Wage decoupling: a quick review of the evidence

The apparent divergence between labour productivity and wages in Australia in recent years has attracted significant media attention, and prompted some introspection about the distribution of the benefits of economic growth. In this context, figuring out the true extent of wage decoupling, what measures are most appropriate and what appears to be driving it are of key policy importance. After examining a range of potential measures of wages, the PC has found that wage decoupling has increased significantly in the past five years, but mainly when wages are deflated by producer prices rather than consumer prices. This corresponds to a fall in the labour share of income that appears to be driven almost entirely by the expansion and increased profitability of the mining industry.

Colin Burns is a Senior Research Economist with the Australian Productivity Commission. He has spent a number of years involved in productivity-related research, has a Bachelors in Economics (First Class Honours) and is working towards a Masters in Statistics at the Australian National University.