The problem

One of the main economic problems in Western countries today is whether it is possible to prevent continually rising prices of consumer goods while maintaining high levels of economic activity. The prices of final products will rise if the price of productive services rise more rapidly than their real productivity. On the basis of past experience we may expect technical advance to result in a rise in productivity of the order of 2 per cent per year. Thus the price of final goods will rise continuously if the prices of productive services rise on average by more than about 2 per cent per year. The main productive services in any economy are labour, land and capital, and of these labour is quantitatively the most important. It is fairly certain, also, that the owners of land and capital will succeed in keeping the prices of their services in step with those of labour. The problem therefore reduces to whether it is possible to prevent the money price of labour services, that is average money earnings per man-hour, from rising at more than about 2 per cent per year, while maintaining high levels of economic activity and employment. I wish to examine this question by considering Australian experience since 1947.

Data

The full line graphs in figure 28.1 show the rates of change, in per cent per year, of the index of nominal wages of adult males, the index of average weekly earnings in all industries and the ‘C’ series price index.