Explain how and why aggregate wages growth in Australia

Australia has experienced a slowdown in the growth of nominal wages. The low wages lead to lower living standards among the citizens. The country has experienced growth in labor productivity in the recent years to facilitate growth in the labor costs aimed to improve the nominal wages. The rate of decline in the wage rate is higher than the historical forecasts and the current economic situation.  Wage growth rate is an important macroeconomic factor since wages are the primary sources of income. Low wages reduce the income at the disposal of the households influencing the national expenditure which have a significant impact on national income and the rate of inflation within the country. According to the wage price index, there has been a significant reduction in wage growth since the 1990s.

The slow wage rate has led to a reduction in labor costs and an increase in the labor productivity. Many organizations have experienced a decrease in the production cost per unit since 2012. Many developed countries have also experienced the slow wage rate in the recent years along with Australia.  The trend is well explained using various factors such as the changes in other economic factors like the rate of employment. The low wages are forecasted to result in consumer price inflation.

There is a direct relationship between unemployment and wage growth. Firms prefer retaining the funds which would be used for employment and use the resources in the production process when the demand for the services and goods is high. Wages do not quickly adjust labor demand and growth, and consequently, firms opt to adjust their costs by retrenching workers leading to increased unemployment.  The change in the labor market causes fear among the employees making them accept low wages instead of retrenchment due to the low possibility of securing employment elsewhere due to a high level of competition among the firms, with each trying to save labor costs and invest more in production (Freeman & Katz, 2012)….

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