The slide in Australia’s labour productivity – real gross domestic product per hour worked – has become a real concern. In the past year, labour productivity has fallen 4.6%.
Unless it resumes growing, either wage growth will need to slide to the Reserve Bank’s inflation target of 2-3% on average over time, or the bank will need to keep pushing up rates until it does.
This is because, as Reserve Bank Governor Philip Lowe pointed out in a speech last week, over time increases in the consumer price index move in line with increases in unit labour costs (wage increases divided by increases in labour productivity).
