So there is a big debate raging in the New Zealand blogosphere about the exodus of labor to Australia. Matt
joined in on the debate and made the very valid point that it’s real wages we need to care about, not the nominal wage and that for this happen we basically need productivity increase so that output increases. The same people with more money buying the same set of goods will just push prices up leaving us where we started.
While I don’t want to wade heavily into the debate, I’m still undecided what the best course to take is as I’m not totally convinced by the arguments from the left or the right. The one thing that does bother me is that strengthening employee power to negotiate higher wages seams to be though of as a magic wand. In line with Matt’s argument, giving workers higher wages doesn’t really do much if there isn’t a corresponding increase in productivity. People seem to have the causality all wrong, in general increases in productivity increase wages not the other way round.