Witnessing the debate over Sunday penalty rates, the result of which was to cut the remuneration for mostly low wage workers further, an intriguing pattern of thinking emerged. It can be characterised as a microcosm/macrocosm duality.
Those arguing for lower Sunday wage rates chose to demonstrate their case by talking about individual businesses, the micro approach. 'Many individual businesses would love to open on a Sunday and if only wage rates were lower then they would,' goes the logic. 'So unleash those businesses and much greater employment will follow.'
Superficially impressive, it does not survive much scrutiny. As economists love to point out when politicians compare government budget deficits to a household budget, systems (the macro level) do not behave in the same way as a household (the micro level).
A similar distinction can be made with wage rates. The effect of progressively lower wages is to lower overall demand in the economy. While an individual business might benefit from cheaper labour, most businesses will be harmed by workers having less to spend.
Needless to say, this is not something that is investigated much — it does not suit the neoliberal assumptions of most modern economics — but the phenomenon is hard to miss, especially with the economic divisions that are emerging in America.
Discussion of productivity suffers from a similarly deceptive duality. From the micro perspective, productivity is treated much the same as profitability. It is seen as a win-lose battle between workers and owners. 'If my workers get paid more, then my cost of production will go up, my productivity will go down and I won't be able to make profits.'
At the macro level, things look very different. For one thing, at least two thirds of productivity gains have been shown to be the result of capital investments rather than improvements in labour efficiency.
This makes sense. Even in labour-intensive businesses, wages growth can only be influenced to a small degree. Even if workers wages can be cut, it will not be by much. On the other hand, very large efficiency improvements can be achieved through capital investment, such as robotics, digital distribution systems, enhanced computerisation and online innovations, to name a few possibilities.
"International competitiveness is a function of many factors, such as being good at what you do. Which is why global Scandinavian businesses can compete despite having to operate in a high tax environment. Australia's lazy oligopolies are nowhere near that level."
That is