Australians will continue to see their wages grow at an “OK” pace until politicians and businesses adopt ideas for raising the nation’s productivity, the head of the central bank has declared.
Reserve Bank of Australia governor Philip Lowe says there are endless ways Australia’s productivity – meaning how efficiently labour and capital are used to produce goods and services – could be improved.
Changing the way students are educated and how science is funded are among a long list of ideas at the Productivity Commission’s disposal.
“If you really had a laser-like focus on lifting productivity growth in the country, there are no shortage of ideas that could be pursued,” Dr Lowe told a federal parliamentary committee on Friday.
“In the absence of following those ideas, I think we’ll have OK, but not really good, productivity growth and that means OK growth in real wages, not fantastic growth in real wages.
“There’s very little the central bank can do about that.”
Dr Lowe said the current rate of productivity growth is reasonable, despite being lower than it was in the 1990s.
But in the past five years, workers have not received their share of that growth through their wages.
The governor said the big question now is whether workers will get their share in the five years to come, even if productivity is ramped up.
“If we have another five years where workers don’t get their normal share of productivity growth, we’ll have all sorts of economic, social and political problems,” he said.
“I certainly hope that it does not happen, but it’s possible.”
More broadly, Dr Lowe said the RBA has the “flexibility” to cut interest rates if the economy falters this year and workers start losing their jobs.
But that’s not a foregone conclusion and the central bank doesn’t see monetary policy shifting in the “near term”, which includes the period leading up to the federal election.
The governor said the bank’s growth outlook is “not as positive” as it was last year, but that “the central scenario is a positive one”.
“With monetary policy already providing considerable support to the Australian economy, it is appropriate to maintain the current policy setting while we assess developments,” he told the hearing.
“Much will depend on what happens in our labour market.”
Financial markets are generally more bearish – meaning investors are more inclined to sell – and some retail banks are factoring in the prospect of at least one interest rate cut this year.
The RBA’s key cash interest rate remains at a historic low of 1.5 per cent, where it has been since August 2016.