dinosaur

Last week’s national accounts data confirm the economy is growing at a sub-trend pace of 2.3%. Alongside that, though, the productivity performance remains solid with a 1.4% rise over the past year. And just as importantly for those concerned with “labour market rigidities”, unit labour costs fell 0.4%, which reflects the softer jobs markets in the past year or so and shows that the workforce is able to adapt to changing economic conditions.

These hard numbers on the economy cast a curious light on the recent comments from the head of the Prime Minister’s Business Advisory Council, Maurice Newman, who reckons that “Australian wage rates are very high by international standards, and our system is dogged by rigidities”. Newman suggested that greater flexibility in the labour market is needed and that lower wages are required to boost Australia’s competitiveness and by inference its longer-run economic well-being. Newman also suggested that lower wages would raise demand for labour and lead to an unemployment rate lower than would be the case with a high wage structure.