By Gareth Vaughan
Technology is playing a role in suppressing wage growth, and although technology's also impacting productivity growth, this relationship is more complicated, according to ANZ's global chief economist Richard Yetsenga.
Speaking to interest.co.nz in a Double Shot interview, Yetsenga said that whilst he believes technology is playing a role in suppressing wage growth, he believes weak productivity data will ultimately be revised higher because it's not currently including new entrant, technologically advanced firms.
This comes after Yetsenga last year told interest.co.nz the impacts on the global economy of technology will probably be wider than the emergence of China over the past couple of decades into a full participant.
"I think it [technology] is playing a role [in suppressing wage growth]. I think the evidence to some extent is circumstantial. But what we can say is we have very disparate economies at different stages of the economic cycle where this wage issue has emerged at roughly the same time. Commonsense suggests some sort of common driver. It doesn't make sense to me [that] it's things like globalisation or declining union participation. They've been around since the 1980s. There must be something else which has made them particularly relevant now," Yetsenga says.
"Technology has raised price transparency over virtually the entire economy. One of the messages I think most people who talk to businesses will get back is 'even when I'm facing excess demand for my product, [if] I try and raise my price the demand kind of evaporates'," Yetsenga adds.
"The other issue is trade in services has exploded the last decade or so and that is entirely a technology story. How do you trade legal services across borders without the cloud, without the ability to communicate seamlessly across countries?"
Yetsenga says he believes this means trade pressure that used to be seen in the goods part of the economy, with for example manufactured cars being exported and imported causing deflationary pressure in the global marketplace, is now being felt by service industries as well.
"Service industries now see that as well, financial services, legal services, other professional services like accounting."
"The evidence is largely circumstantial at this point [of technology suppressing wage growth]. [But] to me it's the only explanation which really ties the whole thing together," says Yetsenga.
'The statisticians will revise what the present looks like when the present becomes history'
In terms of weak productivity growth, he says he believes that's also being impacted by technology.
"There's a famous quote from a few decades ago. An economist said 'you can see the impact of computers everywhere except in the productivity numbers.' You could say the same today," Yetsenga says.
"Again productivity growth is weak in New Zealand, Australia, the UK, the US, most of Europe even some of the advanced Asian economies like Korea. It looks to me that what's happening is that as more technologically advanced firms enter sectors and some of the firms which are less efficient find their businesses diminishing, that they're the ones who we capture in the productivity data. So that we're not necessarily capturing the new entrants. I think that we'll find the statisticians will revise what the present looks like when the present becomes history, and we'll find I think that productivity's actually been a bit higher than we thought."
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13 Comments
Yes technology is a big player in suppressing wage growth.
But because it enables globalisation.. (access to cheaper labour and resources)
Cheap oil has also played its part, in that it allows the cheap transportation of goods and people.
Cheap debt also came onstage about the same time.
Remembering that wage growth for some, has been phenomenal but not for most. (unequal)
In a global economy you have to produce a standout product, sell it competitively
and produce more of it to survive.
Perhaps productivity is getting lost in the growth? because business has to grow without increasing labour costs?
But for me its not so much the lack of wage growth, as the abrupt rise in assets and essential services,
that's where all the wages are disappearing.
He's thinking hard, but this is a discussion on a sloping deck. As I've stated hereabouts once or twice, the 'economy' is actually an energy/physics process, and 'productivity gains' are really 'energy efficiencies'. Once, labour was the 'energy', now it's less than 1% - yet we still discuss it as if it was of significance.
Wages are only a coupon you can exchange for energy-delivered stuff, after those coupons have been issued. We all - economists and wage-spenders alike - have made the mistake of assuming the permanent interchangeability of capital, with the products of energy-use. It worked while it worked, but 'availability' should have been factored-in along with supply/demand.
Now we are seeing the concurrent race-to-the-finish of several facets - a race to the bottom wage-wise, global shifts to the least-legislated sites (also a race to the bottom), a trend to diminishing-returns energy-wise, and a trend to depletion/worsening quality resource-wise. Until economists (and 'I earn my living' type wage earners) factor-in all those 'externalities', they will be groping blindly for answers, and always after the next horse has bolted.
"" I think that we'll find the statisticians will revise what the present looks like when the present becomes history, and we'll find I think that productivity's actually been a bit higher than we thought "" well it has been nine years of pathetic productivity growth in NZ ~ how long does it take for history to arrive? The explanation based on businesses preferring low wage docile immigrants than investing in technology seems more probable. That and our most dynamic skilled workers leaving NZ.
It is progress getting economists discussing productivity; next step politicians?
Lets not forget ownership. We have lost it to those who value market control over efficiency. They want to extract maximum revenue for the least service cost to them. Minimal technology is used and the lowest common denominator in people skills. Think call centers. Ever tried to telephone a telephone company?
Two words. Technical debt. The more complex your systems become the more costly they are to upgrade and replace. All of the customisations done in the belief they would give business the competitive edge could well in time become a millstone. I work for a utility and we're presently transitioning to SAP and can tell you that we are losing millions in cost overruns and this is only phase one.
As a contentedly retired computer analyst/programmer I agree with you. I look back and shudder at all the times I added not just bells and whistles but complexities embedded into the guts of systems - at the time I was proud of my work and my bosses were happy with me. Keep it simple should be the motto. I've just read that a decade ago 2/3rds of American voting was done by touch screen voting machines and now it is 2/3rds paper - they are making progress by dumping technology.
Similar issue with govt policies: WFF and accommodation allowances sounds great - just paying benefits to those who need them and avoiding giving any to the wealthy but it is messy, complex, admin heavy and causes workers to fudge self-employment and refuse overtime; the good old Universal Child Benefit had much to recommend it - it is hard to fiddle with a simple system.
@RickStrauss thank you for pointing this out , ANY subsidy causes distortions , and most often the $ ends up where is least deserved , whether its rent subsidies that can be tracked into the pockets of landlords , WFF which is middle class welfare or bus trip subsidies which we as ratepayers fund , and the $ ends up in Rich Lister bus Company owners pockets
My prefered Universal child benefit goes to wealthy parents. But it treats all children equal and the taxman drags it back from the high income earner. I know you cannot earn plenty and get accommodation benefit but it does end up in the pockets of landlords. Another arbitrary benefit the actively discourages marriage and savings ($7999 with a flash car, big TV etc and you get it and nothing except $8001 and you get nothing).
Of course a generous universal benefit means WINZ would have far less work to do.
What the salespersonages forgot to tell your firm is that as well as Buying/licensing/implementing the software, they need to build, equip and staff the Consultants' Wing at Head Office, to feed the beast. Forever.
But the thrust of the article is broadly correct. I've spent an entire career doing away with (usually unionised) jobs by implementing simple inter-system integrations which flow data from A to B without the previous need for re-keying etc. There's a Lot of this type of quiet, grass-roots job destruction going on and it continues. The rise of drop-ship and e-commerce plus payments does away with the need for some sorts of bricks and mortar.
It does release hundreds of thousands of people to pursue their dreams of hospo, sports stardom, world-saving and other commendable pursuits. No different, technically, from the 19th century substitution of telegraph cables and Morse code, for letters, pigeons and fast horsies. But in Productivity terms, it all depends if one counts coffee production, NRL and Médecins Sans Frontières as part of the tradeable economy.....where Productivity is actually counted.
What if the current "technology" is a giant con? What if it has merely substituted a giant central planning administration for routine clerical work? Have we just increased our overhead by erecting over-engineered high maintenance structures prone to systemic collapse?
No one knows how anything works anymore. Only the engineers who wrote the software understand why it works and they are retired. They say the City of London still relies on 1970s and 1980s computers.
We have lost a massive clerical skill base and transferred the work to a small group of engineers, all of whom are kept busy keeping the existing stuff working. Great empires are destroyed when their overhead outgrows their productivity. Is this actually what is going on? How would we know?
I have reread this to check my first reaction,but it hasn't changed. I find his thinking to be quite bizarre. Wage growth weakness has been an issue for decades. I am looking at a graph headed 'AS Union Membership Declines,the Share of Income Going to the Middle Class Shrinks. The graph shows the twin declines in virtual lock-step,dating from around 1970.This comes from Saving Capitalism by Robert Reich.
I could quote other examples from this or other books showing Very Clearly the influence of both declining unionism and globalisation on middle incomes. Of course,other factors come into play certainly including technology,but to somehow exclude these factors is,as I said,bizarre.
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