Productivity Growth = Wage Growth. It’s that simple. Working smarter is the only way.
So what was the point of economic and jobs growth again?
It’s worth asking this obvious question after this week’s apparently stonkingly strong set of jobs figures.
They showed an extra 35,000 jobs were created over the September quarter and that employment has grown 179,000 or 7.7 per cent over the last two years.
The unemployment rate also fell to 4.9 per cent in the September quarter, which is its lowest rate since the Global Financial Crisis in December 2008.
Those numbers looks terrific at first blush and are certainly much better than jobs falling by 179,000 and the unemployment rate rising.
But a closer look shows the number of unemployed actually rose by 1000 to 128,000 over that two-year period and the number of 15 to 24-year-olds who were Not in Employment, Education or Training (NEET) rose by 3000 to 74,000.
Astonishingly, even construction industry annual wage inflation was barely over 2 per cent in the September quarter.
All these numbers should drag everyone back to the ultimate conclusion:
It’s always, always about productivity.
On this measure, New Zealand’s record is awful, and especially since 2012. Real GDP per hour worked has basically flat-lined over the last four years.
Our record is almost as bad over the last 45 years. We have been the second worst country in the OECD for real GDP per hour worked over that period. Worse than Italy, Portugal and France – all of whom are now seen as basket-case, stagnant economies
Basically, we have kidded ourselves that we are richer because there are so many hours being worked by so many people and house values have almost doubled in the last eight years.
The rise in value of New Zealand’s houses to $1 trillion last month has made home owners feel much richer. These values have nothing to do with real incomes. They are all about high net migration, under-building and lower interest rates.
Renters, the young, the unemployed and the under-employed certainly don’t feel the joy of this burst of growth. A much better aim for any Government or business would be to increase real output per hour worked and real hourly wages.
That would really be going for growth, as opposed to the growth we’re kidding ourselves about at the moment.