style referencing. It is also expected that you include at least 5 sources in your essay. Suggested sources include Journal articles from the A, and websites, as long as they are reputable (major media sources, government websites (ABS, RBA, IMF etc)).

WORD COUNT 1500 Words

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  1. Introduction
  2. Discussion of low wage growth in Australia (using appropriate data)
  3. Risks of low wage growth
    • Theory 1
    • Theory 2
    • (Theory 3)
  4. Conclusion
  5. Bibliography
  6. (Appendices)

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Insights into Low Wage Growth in Australia James Bishop and Natasha Cassidy* Recent low wage growth in Australia appears to be only partly explained by spare capacity in the labour market, the decline in inflation outcomes and the decline in the terms of trade from its 2011 peak. In this article, we present some tentative evidence that the relationship between wage growth and labour market conditions may have changed, and that this may help to explain recent low wage growth. Using job-level micro wage data, we also find that, since 2012, wage increases have been less frequent and wage growth outcomes have become much more similar across jobs. Introduction Over recent years, Bank forecasts for wage growth have been persistently too strong (Graph 1). The forecast errors have been largely the result of there being more slack in the labour market than anticipated and the decline in the terms of trade being sharper than expected.1 However, even after taking these factors into consideration, wage growth has been surprisingly low. This raises the possibility that the relationship between wage growth and its determinants has changed, or that there are other structural or cyclical factors weighing on wage growth. Understanding the drivers of recent wage outcomes is important for assessing labour market conditions and inflationary pressures in the economy. As wages are the largest component of business costs, the decline in wage growth has also contributed to lower inflation outcomes over recent years than expected. * James Bishop completed this work in Economic Research Department and Natasha Cassidy is from Economic Analysis Department. The authors would like to thank David Rodgers for his assistance, as well as the Prices Branch at the Australian Bureau of Statistics. 1 The Reserve Bank periodically reviews their economic forecasts. The outcomes of the most recent forecast review are outlined in Kent C (2016). Graph 1 Wage Price Index Forecasts* Year-ended % % 2011 4.0 4.0 2012 Actual 3.5 3.5 2013 2014 2015 3.0 3.0 2016 2.5 2.5 2017 2.0 2.0 1.5 * 2007 2011 2015 1.5 2019 February SMP forecasts Sources: ABS; RBA The analysis in this article will mainly focus on wage growth as measured by the wage price index (WPI). However, the Bank assesses a range of available measures of labour costs to provide insights into labour market conditions and inflationary pressures in the economy. Each measure captures a slightly different concept of labour costs, although importantly they all point to a slowing of earnings growth in recent years (Graph 2). The main measures that the Bank B U L L E T I N | M A R C H Q UA R T E R 2017 EC Bulletin.indb 13 13 13/03/2017 12:38 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A Graph 2 Labour Costs Growth Year-ended % 8 % 8 AENA 6 AWOTE 4 6 4 2 2 0 0 % 5 % 5 Active EBA AAWIs* 4 4 3 3 WPI 2 2 1 1 0 2000 * 2004 2008 2012 2016 0 Average annualised wage increases Sources: ABS; Department of Employment; RBA follows are the WPI and average earnings from the national accounts (AENA). The WPI, which began in 1997, is designed to measure changes in wage rates for a given quantity and quality of labour. The index is constructed by the Australian Bureau of Statistics (ABS) by comparing the wage for a given job to the previous quarter; adjustments are made to exclude any changes in wages resulting from changes in the nature of the job or the quality of the work performed.2 It is constructed for a fixed basket of jobs, so by design it should be unaffected by changes to the composition of the labour force. AENA is a better indicator of inflationary pressures in the economy than the WPI. This is because it is wider in scope as it includes non-wage costs, such as superannuation and redundancy payments, and the impact of any changes to the composition of the workforce. This may include changes to the type of jobs workers hold or slower-moving demographic changes to the labour force. In practice, the volatility in the AENA series can sometimes make 2 Although the WPI abstracts from pay increases due to improvements in labour quality, it will be influenced by productivity improvements arising from capital investment or technological innovation. 14 it difficult to separate out noise from signal. Other measures of labour costs include the semiannual average weekly ordinary-time earnings (AWOTE) and wage increases in enterprise bargaining agreements (EBAs). The Bank has widely discussed the likely determinants of the recent slowing in wage growth. Jacobs and Rush (2015) argue that spare capacity in the labour market, a decline in inflation expectations, lower profitability following the decline in the terms of trade, and the need for the real exchange rate to adjust to improve international competitiveness have all contributed to lower wage growth. Firstly, there has been more slack in the labour market since 2008 and employees may be more willing to accept lower wage growth given concerns about future employment. The decline in inflation outcomes and expectations in recent years may have also contained wage growth. Some employees are effectively bargaining over ‘real’ wages, with some wages either indexed or heavily influenced by CPI outcomes. The sharp rise and subsequent fall in the terms of trade has also had a significant effect on wage growth over the past decade. During the run-up in the terms of trade, many firms’ output prices rose sharply, meaning they could afford to pay higher wages while profits also increased. Mining and mining-exposed firms needed to pay higher wages to attract labour to increase output. Since the peak in the terms of trade in 2011, firms’ output prices have not grown as quickly and wage growth has subsequently slowed. Finally, the strong growth in wages during the large run-up in the terms of trade outpaced that in many comparable economies, resulting in a decline in the international competitiveness of Australian labour. However, since the terms of trade have been declining, low growth of wages has played the reverse role of improving R E S E R V E B A N K O F AU S T R A L I A EC Bulletin.indb 14 13/03/2017 12:38 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A international competitiveness, in conjunction with the depreciation of the exchange rate. A wage model which includes labour market spare capacity, inflation expectations, a measure of firms’ output prices and a lag of wage growth, cannot fully explain the decline in wage growth over recent years.3 There are many possible explanations for this. For example, it may be that there is more slack in the labour market than the unemployment rate would suggest, or that the relationship between labour market slack and wage growth has changed. Spare Capacity in the Labour Market In this section, we delve further into the role of spare capacity in the labour market. The typical measure used in the Bank’s Phillip Curve models of wage inflation is the unemployment rate gap – that is, the difference between the unemployment rate and the rate of unemployment that is consistent with the economy producing near its potential. The latter unemployment rate, which is not observed directly and has to be estimated, is associated with a stable rate of inflation and is referred to as the non-accelerating inflation rate of unemployment (NAIRU). The estimate of the NAIRU has fallen over recent years as a result of weakness in unit labour costs (which is AENA adjusted for productivity) and inflation. The Bank’s estimate of the unemployment gap suggests that spare capacity in the labour market has declined a little more recently as the unemployment rate has declined by more than the estimate of the NAIRU; however, wage growth has continued to moderate (Graph 3). This is consistent with the experience 3 The Bank has recently modified the specification of the wages Phillips Curve model that was outlined in Jacobs and Rush (2015). See Appendix A for details of the model. Graph 3 % WPI Growth and the Unemployment Gap Unemployment gap (RHS)* 4.5 -1.0 4.0 -0.5 3.5 0.0 3.0 0.5 Year-ended growth in WPI (LHS) 2.5 1.0 2.0 1.5 1.5 2000 * 2004 2008 2012 2016 2.0 The unemployment gap is inverted Sources: ABS; RBA of other advanced economies in recent years that also have experienced modest wage growth despite labour market conditions tightening. This lends itself to a question of whether there is more slack in the labour market than the unemployment gap would suggest or whether the relationship between wage growth and the labour market has changed. Another measure of spare capacity in the labour market is the level of underutilisation in the economy – which, in addition to the level of unemployment, also captures the level of underemployment in the economy. The underemployment rate measures the number of employed people who would like and are available to work additional hours, expressed as a share of the labour force. Between 2004 and 2014 the underemployment rate tended to move fairly closely with the unemployment rate. However, over recent years it has remained elevated while the unemployment rate has declined (Graph 4). Underemployment measured in terms of extra hours of work desired has diverged by less than this heads-based measure (RBA 2017). Recent Bank analysis provides some information on the characteristics of the pool of underemployed workers. The bulk of B U L L E T I N | M A R C H Q UA R T E R 2017 EC Bulletin.indb 15 ppt 15 13/03/2017 12:38 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A Graph 4 Labour Underutilisation Per cent of labour force % 6 % 8 Unemployment rate (LHS) 7 5 Underemployment rate (RHS)* 6 4 3 2004 * 2007 2010 2013 2016 5 Full-time workers on reduced hours for economic reasons and part-time workers who would like, and are available, to work more hours Source: ABS underemployed workers are part-time workers who would like to work additional hours (around 8 per cent of the labour force). The second category of underemployed workers are those who usually work full time, but are working part time for economic reasons (less than 1 per cent of the labour force). There are a number of reasons for the elevated level of the underemployment rate: the changing composition of employment growth towards industries with higher rates of part-time employment and underemployment, along with firms responding to economic conditions by adjusting workers’ hours. It is not clear how much labour underutilisation might weigh on wage growth. The presence of underemployed workers could dampen wage growth given they offer additional labour supply or may be more concerned about their job security and have less bargaining power to achieve higher wages.4 Unsurprisingly, given the tight historical relationship between unemployment and underemployment, we have found little empirical evidence to suggest that the level of underemployment in Australia has affected wage growth separately to unemployment. More recently, the divergent trends in underemployment and unemployment could account somewhat for wage growth slowing by more than what is suggested by the unemployment gap. As a result, trends in the underemployment rate and other measures of underutilisation will continue to be monitored. It may also be the case that the relationship between wage growth and spare capacity in the labour market may be changing due to structural changes in the labour market. It has been posited in the international literature that low wage growth may reflect a decline in workers’ bargaining power. For example, new arrangements, such as a restructuring of work processes due to technological progress, an increase in contract work, and increased competitive pressure from growing internationalisation of services trade, may be weighing on wage growth. These factors, alongside spare capacity in the labour market, may be making workers feel less secure about their jobs and, in turn, they may be less inclined to push for larger wage increases. Such changes to bargaining power are difficult to observe and, as a result, the evidence of this occurring in Australia is limited. Measures of job security, as measured by households’ perceived probability of losing their job in 12 months’ time or their overall satisfaction with job security, are at low levels (Graph 5). However, it appears these indicators have tracked labour market conditions fairly closely, suggesting that these job security measures are not measuring anything separate to traditional labour market indicators such as unemployment. 4 It may also be the case that low wage growth may lead to higher underemployment in that workers may desire more hours than otherwise in order to boost income growth. 16 R E S E R V E B A N K O F AU S T R A L I A EC Bulletin.indb 16 13/03/2017 12:38 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A Graph 5 Graph 6 Job Security and Wage Growth Average subjective probabilities* % 69 Finding a better or equivalent job if laid off 66 % % 6 % Losing job*** 4 13 2 % Voluntary leaving job 25 4 20 2 15 2004 2008 Quarterly* Frequency** % Size*** 2 10 % % 4 WPI** (RHS) 63 Frequency and Size of Wage Changes 2012 * Within the next 12 months ** Year-ended private sector wage price index growth *** Indicator has been inverted Sources: ABS; HILDA Release 15.0; RBA 0 2016 Trends in Wage Growth at the Micro Level Job-level WPI data can provide further evidence on the determinants of wage growth. This analysis is the result of a recent collaboration between the Reserve Bank and the ABS using data on wage growth for around 18 000 jobs (Bishop 2016). Using these job-level data, it is possible to decompose aggregate wage growth into the frequency and average size of wage changes. Since 2012, both the average frequency and the average size of wage changes have declined (Graph 6). Overall, the declining size of wage increases has contributed more than two-thirds of the overall fall in wage growth since 2012, and the reduction in the frequency of wage adjustments has contributed the remainder. This pattern is similar across public and private sector wages. The frequency of wage adjustments is currently at a low level; around one fifth of all wages are adjusted each quarter compared to around one quarter of all wages in 2012. This fall in the average frequency could reflect more wage freezes or longer delays in renegotiating wage contracts, as wages are often frozen during the 26 4 22 3 18 2004 2010 2016 2004 2010 2016 * Smoothed using a four-quarter trailing average ** Share of jobs with a wage change *** Average percentage wage change, conditional on a wage change Sources: ABS; RBA negotiation period. It is also likely to reflect an inability of many firms to cut wages. The fall in the average frequency of wage adjustment was also quite pronounced during the global financial crisis; in part, this reflected the Australian Fair Pay Commission’s decision to freeze the Federal Minimum Wage and award wages in 2009. The steady decline in the frequency of wage changes since the early 2000s may reflect a longer-run shift towards contracts that make less frequent wage adjustments. The average size of wage changes (conditional on there being a wage change) has also fallen since 2012. This is largely due to a reduction in ‘large’ wage rises (more than 4 per cent); in fact, this has had a very significant effect on overall wage growth. The share of jobs that experienced a wage change of over 4 per cent has fallen from over one-third in the late 2000s to less than 10 per cent of jobs in 2016 (Graph 7). In addition, the average size of these large wage changes has declined to a little less than 6 per cent. The declining share of large wage rises since 2012 has been apparent across all industries, though the shift has been largest in mining and industries B U L L E T I N | M A R C H Q UA R T E R 2017 EC Bulletin.indb 17 2 17 13/03/2017 12:38 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A Graph 7 Graph 9 Wage Changes of Different Sizes Share of jobs that experience a wage change* % 2–3% More than 4% 40 % 40 3–4% 30 σ Dispersion in Wage Growth Across Jobs Standard deviation of quarterly growth rate* σ 2.5 2.5 2.0 2.0 1.5 1.5 30 0–2% 20 20 10 10 Less than 0% 0 2000 * 2004 2008 2012 2016 0 exposed to mining, such as construction and professional services (Graph 8). At the peak of the mining investment boom in 2012, well over half of mining jobs received a wage increase of more than 4 per cent. These large wage increases were required for labour to shift to the mining (and mining-related) sector, and accordingly, there was a high dispersion of wage growth across jobs during that period (Graph 9). The current low level of wage growth dispersion might also suggest that the labour market Graph 8 Share of Wage Rises Larger than 4 Per cent By industry 2012 2016 20 Sources: ABS; RBA 18 40 * 2004 2008 2012 1.0 2016 Smoothed using a four-quarter trailing average Sources: ABS; RBA Smoothed using a four-quarter trailing average Sources: ABS; RBA Mining Manufacturing Elec. gas etc Construction Wholesale Retail trade Accomm. & food svces Transpt & postal Info media Fin & Ins svces Rent hire & R/E svces Prof scient & tech Admin & supp svces Public admin Education Health Arts & rec svces Other svces 0 1.0 2000 60 % adjustment following the end of the mining boom has run its course. However, relative wages in the mining industry and mining-exposed states are still significantly higher than they were pre-boom, suggesting there may be more adjustment to come (Graph 10). It is likely that the adjustment to lower relative wages in mining will be slower than during the run-up to the peak in the terms of trade. This is because most firms tend to be unwilling or unable to cut nominal wages (known as ‘downward nominal wage rigidity’). Indeed, real wages have been fairly unchanged over recent years (Graph 11). The share of wage rises between 2–3 per cent has increased to now account for almost half of all wage changes (Graph 7). This may indicate some degree of anchoring to CPI outcomes and/or the Bank’s inflation target. Decisions by the Fair Work Commission, which sets awards and minimum wage outcomes, are heavily influenced by the CPI. A little over 20 per cent of employees have their pay determined directly by awards, and it is estimated pay outcomes for a further 10–15 per cent of employees (covered by either enterprise agreements or individual contracts) are indirectly influenced by awards. Information from the Department of R E S E R V E B A N K O F AU S T R A L I A 02 Insights into Low Wage growth.indd 18 13/03/2017 4:07 pm I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A Graph 1 0 Relative Wage Price Index* index index 108 108 106 106 Mining** 104 102 104 102 Western Australia and Queensland*** 100 100 98 98 96 2002 * 2004 2006 2008 2010 2012 2014 2016 96 Aggregated by distribution of employers' expenditure on wages; seasonally adjusted; 2002 average = 100 ** Wage price index in mining industry relative to non-mining industries *** Wage price index in Western Australia and Queensland relative to rest of Australia Sources: ABS; RBA Graph 1 1 Real Wage Price Index Growth Year-ended % % Deflated with headline CPI 2 2 1 1 0 Deflated with inflation expectations* -1 * 2004 0 Deflated with trimmed-mean CPI inflation 2008 2012 -1 2016 Inflation expectations obtained from bond yields, union surveys and market economist surveys Sources: ABS; RBA; Workplace Research Centre; Yieldbroker Employment’s EBA database suggests around 7 per cent of employees covered by EBAs have wage outcomes linked to the CPI, while two-fifths of a selection of firms in the Bank’s liaison program indicated the CPI was a primary determinant of wage-setting. Furthermore, survey evidence from unions also suggests that inflation outcomes and expectations are an important consideration. This evidence suggests the indexing or anchoring of wage outcomes to CPI may be an important dynamic in explaining current wage outcomes. Wage growth across all pay-setting methods has declined. Wage growth in industries that have a higher prevalence of individual agreements has declined most significantly over recent years, following strong growth in the previous few years. This may reflect the fact these industries have been influenced by the large terms of trade movements, but may also indicate that wages set by individual contract can respond most quickly to changes in economic conditions. Wage growth in industries with a higher share of enterprise bargaining agreements have the lowest wage volatility, as the typical length of an agreement is around two and a half years. While changes in wage growth and labour market outcomes by pay-setting may reflect differences in wage flexibility or bargaining power, these can be difficult to distinguish from a wide range of other determinants of wages, including variation in industry performance, the balance of demand and supply for different skills, and productivity. Conclusion The job-level micro WPI data provides further insights into the slowing of wage growth in Australia over recent years. Following the decline in the terms of trade, there has been a reduction in the average size of wage increases. This has been particularly pronounced in mining and mining-related wage industries. The increasing share of wage outcomes around 2–3 per cent also provides further support for the hypothesis that inflation outcomes and inflation expectations influence wage-setting. The Bank’s expectation is that wage growth will gradually pick up over the next few years, as the adjustment following the end of the mining boom runs its course. The extent of the recovery will, in large part, depend on B U L L E T I N | M A R C H Q UA R T E R 2017 EC Bulletin.indb 19 19 13/03/2017 12:38 pm t I N S I G H T S I N TO LO W WA G E G R O W T H I N AU S T R A L I A how wage growth will respond to improving labour market conditions, including the level of underutilisation. While it is difficult to identify if structural changes are partly driving recent wage outcomes, these factors will continue to be monitored. R Appendix A: Wages Model The Bank has recently made some modifications to the wages Phillips Curve model that was presented in Jacobs and Rush (2015). The baseline model is below: % WPIt = + 1UnemGapt 1 + 2InfExpt + 3GDPdeft 1 + 4 URt 1 1 + 5 % WPIt 1 + et (A1) Where: • % WPIt = + quarterly is the percentage change 1UnemGap t 1 + 2InfExp t 1 in seasonally private sector WPI + adjusted GDPdef + UR 3 t 1 4 t 1 WPItt 11 + et % WPIt = + InfExp is1 + the gap’ • 1UnemGapt + 5% 2‘unemployment (difference the unemployment rate + 3GDPdef +between t 1 4 URt 1 and the estimated NAIRU) + % WPI + e 5 t 1 t = + 1UnemGap inflation expectations • +2InfExp % WPItt =1 + t is1 ‘trend’ 1UnemGap t 1 + 2InfExpt 1 + 3GDPdeft 1 + + GDPdef + two t 1 year-ended percentage •4 3UR t is 1 the 4 UR t 1 the %2InfExp WPItin1 + et non-farm GDP deflator t 1 + et ++5change WPIt+ = 5% + 1WPI UnemGap t 1 + 3GDPdeft 1 +• + 5 % WPIt 1 + et 4 URt is1 the quarterly change in the unemployment rate Inflation expectations are captured using a ‘trend’ measure, which combines a mix of long-term survey and financial market measures of inflation expectations; long-term inflation expectations measures had a slightly better fit than shorter-term inflation expectations. The GDP deflator is included to capture changes to growth in firms’ output prices. This is motivated by the fact that labour demand is a function of labour productivity and the producer real wage (that is, the cost of wages with respect to firms’ output prices). The use of the GDP deflator 20 rather than the gross national expenditure (GNE) deflator as a proxy for output prices incorporates a potential role for changes to commodity export prices to influence wage outcomes. The change in the unemployment rate is included to capture the wage growth pressure from quick changes to the rate of unemployment, for example, during the global financial crisis. The lag of the private sector WPI is included to capture persistent factors affecting wage growth. The coefficients in the model have the expected sign and the fit of the model is an improvement on the Jacobs and Rush model. This model suggests that the current low levels of wage growth can be mostly explained by weak output prices and spare capacity in the labour market. However, there is still some unexplained weakness in wage growth. There is evidence of structural breaks in the model which provides some evidence that the relationship between wage growth and the labour market has changed. We also allow for the possibility that recent negative shocks may be persistent by estimating a model that has time-varying coefficients. Although the baseline model remains the Bank’s main wage model, the suite of wage models will continue to be monitored. References Bishop J (2016), ‘Feature Article: The Size and Frequency of Wage Changes’ Wage Price Index, Australia, September 2016, November. Available at . Jacobs D and A Rush (2015), ‘Why is Wage Growth So Low?’, RBA Bulletin, June, pp 9–18. Kent C (2016), ‘After the Boom’, Address to a Bloomberg Breakfast, Sydney, 13 September. Reserve Bank of Australia (2017), ‘Box B: Underemployment and Labour Market Spare Capacity’, Statement on Monetary Policy, February pp 38–40. R E S E R V E B A N K O F AU S T R A L I A 02 Insights into Low Wage growth.indd 20 16/03/2017 10:45 am Why Is Wage Growth So Low? David Jacobs and Alexandra Rush* Wage growth has declined markedly in Australia over the past few years. At the same time, stronger growth in labour productivity has worked to contain growth in labour costs. These developments reflect several factors, including spare capacity in the labour market, a decline in inflation expectations, a lower terms of trade and the need for the real exchange rate to adjust to improve international competitiveness. The size of the decline in wage growth has been larger than simple historical relationships would suggest, which might be explained by various characteristics of the current episode. The Decline in Wage Growth The rate of wage growth has important implications for the macroeconomy. Wages are the largest source of household income and the largest component of business costs, and so have significant implications for consumer price inflation. Wage growth has declined markedly in recent years to the lowest pace since at least the late 1990s, according to the wage price index (WPI) (Graph 1). Wage measures with a longer history suggest that this has been the longest period of low wage growth since the early 1990s recession.1 Across these measures, the rate of annual wage growth has declined to around the pace of inflation, about 2–3 per cent. The slowing in wage growth has occurred alongside faster growth in labour productivity. This has also helped to moderate growth in labour costs for firms, beyond the impact of lower wage growth. Accordingly, growth in the labour cost of producing a unit of output (unit labour costs, or ULCs) has also declined markedly since 2012 (Graph 2). Indeed, the level of ULCs has been little changed for more than * The authors are from Economic Analysis Department and thank Trent Wiltshire for valuable input to this article. 1 The WPI tends to be the smoothest measure of wage growth because it measures the change in wages for a fixed and representative basket of jobs (which is updated periodically). Other measures, including measures of average earnings from the national accounts (AENA), tend to be more volatile as they are affected by compositional change and quality improvements. The various measures of wages are useful in different circumstances. For further discussion, see RBA (2006). Graph 1 Wage Growth Year-ended % % 4 4 Wage price index 3 3 % Average earnings per hour* % 7.5 7.5 5.0 5.0 2.5 2.5 0.0 0.0 -2.5 1990 * 1995 2000 2005 2010 -2.5 2015 The black lines represent the average over the period Sources: ABS; RBA Graph 2 Contributions to Unit Labour Cost Growth Non-farm, year-ended % Unit labour costs 9 % Average earnings per hour 9 6 6 3 3 0 0 -3 -3 Labour productivity -6 (inverted) 1990 1995 2000 2005 2010 -6 2015 Sources: ABS; RBA B U L L E TIN | J U N E Q UA R T E R 2 0 1 5 9 WH Y I S WAGE GROW T H S O L OW ? three years – the longest such period since the early 1990s. The recent low wage growth has not been unique to Australia. Internationally, wage growth has been lower than forecast for several developed economies in recent years, including some where labour markets have tightened considerably. Various factors have been proposed to explain this weakness, including secular trends that have been in place for some time and have also resulted in a general decline in the labour share of income (see, for example, Yellen (2014)).2 However, the decline in wage growth in Australia stands out, with the extent of the forecast surprise for Australia particularly large in the context of OECD countries in recent years (Graph 3). Several factors appear to explain much of the decline in Australian wage growth, and these are discussed in the remainder of this article. There has been an increase in spare capacity in the labour market, and expectations of future consumer price inflation have Graph 3 Wage Growth Surprise* 2014 ppt ppt US Italy Sweden OECD Canada France Germany Norway Australia -2 Spain -1 Japan -1 UK 0 South Korea 0 -2 Wage Growth and Unemployment It has been widely observed that, in the short run, lower wage growth is associated with higher rates of unemployment (Phillips 1958; Fuhrer et al 2009). Firms experiencing subdued demand for their goods and services will seek to contain costs, including labour costs. Wages tend not to adjust quickly to lower growth in labour demand, so firms initially seek to contain their labour costs by laying workers off, reducing hours or reducing hiring.3 As slack in the labour market rises, employees become more anxious about their job security and become willing to accept lower wage growth as there are fewer opportunities for alternative employment and more competition for any given job vacancy. As labour market conditions fluctuate over the business cycle, the economy moves along this so-called Phillips curve (Graph 4).4 The decline in wage growth since late 2012 appears to have been unusually large relative to the increase in the unemployment rate. Based on the estimated 2014 growth in compensation per employee (i.e. AENA per head), relative to 2013 OECD forecast Sources: OECD; RBA 3 There are various theoretical explanations for the slow adjustment in wages, including the use of contracts, imperfect information, the effect of wages on productivity (the ‘efficiency wage’ theory) and the absence of unemployed workers from wage bargaining (‘insideroutsider’ theory). 2 For example, an increase in the global supply of low-skilled labour over the past decade may have eroded the bargaining power of competing labour in developed economies. In addition, certain job types may have been more prone to automation (Borland 2011), and there has been a general decline in union density in many developed economies. 4 The unemployment gap is the difference between the unemployment rate and a statistical estimate of the non-accelerating inflation rate of unemployment (NAIRU). For a discussion, see Ballantyne, De Voss and Jacobs (2014). While one possible explanation for slow wage growth is a decline in the NAIRU, other evidence does not suggest that a marked reduction in the NAIRU has occurred. * 10 declined to be a bit below average. Inflation in output prices in recent years has been particularly subdued, in large part owing to the lower terms of trade. More generally, the decline in the terms of trade and fall in mining investment in recent years mean that the economy requires a lower ‘real’ exchange rate, which has been in part delivered by low wage growth. A statistical model indicates that these factors do not fully explain the extent of decline in wage growth, suggesting that other factors, such as an increase in the flexibility of wages to market conditions, may also have contributed. R ES ERV E BA NK OF AUS T RA L I A WH Y IS WAGE GROWTH SO L OW? Graph 4 Inflation Expectations Wage Phillips Curve* 1998–2015 Year-ended WPI growth – % 5 September 1998–September 2012 4 3 Since September 2012 2 -0.5 * 0.0 0.5 1.0 1.5 2.0 Year-average unemployment gap – ppt 2.5 The line of best fit for the 1998 to 2012 data is shown in black Sources: ABS; RBA relationship that held from 1998–2012, WPI growth has declined by more than twice as much as would have been expected. A longer-term analysis, based on the measure of average earnings from the national accounts (AENA), also suggests that the wage adjustment has been large given the change in unemployment (Graph 5). What stands out about the current episode is that wages have fallen as sharply as they did in some earlier episodes that had larger and sharper increases in the unemployment rate. Graph 5 Difference to trough/peak* 1989–96 2000–04 2007–10 2011–15 5 ppt 5 0 Average earnings -5 -10 -5 1990 * 1996 2004 2010 Difference to trough of unemployment rate; peak of year-ended growth of average earnings per head Sources: ABS; RBA Graph 6 Consumer Price Inflation Expectations Deviations from average since July 1996 2015 -10 ppt 3 Consumer* 2 2 1 1 0 0 -1 -1 ppt 1 Unemployment 0 Surveys of households and unions indicate that expected consumer price inflation for the year ahead has been below average, while long-term financial market measures are also a little below average (Graph 6). Some liaison contacts also report that inflation benchmarks applied in wage negotiations are a little lower than in the past few years. Altogether, expectations of inflation of consumer prices, while generally well anchored, appear to have a cyclical component that might feed back into wage outcomes. ppt 3 Unemployment and Wages in Downturns ppt The above results suggest that wage growth may be lower for a given rate of unemployment than in the past (i.e. the Phillips curve may have shifted inwards). Inflation expectations are one important factor that can shift the position of the Phillips curve. Employees are ultimately concerned with the purchasing power of their wage in terms of the goods and services it affords, rather than its monetary value (i.e. they are concerned about their real as opposed to nominal wage). Accordingly, lower wage growth might be partly explained by temporarily lower inflation expectations for consumer prices. ppt 1 Union officials** 0 0 -1 -1 ppt 1 ppt 1 Financial markets*** 0 0 -1 -1 -2 2005 2007 2009 2011 2013 2015 * Three-month moving average of the trimmed mean of inflation expectations over the next year ** Median of union officials’ expectations of inflation over the next year -2 *** Break-even 10-year inflation rate on indexed bonds; interpolation used to match exact maturity Sources: Australian Council of Trade Unions; Employment Research Australia; Melbourne Institute of Applied Economic and Social Research; RBA; Workplace Research Centre; Yieldbroker B U L L E TIN | J U N E Q UA R T E R 2 0 1 5 11 WH Y I S WAGE GROW T H S O L OW ? However, even accounting for temporarily lower inflation expectations, real wage growth from the perspective of consumers has declined markedly, to around zero (Graph 7). This suggests that inflation expectations account for only a small part of the overall decline. Moreover, inflation expectations tend to decline during most periods of rising unemployment, so it is unlikely to explain why the decline in wage growth has been unusually large in the recent episode. Graph 7 Real Wage Price Index Growth* Year-ended % % 2 2 1 1 service mining extraction and investment (such as business services and construction). For these firms, higher output prices meant that nominal wages could rise while also increasing profits. Facing higher prices and a relatively tight labour market, higher wages would also have served to attract scarce labour and increase output. The result was that increases in wages benefited employees by more than they cost employers over much of the past decade. That is, real wages from the perspective of employers fell relative to real wages from the perspective of households (Graph 8). From 2002 to 2012, the real producer wage declined overall, while the real consumer wage increased by around 10 per cent. In recent years, this situation has reversed; since 2012, real consumer wages have seen little growth (as noted above) whereas real producer wages have increased sharply. Graph 8 0 Deflated with inflation expectations* -1 2003 * 2006 0 Deflated with trimmed mean CPI inflation 2009 2012 Real Wages Deflated with inflation, June 2002 = 100 index 2015 index Real consumer wage -1 (CPI) 110 110 Inflation expectations obtained from bond yields, union surveys and market economist surveys (from 2005) Sources: ABS; Australian Council of Trade Unions; Employment Research Australia; RBA; Workplace Research Centre; Yieldbroker 105 105 Output Prices and the Terms of Trade Firms are also concerned with prices when considering the wages that they offer. Higher prices for a firm’s output mean that it can afford to pay higher wages, and vice versa. Normally, output prices in the economy would be closely related to the prices that consumers pay for goods and services, so firms and households would have similar inflation expectations. But when there are changes in the terms of trade, the prices that firms receive and the prices that consumers pay can deviate substantially. The rise in the terms of trade during the mining boom saw many firms’ output prices increase by more than consumer prices. This was particularly true of mining prices, but also of prices in other industries that 12 R ES ERV E BA NK OF AUS T RA L I A 100 100 Real producer wage (GDP deflator) 95 1999 2003 2007 2011 95 2015 Sources: ABS; RBA Strong growth in output prices up to 2012 meant that firms could afford higher unit labour costs. Over the period of the rising terms of trade and increased mining investment, ULC growth averaged close to 4 per cent a year, with the exception of a brief period following the financial crisis in 2008 (Graph 9). This pace was well above that recorded over the first decade of inflation targeting, when ULC growth averaged around 2 per cent. WH Y IS WAGE GROWTH SO L OW? 4 2 2 0 0 -2 1995 1999 2003 2007 2011 -2 2015 Sources: ABS; RBA Growth in unit labour costs can be broken down into growth in output prices and changes in the share of income being paid to labour (Graph 10). The strong growth in ULCs over much of the 2000s was fully explained by the faster pace of growth in output prices, while the labour share of income actually fell slightly.5 Similarly, the recent period of slower growth in ULCs can be fully explained by the slower pace of growth in output prices, while the labour share of income has increased a little. Graph 10 Unit Labour Cost Growth Decomposition* Year-ended % 8 % 8 Output prices (GDP deflator) 6 Unit labour costs 4 6 4 2 2 0 0 -2 -2 -4 -4 Labour income share -6 2003 * 2007 2011 -6 2015 Composition does not sum precisely due to cross-product Sources: ABS; RBA 5 That is, strong growth in unit labour costs was accompanied by even stronger growth in firms’ margins. For a discussion of the labour income share over the resources boom, see Parham (2013). Graph 11 Unit Labour Cost Growth Non-farm, annual average % 5.0 2.5 0.0 % 5.0 2.5 0.0 1994–2004 % 10.0 % 10.0 7.5 7.5 2004–12 5.0 5.0 2.5 % 2.5 0.0 -2.5 -5.0 2.5 2012–14 Professional services Retail trade Media & telecommunications Arts & recreation 4 Health care Accommodation & food Finance & insurance Non-farm total Wholesale trade Transport Manufacturing Public administration & safety 6 Period average Construction Rental, hiring & real estate 6 % Mining Year-ended % While the rise and subsequent decline in ULC growth has been particularly pronounced in those industries more exposed to the resources boom, it has been relatively broad based. ULC growth between 2000 and 2012 was above the growth rates experienced in the 1990s for around three-quarters of industries, with many industries recording ULC growth in excess of 3 per cent. ULC growth in this period was fastest for mining and several industries that provide intermediate inputs to resource extraction and investment, including construction and business services (such as administrative and rental services) (Graph 11). Since 2012, a decline in ULC growth has been recorded across almost all industries, but again has been most pronounced in the mining industry. Utilities Other services Administrative & support Education & training Graph 9 Unit Labour Cost Growth % 2.5 0.0 -2.5 -5.0 Sources: ABS; RBA The Real Exchange Rate The cycles in wage growth over the past decade have had consequences for the cost competitiveness of Australian producers, which has been an important part of the economy’s adjustment over this period. This can be examined in the context of the ‘real’ exchange rate. The real exchange rate expresses B U L L E TIN | J U N E Q UA R T E R 2 0 1 5 13 WH Y I S WAGE GROW T H S O L OW ? prices or costs relative to those of our trading partners in common currency terms, and provides one indication of an economy’s competitiveness. Other things equal, an economy’s competitiveness improves when the real exchange rate depreciates, either by way of a depreciation of the nominal exchange rate or a decline in that economy’s relative prices or costs (and vice versa). One measure of the real exchange rate is based on relative ULCs.6 Over the decade to 2012, the ULC measure of the real exchange rate appreciated markedly (Graph 12). This reflected an appreciation of the nominal exchange rate of about 50 per cent and an increase in Australia’s ULCs relative to our trading partners of almost 30 per cent. As has been widely discussed, the appreciation helped to ensure that the economy did not overheat in response to the large run-up in export prices and mining investment, by dampening non-mining activity (Plumb, Kent and Bishop 2013; Kent 2014). More recently, the decline in ULC growth has assisted in improving the international cost competitiveness of Australian producers. The ULC measure of the real exchange rate has depreciated by around 12 per cent since 2012, due to both a lower nominal exchange rate and, to some extent, a decline in Australia’s ULCs relative to our trading partners.7 In turn, this has helped the economy to adjust to the headwinds posed by the lower terms of trade and falls in mining investment.8 Nevertheless, the ULC measure of the real exchange rate remains about 20 per cent higher than when the terms of trade were at a similar level in 2006. 6 This measure of the real exchange rate gives a sense of international competitiveness from the perspective of labour costs, but it is not comprehensive. For example, it does not capture the effect of margins and non-labour costs on international competitiveness, and it is subject to various data limitations. A more commonly cited measure of the real exchange rate is based on consumer prices. 7 To some extent, nominal ULCs in Australia would be expected to trend higher relative to many developed economy trading partners over long periods, owing to Australia’s slightly higher inflation target. 8 These developments in the real exchange rate stand in contrast to the decade to 2003, during which movements were driven largely by changes in the nominal exchange rate. 14 R ES ERV E BA NK OF AUS T RA L I A Graph 12 Real Effective Exchange Rate* Trade-weighted index, 2002 average = 100 index index 175 175 Real TWI** (nominal ULCs) 150 150 125 125 Nominal TWI 100 75 1994 * ** 1999 2004 2009 2014 Excludes China and several other trading partners as unit labour cost data are unavailable Nominal trade-weighted index adjusted for ratio of nominal unit labour costs Sources: OECD; RBA The pattern of rising and then falling relative ULCs has been broadly evident across trading partners. It has been most pronounced against highly industrialised economies such as Germany, Japan and Korea, and more modest against other commodity exporters such as New Zealand and Canada. Estimating the Contributions: A Phillips Curve Model of Wages A simple econometric model of private sector wage growth in Australia can be used to estimate the relative contribution of many of the factors outlined above. In particular, the model attempts to explain wage growth using the unemployment rate (both in level terms as a gap to the non-accelerating inflation rate of unemployment (NAIRU) and in changes), expectations of consumer price inflation, and inflation outcomes for firms (capturing movements in the terms of trade, and as a proxy for firm inflation expectations).9 Of course, such a model captures only co-movements between different variables, which may not indicate causation. The model is estimated over 1997–2015 (the period for which WPI data are 9 For more information on the NAIRU and how it is estimated, see Ballantyne et al (2014). 100 75 WH Y IS WAGE GROWTH SO L OW? available). Full details of the model specification and results are set out in Appendix A. Much of the recent decline in wage growth can be attributed to these explanatory variables (Graph 13). Historical relationships suggest that rising unemployment, lower inflation expectations and the decline in the terms of trade can together explain about two-thirds of the total decline in wage growth over the past few years. Wage growth has declined by somewhat more than historical relationships with these variables would suggest.10 tended to be higher than the model could explain (i.e. there were positive residuals both in and out of sample). The weakness in recent years might reflect a need for firms to adjust to a particular level of wages, in which case there may have been an element of ‘payback’ for this earlier period of strength. •• There may have been some shift in the bargaining power of labour. While this is difficult to observe directly, inflation expectations for unions have shifted by more than some other measures and union wage expectations are also at historic lows. Liaison reports indicate that secular influences from technology and competition from offshore labour may partly explain the weakness in wage growth in some sectors in recent years; however, the influence of such developments is subject to considerable debate. •• Low wage outcomes for public sector agreements in recent years may also have indirectly affected wage bargaining in the private sector, particularly as many firms benchmark their wages to industry-wide wages. This effect appears have been strongest in the health and education sectors. •• The rise in the unemployment rate may have understated the extent to which spare capacity has developed in the labour market. For example, greater labour market flexibility may be allowing firms to adjust hours rather than heads by more than usual. Alternatively, there may have been a larger-than-usual decline in labour force participation, potentially owing to the length of the episode. •• Wages may have become more flexible over time. It has been widely recognised that the system of wage bargaining in Australia has become more flexible over the course of the past few decades (Borland 2011), and there are reasons to think that flexibility may have been greater than usual in the current episode. To some degree, individual employment contracts are more prevalent in the industries most exposed to the declines in resource prices and investment, Graph 13 Private Sector WPI Growth Year-ended % % Actual 4 3 4 3 Fitted model ppt Unemployment** 0.5 Contributions* ppt GDP deflator 0.5 0.0 0.0 -0.5 -0.5 Inflation expectations -1.0 1999 2003 2007 2011 -1.0 2015 * Contributions to fitted line relative to average since 1998 ** This includes the effect of the change in the unemployment rate and NAIRU gap terms in the model Sources: ABS; RBA The econometric model simply summarises average historical relationships between wage growth and other variables. However, each episode has its own unique characteristics that may vary from that average experience. It is also possible for relationships to change over time. In particular, there is some statistical evidence that wages have become more sensitive to the unemployment rate in this episode (see Appendix A). Several factors may have, in theory, contributed to the extent of the decline and apparent sensitivity of wages more recently: •• The model does not account for the level of wages. Through the mid 2000s, wage growth 10 A similar result is found when estimating the model over the period to 2012, and then examining the out-of-sample error from 2012 to 2014. B U L L E TIN | J U N E Q UA R T E R 2 0 1 5 15 WH Y I S WAGE GROW T H S O L OW ? such as mining and business services. Another factor is the relatively long span of the episode, at more than three years. As a result, a higher portion of employment contracts have been renegotiated during this period of subdued demand conditions. The typical length of an Enterprise Bargaining Agreement (EBA) is around three years, so virtually all outstanding EBAs have been renegotiated since mid 2011 and some agreements have been negotiated twice (Table 1). By comparison, over 2008–09 a lower proportion of agreements were renegotiated, covering fewer employees. Assessment and Outlook A range of related factors appear to explain much of the decline in wage growth in Australia in recent years. Below-average growth in economic activity has translated into subdued growth in labour demand, which has resulted in an increase in spare capacity in the labour market. At the same time, expectations for consumer price inflation have moderated to be below average. The decline in the terms of trade and falls in mining investment appear to have played a particularly important role, weighing on economic activity and placing pressure on firms to contain costs. This has partly unwound the relatively strong inflation in Australian unit labour costs over the period of the mining boom, which was part of the economy’s adjustment to the domestic income boost from the higher terms of trade. Altogether, the result has been an adjustment in Australia’s relative labour costs, improving cost competitiveness against other advanced economies. In effect, this has assisted in bringing about some adjustment of the real exchange rate. Statistical estimates suggest that these factors explain much, but not all, of the episode, meaning there may also have been some other forces at play including an improvement in the flexibility of wages. While a large wage adjustment has taken place, wage growth is widely expected to remain low (Graph 14). Evidence from the Bank’s liaison with businesses, alongside surveys of firms and union officials, suggest that the general pace of wage growth is not expected to pick up over the year ahead. One further factor that may continue to weigh on wage growth is a ‘pent-up’ adjustment. Reports through the Bank’s business liaison in recent years have indicated that many firms and employees have been reluctant to bargain for wage growth below expected inflation of 2–3 per cent. Accordingly, Graph 14 Expected Wage Growth One year ahead % % Union officials 4 4 3 3 2 2 Firms (NAB survey) 1 1 0 1995 1999 2003 2007 0 2015 2011 Sources: Australian Council of Trade Unions; Employment Research Australia; NAB; RBA; Workplace Research Centre Table 1: Enterprise Bargaining Agreements Per cent of total Agreements replaced(a) Employees covered under replaced agreements (b) Mar 2008–Sep 2009 Jun 2011–Dec 2014 80 105 75 133 (a) Calculated as the number of non-greenfield agreements negotiated divided by the average number of agreements active during the period (b) Calculated as the number of employees covered under non-greenfield agreements negotiated divided by the average number of employees covered by EBAs during the period Sources: Department of Employment; RBA 16 R ES ERV E BA NK OF AUS T RA L I A WH Y IS WAGE GROWTH SO L OW? wage outcomes of 2–3 per cent have been relatively common over the past couple of years among liaison contacts (Graph 15). Outcomes lower than this, which would imply a fall in real consumer wages, are generally seen to have a negative effect on worker morale and productivity, as well as on the retention of quality staff. So while the decline in wage growth has been large, it might have been larger still if not for this element of rigidity in real wage growth. Accordingly, a degree of ‘pent-up’ downward pressure on wage growth might remain for a time, even if labour market conditions more generally were to improve. Appendix A: Wage Phillips Curve Model The Phillips curve model of WPI growth is specified as follows: %ΔWPItPrivate = α + β1NAIRUgapt–1 + β2NAIRUgapt–2 + β3ΔURt–1 + β4BondInfXt–1 + β5BondInfXt–2 + β6BondInfXt–3 + β7%ΔGDPdeft–1 + et (A1) Where: •• WPIPrivate is the private sector WPI •• NAIRUgap is the difference between the quarteraverage unemployment rate and the NAIRU, and enters the model with up to a two quarter lag •• ΔUR is the change in the quarter-average unemployment rate and captures the ‘speed limit’ effect – that a rapid decrease in unemployment could cause an increase in inflation and wages (and vice versa) •• BondInfX is a measure of consumer price index (CPI) inflation expectations implied by 10-year indexed bonds and enters the model with up to a three quarter lag •• %ΔGDPdef is the year-ended growth rate of the non-farm GDP deflator. Graph 15 Distribution of Wage Growth Outcomes As a share of firms reporting wage data in liaison % 60 % July 2014 to May 2015 50 60 50 40 2013/14 30 2002 to June 2013 40 30 20 20 10 10 0 0 to 3 to 4 >4 to 5 Wage growth rate – % >5 0 RBA In all, the decline in wage growth has been an important aspect of the adjustment of the economy to subdued growth in demand in recent years. Had wage growth not declined over this period, employment growth may have been more subdued than actually observed, and unemployment higher, which may have weighed yet further on aggregate demand. R The estimation results indicate that, all else constant, a rise in the unemployment rate of 1 percentage point has been typically associated with a decline in WPI growth of around a third of a percentage point in the near term, on average, but somewhat less thereafter (Table A1). While the NAIRUgap and ΔUR variables do not appear to be significant in the models, these variables are jointly significant. The BondInfX variables are not jointly significant. The Quandt-Andrews unknown break-point test suggests that breaks in the two NAIRU gap coefficients are significant at the 1 per cent level for the third quarter of 2012. When a dummy variable for observations after the third quarter of 2012 (inclusive) and interaction terms with the other explanatory variables are included in the model, there is a significant negative coefficient for B U L L E TIN | J U N E Q UA R T E R 2 0 1 5 17 WH Y I S WAGE GROW T H S O L OW ? the NAIRU gap interaction term. The timing of the break-point, in the third quarter of 2012, coincides with the decline in the quarterly growth of the private sector WPI and thus seems plausible. Table A1: Wage Phillips Curve Models Variable Coefficient(a) Constant 0.44 *** NAIRUgap 0.07 NAIRUgap –0.11 ΔUR(t–1) –0.39 (b) (t–1) (b) (t–2) BondInfX(t–1) 0.10 BondInfX(t–2) –0.08 BondInfX(t–3) 0.10 %ΔGDPdef(t–1) 0.03 *** R2 0.57 Adjusted R2 0.52 (a) *** denotes significance at the 1 per cent level (b) Standard errors do not take into account that the NAIRU results from a previous estimation Source: RBA References Ballantyne A, D De Voss and D Jacobs (2014), ‘Unemployment and Spare Capacity in the Labour Market’, RBA Bulletin, September, pp 7–20. Borland J (2011), ‘The Australian Labour Market in the 2000s: The Quiet Decade’, in H Gerard and J Kearns (eds), The Australian Economy in the 2000s, Proceedings of a Conference, Reserve Bank of Australia, Sydney, pp 165–218. Fuhrer J, YK Kodrzycki, J Sneddon Little and GP Olivei (eds) (2009), Understanding Inflation and the Implications for Monetary Policy: A Phillips Curve Retrospective, MIT Press, Cambridge. Kent C (2014), ‘The Business Cycle in Australia’, Address to the Australian Business Economists, Sydney, 13 November. Parham D (2013), Labour’s Share of Growth in Income and Prosperity, Visiting Researcher Paper, Productivity Commission, Canberra. Plumb M, C Kent and J Bishop (2013), ‘Implications for the Australian Economy of Strong Growth in Asia’, RBA Research Discussion Paper No 2013-03. Phillips AW (1958), ‘The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom’, Economica, 25(100), pp 283–299. RBA (Reserve Bank of Australia) (2006), ‘Box D: Measures of Labour Costs’, Statement on Monetary Policy, February, pp 63–64. Yellen JL (2014), ‘Labor Market Dynamics and Monetary Policy’, Opening Remarks at the Federal Reserve Bank of Kansas City Economic Symposium on ‘Re-evaluating Labour Market Dynamics’, Jackson Hole, Wyoming, 22–23 August. 18 R ES ERV E BA NK OF AUS T RA L I A
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