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Wage growth puzzle: the productivity and technology piece

Wage growth puzzle: productivity and technology

After years of wage stagnation, KPMG digs deeper to find out what is causing it, while challenging common theories and exploring what government can do to turn the tide.

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Brendan Rynne

Partner, Chief Economist

KPMG Australia

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Puzzle piece with Australian currency

In Australia, aggregate nominal wage growth has averaged just 1.8 percent per annum since 2013 – less than half the average annual growth rate of nominal wages recorded over the previous 18 years.

To explore the causes of this stagnation, KPMG has considered real wage growth from the perspective of the employer via the behaviour of real producer wage RPW (which reflects the real cost to producers of hiring workers) – and from the perspective of employees via real consumer wage RCW (which reflects the workers’ purchasing power).

The recent lack of growth in RCW has accentuated concerns that the long relationship between wage growth and productivity has broken down. However, our analysis shows there has not been a break down in this fundamental economic relationship. Labour productivity remains the key factor across all industries, while the mix of capital and labour an industry employs is also influential in the wage outcome for workers.

Interestingly in the digital age, our analysis shows a step-change in the importance high-tech capital in improving productivity and wage growth. If an industry is slow in investing in technology, wage growth will also be slow.

Our insights lead us to conclude that if government wants Australians to enjoy real wages growth, then it should be pursuing policy settings that promote productivity growth, investment in high-tech capital specifically, capital more broadly, and increased employment. 

The full details of our analysis can be read in our report: Wages, productivity and technology.

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