Why your pay rise sucked

I’m sure you deserve a pay rise. I mean, I bet you work hard enough. But the fact is that for the past nine years you probably haven’t been getting the annual wage bump you think you should have.

I wish I could help but — in lieu of cash — perhaps I can offer some consolation. First of all you are not alone. You’re part of a global phenomenon that has been confounding economists who have traditionally expected to see pay rates trending up as unemployment falls.

And, on the up side, there have never been so many reasons why it’s not your fault. Trust me, you don’t suck at your job.

Now let’s take a look at the reasons why wage growth is stuck in a rut.

Since the global financial crisis wages have been flatlining. The labour cost index shows average pay rates rose 1.6 per cent in the year to March 31.

That’s less than the annual increase in consumer price inflation right now — so yes if it feels like you’re going backwards, it’s quite possible you are.

When it comes to wages, inflation is the first thing an economist will want to talk about. We have to look at real wage growth, after adjusting for inflation.

Inflation has been very low for several years. In fact since 2011 it been so low that even those paltry 1 per cent wage rises have been boosting your real spending power.

That’s as long as you don’t factor in housing, of course. If you were saving for a house or took on a giant mortgage, then forget about.

Those costs don’t feature in the consumer price index and, as we all know, they’ve been mental.

As I mentioned earlier, unemployment has fallen (it’s now below 5 per cent) and annual inflation has lifted back above 2 per cent.

Wage growth is still missing in action. Perhaps it will kick in soon.

Don’t hold your breath, but regardless inflation isn’t really going to make you or this country any wealthier.

To really drive meaningful wage growth and create new wealth we need to boost productivity.

In other words the more value we can produce for the same amount of hours worked the better off we should be.

Or the better off our employer should be, perhaps. But the more able they’ll be to raise your wages.

The trouble with boosting productivity is that it requires investment in capital — technology to make work more productive — or training and education to boost your skills.

Otherwise you’re just working harder, not smarter.

Unfortunately, since then the GFC companies have retrenched. They’ve focused on costs and paying down debt. Labour productivity has fallen all over the developed world.

Employers have kind of got away with it because workers haven’t had much bargaining power.

The demise of unions, the casualisation of the workforce and globalisation that allows manufacturing and (thanks to the internet) service jobs to be outsourced to cheaper markets — has added up to workers getting a smaller share of the economic returns from their labour than they used to.

At least that’s what the OECD research says.

Now low unemployment and skills shortages should start to put a bit of pressure on employers. If they want to get into expansion mode they need to start reinvesting — in capital and workers.

When it comes to productivity, New Zealand has always been behind its developed world peers.

Last week the OECD put out a report on New Zealand and it was full of reasons why we are particularly unproductive.

We don’t invest enough in R&D or new

HWhat’s your view? letters@hos.co.nz technology, we’re small and a long way from market. It’s not that we’re lazy but we are bad at maths and we have one of the worst rates of “mismatch” between our skills and jobs in the OECD.

Of all the reasons for low pay rates in New Zealand this was my favourite. It turns out we’re overqualified.

In the 1990s Generation X author Douglas Coupland wrote about “McJobs” and “occupational slumming” to describe the phenomenon of film school graduates making coffees and philosophy majors driving courier vans.

The OECD uses terms like “skill set mismatch” and “field of study mismatch”.

Basically many of us, particularly in New Zealand, are highly qualified in fields that are oversupplied with labour, so we end up settling for more basic work.

To be fair, job slumming can be kind of fun when you’re young, and the world would be a more boring place if kids were forced to be ruthlessly earnest about their higher education choices.

What we need to get better at — and the OECD says we need to get cracking on this — is providing social support for people to retrain and realign their skills to new careers throughout their lives.

Because even if this economic cycle starts to turn, if unemployment starts to push wages up and companies start investing in workers again, we know we’ve got a world of robots and Uber-style employment apps hurtling our way. The world of work isn’t going to get any cosier.

We need to be ready.

On the up side, there have never been so many reasons why it’s not your fault. Trust me, you don’t suck at your job.