The Relevance of Policies on Pay to the Pursuit of Full Employment

Abstract

The context of the discussion is Australian macroeconomic experience since 1975. One strand of the discussion is to explore the role of macroeconomic paradigms as an influence on policy. Thus, for instance, a NAIRU can be generated in relation to a vertical long run aggregate supply schedule, or in relation to the intersection of a workforce-based target real wage schedule and a real wage schedule based on what firms are prepared to pay. The imperative to eliminate excess aggregate demand in the former scenario is very different to the orientation to negotiate over income claims in the second. The other main strand of the discussion is to explore changes in the bargaining environment over the period, with particular focus on the deliberations in national wage cases. The early Accord was one type of incomes policy. Wage-setting now has an enterprise productivity focus. The Commission has attempted to assert the safety net role of the award via "living wage" cases, but the "constraint" represented by a real wage which is "too high" continues to be asserted. Budgetary settings remain tight. The realities associated with the real wage are a diminution of labour's share from recent historical levels and an increasing degree of wage dispersion. A policy on pay would seek to address these issues of income distribution. The aim would be to achieve an overall modification of claims on income that would support government induced expansion of aggregate demand to generate more jobs.