Rising Productivity Levels: Who Wins and Who Loses in Australia’s Workforce?

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Economists often use the word “profit” to refer only to company profits, but this does not necessarily improve living standards if the focus is solely on producing more with less.

The Productivity Commission’s recent five-yearly inquiry into productivity illustrates how economics can be used as a pretext for giving more power to influential people.

Increasing productivity is believed to enhance the standard of living—that’s it.

Improving productivity is only worthwhile if it leads to an increase in living standards. There’s no benefit to doing more work in less time if it doesn’t improve your quality of life.

Improving household incomes is necessary for improving living standards. Therefore, wage growth is essential. However, if the focus is placed on the “national income,” which includes profits, the perspectives on improving productivity and the methods will differ.

If inflation remains at 3% for an extended period and productivity increases by 1%, then wages will experience a growth of 4%.

A recent research paper from the Reserve Bank highlighted that industry-wide wage agreements might lead to lower productivity growth. However, the author noted that there could be another explanation: an increase in firms’ bargaining power could have enabled them to reduce wages to the industry awards level.

According to the Productivity Commission report, Australia is more productive in farming and digging internationally but less in services.

“The biggest risk is that the gains from productivity are not shared fairly,” said Michael Brennan, an Australian Institute of Management economist. “It’s important for our economy that those who benefit the most from increased productivity share with those in the workforce.”

Economists often avoid acknowledging the impact of power on industrial relations and the economy. Instead, they rely on models where markets function according to mathematical equations.

The benefits of rising productivity levels should be sifted through to ensure they are spread fairly across all workforce sections. Our economic models must recognise the role of power and its impact on wages, working conditions, and productivity levels.

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