CPW has requested that we cover the Standard’s coverage of the National-Act coalition agreement, specifically this section:
National/Act agree to close the ‘income gap’ between Australia and NZ by 2025, requiring ‘3% productivity growth per year’. Which is just economic techno-babble. What ‘income gap’ are they talking about? GDP per capita or wages or what? And how would a faster rate of productivity growth close this gap? Anyone who knows what productivity is (the amount of wealth produced in a unit of work) knows that merely increasing productivity doesn’t necessarily boost GDP or wages. GDP = productivity x work done. So, GDP not only depends on productivity it also depends on how many people are in work. And boosting productivity doesn’t lead automatically to higher wages – wages are determined by supply and demand in the labour market, nothing to do with productivity. In fact, productivity grows faster when employment drops because it’s the low quality workers that lose their jobs first and lower quality capital that sits idle first, but wages don’t go up because there is more slack in the labour market.
After reading it we felt that a non-biased explanation of the “economic techno-babble” was in order.