RBA research has concluded small and incremental minimum wages increases recorded in Australia have not adversely affected employment via hours worked or job losses.
In the midst of subdued household income growth Dr Lowe told the Summit in Sydney that wages had failed to keep pace with labour productivity gains enjoyed by business in the last five years, but this might be a payback for wages growing faster than productivity from the mining boom in the earlier half of the past decade.
“It’s probably the case that some of what we’ve seen in the past five years is the unwinding but I also think it’s partly structural because we’re seeing in many countries around the world the same phenomenon play out,” Dr Lowe said.
“We’re seeing in many countries the growth of real incomes of workers fall short of growth of productivity and I think the underlining factor here is perceptions of competition from globalisation and technology weighing on everyone’s pricing power.”
‘Human capital accumulation’
Dr Lowe said the key to lifting wages was boosting productivity. Asked what productivity-enhancing measures government and business could pursue, Dr Lowe said, “Mr Shorten talked about the importance of human capital accumulation and I think this is probably the No.1 thing we can do”.
“Because in the end whether my kids have a much better living standard than I do, not because of what we find in the ground or grow on the ground but because what’s in here [our brains],” Dr Lowe said.
Labor has pledged to invest billions of dollars extra in early childhood education, public schools and tafes.
Dr Lowe said he was disappointed local businesses invested at below-advanced economy averages in research and development and urged firms to train workers better.
“R&D in Australia in my opinion is too low and that’s partly the responsibility of business but also of government.”
Dr Lowe also urged improvements to the government service delivery, better building and pricing of infrastructure and cited the International Monetary Fund advising Australia to reshape its tax system, including by taxing the value of land more.
The RBA is hoping wages will pick up to help lift inflation and allow it to consider lifting interest rates from a low 1.5 per cent, though he ruled out a rate rise this year.
Dr Lowe said he was optimistic that the “laws of supply and demand” would see a recovery in wages as the labour market tightens as it has overseas in recent times.
Real wages have been gradually picking up in the United States, United Kingdom and Japan, as labour markets tighten to the lowest jobless rates in decades and force employers to compete harder to retain and attract workers.
“If you tighten up the labour market sufficiently, wage growth will pick up,” Dr Lowe said.
Higher nominal wages would help borrowers pay off debt easier. “Many people borrowed on the assumption their incomes would grow at the old rate of say, 4 per cent, and a number of the years down the track it’s growing at 2 per cent and they’re finding it harder to pay down the debt,” he said.
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