Good luck with that pay rise
Are you hoping for a big pay rise this year? Economists have high hopes you’ll get one. Something has to give, right? We’re heading into a ninth year of economic growth, unemployment is low and a new Government is lifting minimum wages and threatening to cut immigration.
Inflation — for prices and wages — has been a non-starter for several years now.
The prevailing view is we must finally start to see a bit more of it about as global growth returns to normal.
In fact the consensus about the need for wage inflation is so broad that even many employers are hoping your wages will rise. Just not necessarily your employer, or your wages.
Employers in many industries are struggling to find staff. Skill shortages consistently rate as big concerns in business confidence surveys.
Corporates are hot on creating funky workplace environments, working hard to keep staff engaged and happy.
Last week hotel company Marriott International rolled out a novel strategy to attract staff, hosting a recruitment open day in the hopes of finding 100 new staff for the Sheraton Hotel that opens soon in Auckland.
Good for them.
Employers’ groups also lobby for investment in education reforms and the targeting of more skilled migrants.
Sometimes it can seem like they are struggling to see the elephant in the room.
If you can’t get staff to do a job, maybe you need to be paying more.
Unfortunately, that’s a bit of an oldfashioned idea.
An economic concept called the Phillips Curve — invented by Kiwi economist Bill Phillips — appears to have broken down.
Phillips applied supply and demand to labour costs.
His theory holds that as a period of low unemployment rolls on, labour shortages emerge and wages rise.
It seemed to be a solid foundation for global capitalism and rising wealth through the 20th century. But since the Global Financial Crisis it has been out of whack.
So why don’t employers simply pay more? To be fair, it’s not simple and, along with questions about why price inflation is so sluggish, there is a lot of debate about it.
Businesses are grappling with the same structural challenges as workers. Often they are running on low margins — unable to raise prices even when basic costs like rent and power rise.
Technology — the internet and smart computer systems — are breaking down geographic boundaries and traditional pricing structures. Competition has gone global.
For many businesses putting up prices is not an option. Margins are squeezed and any wage rises have to be used judiciously to retain and recruit for vital positions.
Corporate critics will note wage inflation often seems to be running a bit hotter at executive levels than for the average worker. However the Business
Herald’s chief executive pay survey last year showed even at the top the average rise was only about 3 per cent.
The cost pressures on businesses facing disruption of traditional models — that’s most of them — mean the default option is to look to alternative recruitment options.
Can the work be outsourced to cheaper contractors based offshore? Is there a computer programme that will let existing workers build that function into their existing workload?
Often the answer to both questions is yes. Ultimately, that’s why I remain skeptical we’ll see wages rise markedly if we rely on cyclical economics.
The big forces of social and technological change are all pressing down on inflation.
Fundamentally lifting the wages of the average New Zealander is going to take a big structural shift.
It’s going to require the kind of longterm strategic thinking we’re finally starting to apply to such issues as child poverty and the housing shortage.
In fact, there’s a link. Ensuring a larger percentage of young New Zealanders are well placed to get a higher education is a great way to lift the average wealth in this country.
More broadly, we need to have a unified national goal of pushing upwards towards a higher wage economy. That means Government, employers and unions working in sync towards a more highly skilled and productive workforce.
There is a risk we may lose sight of this big picture if increased conflict and tensions rise around employment law reforms this year.
We have a Labour-led Government and with that comes some traditional shifts in legislation.
Employers are worried — as we saw in business confidence surveys late last year — but they have to get over it. We may yet see something like normal wage inflation return if government regulation and spending policies deliver the economy a shot in the arm.
We do need to be careful, as employers groups warn, about artificially pumping wages in a way that simply boosts topline inflation, pushing prices up. That would leave us with a less efficient economy and workers no better off.
But employers need to play their part if we are to ensure the economy keeps growing. Productivity needs to be rewarded. Investing in capital is crucial. And productive workers who make businesses hum are the most valuable capital there is.
Corporates are hot on creating funky workplace environments, working hard to keep staff engaged and happy.