Is it do as I say, not as I do when it comes to Reserve Bank governor Michele Bullock and wages? Last week the bank and its economist staff agreed on an 11.2% pay rise over three years, plus a $1000 bonus.
Given Bullock has been decrying wages growth recently and lamenting that pay has been going up while productivity hasn’t, leading to inflation that is “domestic and demand-driven”, presumably we’ll see a lift in RBA productivity over the course of the agreement. More published papers, perhaps, or higher quality forecasting. It couldn’t be that Bullock would sign off on a pay rise without an effort to lift productivity, surely? Or is what is good for the nation’s ordinary workers not good enough for RBA staff?
More to the point, how do you measure productivity for economists? Does yet another economist writing an op-ed for the Financial Review calling for productivity improvements by industrial relations reform and company tax cuts constitute a productive output? With academic economists, you can always use numbers of published articles, though that does nothing to address the quality or innovation of the resulting papers. You can use the number of students in courses and their feedback, the number of theses supervised or papers marked, but it still doesn’t account for quality. Business economists at least live and die by their value to the firm. But public sector economists? Hmmm.
That’s just one tiny subset of the productivity measurement problem that gets ignored every time Bullock, or an employer group, complains about productivity — how do you measure productivity when the point isn’t quality but quantity?
Health and caring industries are the best example — and relying on statistics makes it more difficult. A minor case: when the Australian Bureau of Statistics (ABS) released the detailed quarterly jobs data for the three months to May earlier this year, it showed a weird shift in health and social care: the number of people employed in social care (that’s childcare and non-residential aged and disability care) rose from 645,000 to 750,000. At the same time, the number of people in residential care fell from 250,000 to 175,000 (social care had already risen from 590,000 from November 2022 to February).
Crikey asked the ABS what was going on. They replied that there had been a shift from residential to social care but “the larger majority of the change can be attributed to the incoming rotation groups having more social assistance workers and fewer residential care workers.” We’ll have to wait and see whether that sample change holds over several quarters’ worth of data. In the August data, the number of social care workers indeed fell back to 714,000 while residential care went back up to 188,000. But based on those numbers, labour productivity in social care took an almighty hit this year, while residential care saw a big improvement.
If you think this is academic, in just the last five years health and social assistance grew by 480,000 jobs, more than the entire employment of most industrial categories. One in every three jobs created in that period were in health and social assistance. This isn’t merely an ageing population but the rapid growth of the NDIS (which doubtless accounts for part of that big increase in care workers). So far, there’s not much evidence that the RBA’s thinking on weak productivity in the economy is incorporating this ongoing shift in the workforce.
While measuring productivity in health is hard, one demonstrated way to lift it is… to pay health workers more. That probably applies more in low-wage, non-safety net countries like the US, but better-paid workers are less likely to leave and less likely to miss work, immediately improving one of the key problem areas of health care and a major productivity impediment, staff shortages.
In how many other industries does this apply? Industries struggling with staff shortages might discover that paying workers more encourages attendance and higher performance. Conversely, demanding every cent of a pay rise be offset by “productivity enhancements”, and trying to keep wages as low as possible, might produce a workforce that is always looking for a better-paying job, and is happy to take days off and skip shifts because employers do nothing to earn their loyalty and support.
Maybe that’s one for the RBA’s economists to think about while they enjoy their 11.2% pay rise. Perhaps they can write a few papers on it.
