Tired of shrinking pay? The real drain on Australians' productivity is falling wages
2023-06-16T13:58:00+10:00
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Adjusted for inflation, Australians are being paid less than they were in 2020. These four聽charts show what鈥檚 changed in how we work 鈥 and the growing gap between your pay and what you can afford to buy.
When was the last time you got a pay increase? Was it anywhere near the rate of inflation?
If it feels as if your wage is shrinking and cost of living pressures are growing, you鈥檙e in good company. And it might just be harming productivity. Here鈥檚 why.
Labor productivity (measured as gross domestic product per hour worked) has been shrinking for a year now, after decades of reasonable, albeit declining, productivity growth throughout the 1980s, 1990s and the first two decades of the 2000s.
have been suggested. One is working from home. Commonwealth Bank chief Matt Comyn has ordered staff to saying there are 鈥渃ertain types of work that are done more effectively in person鈥.
Reserve Bank research says it might be a resurgence in the proportion of wages set by industry awards rather than workplace agreements, meaning there鈥檚 less scope for rewarding performance.
Another is weak wage growth itself.
Shrinking real wages are demotivating
We must also look at wages. Wages are falling in inflation-adjusted (鈥渞eal鈥) terms.
Adjusted for inflation, Australians are being paid less than they were in 2020.
Shrinking real wages are demotivating. While this is hardly a new insight, a bemusing number of people seem shocked by the idea that someone might be less keen to work when the real value of what they are paid is falling.
Research on executive compensation established this .
The whole field of compensation contract theory is based on the insight that a person鈥檚 sense of wellbeing goes up with money but down with perceived effort and risk. Money can induce people to work in ways they otherwise would not.
Company boards have long used to encourage otherwise-cautious executives to take risks. They even to executives鈥 behavioral traits.
How do workers produce less?
Consciously or otherwise, workers whose real wages are falling might care less about their jobs. They might work more slowly, or they produce worse-quality goods or services. And their attitude might permeate to other workers and to clients, undermining productivity more broadly.
If this happens at enough corporations 鈥 and certainly real wages are falling at enough corporations 鈥 it will harm GDP per hour worked throughout the entire economy.
Sluggish wage growth can also affect the number of observed hours worked.
When wage growth and incentives are strong, ambitious workers will work more than their contracted hours, and won鈥檛 claim for it.
They might work on weekends and nights, easing staff scheduling and time zone issues, helping the firm do what it needs to do.
Uncounted extra hours don鈥檛 increase the 鈥渉ours鈥 in GDP per hour, but they do increase the GDP, increasing measured productivity.
When people stop doing unpaid overtime, while their recorded hours mightn鈥檛 much change, the GDP they produce declines.
There are reasons to believe Australian workers are no longer going above and beyond to produce more to the extent that they used to.
One is an increase in the number of Australians holding multiple jobs.
Over the past five years, the proportion of Australian workers holding more than one job has climbed from 6% to 6.7%, which appears to be an all-time high.
These official figures understates the extent to which Australians are turning their focus away from their main jobs for three reasons:
they exclude side hustles not counted as 鈥渏obs鈥
they exclude jobs in the cash economy
they exclude workers whose 鈥渘ew鈥 second job is spending time with their family rather than working overtime.
The rise in multiple job holders is likely to both increase the total number of hours worked, and reduce the effort workers put into their main jobs.
And, as these second jobs are often more junior, it can mean highly-skilled workers producing less per hour than they would have had they put the hours in their main job.
The overall picture is one of a demotivated workforce realising there is no longer much point in 鈥済oing the extra mile鈥, 鈥済oing above and beyond鈥, or buying into whatever the latest euphemism is.
Returning to the office might make things worse
Although returning to the office might is touted as a way to boost productivity by , it might well do the reverse.
There is to show that workers hate commuting. In capital cities, commuting can consume two hours per day driving, parking and allowing time for unexpected delays.
It is also costly. Workers will tolerate it if there is no other choice or it is a clear path to more money.
But if companies reinstate a two-hour commute and associated costs without paying more money, they are likely to further demotivate their workers, further undermining their willingness to 鈥済o above and beyond鈥, produce more, and be more efficient.
What鈥檚 needed are incentives
A straightforward solution is to create incentives that make it clear that workers who care more will get cared for more.
The incentives need to be in addition to standard raises. Using them as a cynical ploy to hold wages constant unless employees work ever harder will backfire.
The incentives must also be credible. It isn鈥檛 enough to create the vague possibility of promotions. Employers have to demonstrate that if their workers produce more they will be paid more. And the extra pay needs to be enough to matter.
An even better solution would be job-hopping.
Australians have long been about changing jobs, allowing themselves to be hit with a 鈥渓oyalty tax鈥 for staying put.
The most recent Bureau of Statistics survey, for the year to February 2022, shows an overdue uptick in the proportion of workers switching jobs, from 7.5% to 9.5%.
The will be released at the end of this month.
The importance of job-hopping (switching jobs to get better reward) as a means of incentivising both workers and employers makes Labor鈥檚 proposed expansion of a bad idea.
If employers set wages together, they are unlikely to set them differently.
In any event, there is little sign that employers are interested in motivating their workers to produce more. It鈥檚 easier to blame workers and make a case for low pay rises.
, Associate Professor of Finance,
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