Home > High dollar to blame for high relative wages – RBA

High dollar to blame for high relative wages – RBA

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Australia’s high relative wage rates are largely a product of our high exchange rate and in most cases wages growth is not unusually high, according to the Reserve Bank.

As AAP reports, RBA deputy governor Philip Lowe said in a speech at an Australian Business Economists event last night that, while there are areas in the Australian economy in which wages are higher than they should be, in general they are not growing too quickly.

“…it is also useful to recall that over the past two decades or so, aggregate wage outcomes have been consistent with the inflation target and with a trend decline in the unemployment rate,” he said.

“They have also been associated with a fairly low share of wages in national income.”

One of the reason wages are high compared to other countries and are affecting international competitiveness, Lowe said, is that the dollar is still too high. When expressed in foreign currency terms they are high.

“A lower exchange rate would obviously make a difference to these comparisons.” Lowe explained.

He also said that the RBA has been saying for some time that a lower Australian dollar would be helpful from an overall macroeconomic point of view.

“To date, as we expected, we have seen some adjustment, but if our assessment of the fundamentals is correct we would expect to see more in time,” he said.

Lowe also said that Australia needs to develop an economy in which value added is high.

“We need to be able to produce a range of goods and services very efficiently and/or be able to sell goods and services at a premium price because of their quality, their uniqueness or some other favourable attribute,” he stated.

This, he said, is true across all industries including advanced manufacturing.

"And this is why investment in human capital is so important. It is through human capital that we can create the goods and services that can deliver on this aspiration," Lowe explained.

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