Productivity-geared Wages Policies: Some Problems Arising from the Recent Growth in Self-employment

Abstract

The gearing of wage increases to recorded productivity improvements has become a central feature of Australian wage-fixing arrangements. Any well-defined policy rule for such purposes requires an operational definition of wages, an operational defini tion of labour productivity and a stipulated policy on timing. This paper argues that the particular wage adjustment rule which might be called the 'standard formula tion' in Australia today has been rendered seriously defective by recent developments in the economy. The dramatic growth since the mid-1970s in the proportion of Australia's working population recorded as self-employed and the simultaneous rapid decline in the unincorporated enterprise sector's real gross operating surplus per worker employed have together produced serious problems for the interpretation of the 'standard' labour productivity measures for wage policy purposes. Modifica tions to the 'standard formulation', to take account of these developments, are examined and an alternative wage policy rule suggested.