Economy’s health requires reform of earlier wage reforms

Can you believe that many economists were disappointed by this week’s news from the Australian Bureau of Statistics that consumer prices rose by only 2.1 per cent over the year to June?

Why would anyone wish inflation was higher than it is? Well, not because there’s anything intrinsically terrific about fast-rising prices, but because of what a slow rate of increase tells us about the state of the economy.

It’s usually a symptom of weak growth in economic activity and, in particular, of weak growth in wages. Prices and wages have a chicken-and-egg relationship. By far the most important factor that pushes up prices is rising wages.

But, as measured by the bureau’s wage price index, wages rose by just 2.1 per cent over the year to March, roughly keeping up with prices, but not getting ahead of them.

We’re used to wages growing each year by 1 per cent-plus faster than prices, but such “real” growth hasn’t happened for the past four years or so (which probably explains why so many people are complaining about the high “cost of living” even when price rises are so small).

It’s important to understand that wages can grow faster than prices without that causing higher inflation, provided there is sufficient improvement in workers’ productivity – output per hour worked – to cover the real increase.

Of late we’ve had that productivity improvement, but all the benefit of it has stayed with business profits, rather than being shared between capital and labour by means of increases in real wages.

I’ve said it before and I’ll keep saying it until it’s no longer relevant: the economy won’t be back to healthy growth until we’re back to healthy growth in real wages. That’s for two reasons.

First, in a capitalist economy like ours, the “social contract” between the capitalists and the rest of us says that the people without much capital get their reward mainly via higher real wages leading to higher living standards.

Second, consumer spending accounts for more than half the demand for goods and services in the economy; consumer spending is done from households’ income, and by far the greatest source of household income is wages.

So, as a general proposition, if wages aren’t growing in real terms, there won’t be much real growth in household income and, in that case, there won’t be much real growth in consumer spending. And the less enthusiastic we are about buying their stuff, the less keen businesses will be to invest in expansion.

Get it? Of all the drivers of economic growth, by far the most important is real wage growth. If your economy’s real wage growth’s on the blink, you’ve got a problem. You won’t get far.

Economists used to believe that real wage growth in line with trend improvement in the productivity of labour was built into the equilibrating mechanism of a capitalist economy. A chap called Alfred Marshall first came up with that idea.

But with each further quarter of weak price and wage increase it’s becoming clearer it was a product of industrial relations laws that boosted workers’ economic power by helping them form unions and bargain collectively with employers.

As has happened in most rich countries, our governments, Labor and Coalition, have been “reforming” our wage-fixing process since the early 1990s by reducing union rights and encouraging workers to bargain as individuals rather than groups.

Trouble is, governments have been weakening legislative support for workers and their unions at just the time that powerful natural economic forces – globalisation and greater trade between rich and poor countries, “skill-biased” technological change, the shift from manufacturing to services – have been weakening the bargaining power of labour.

Whoops. In hindsight, maybe not such a smart “reform”. My guess is it won’t be long before governments decide they need to promote real wage growth by restoring legislative support for unions and collective bargaining.

But how could they go about this? Well, Joe Isaac, a distinguished professor of labour economics at Monash and Melbourne universities and a former deputy president of the Industrial Relations Commission, outlines a plan in the latest issue of the Australian Economic Review.

Isaac proposes four main reforms of the reforms. First, the Fair Work Act should be less prescriptive, giving the Fair Work Commission greater discretion to intervene in industrial disputes, to conciliate and, if necessary, impose an arbitrated resolution on both sides.

Second, the present restrictions on unions’ right to enter workplaces should be eased to allow them to check the payments made to union and non-union employees, as well as to recruit members.

The widespread allegations of illegal underpayment of wages suggest “a serious lack of inspection of pay records” – formerly a task in which unions had a major role. “These breaches in award conditions cannot be discounted as a factor in the slow wages growth,” Isaac says.

Third, legislation against “sham contracting” – employers reducing their workers’ entitlements by pretending those employees are independent contractors – should be tightened.

Fourth, the present procedures and delays before workers are allowed to strike while negotiating new wage agreements should be reduced.

As well, bargaining and striking over multiple-employer or industry-wide agreements should be permitted. As economists long ago established, real wage rises should reflect the economy-wide rate of productivity improvement, not the experience of particular firms.

Industry-wide and multiple-employer agreements allow unions to support people working in small and medium businesses, not just those in big businesses and government departments.

Such bargains are known as “pattern bargaining” and are illegal at present. It’s true that pattern bargaining was pressed and extended to other industries unjustifiably in years past, but the commission should have the power to prevent pattern bargaining where it’s not justified.

Now, many employers may view Isaac’s proposed “reregulation” of wage fixing with alarm. What’s to stop the return of unreasonable union behaviour and excessive wage rises?

Ah, that’s just the point. What will prevent it is all those other developments that have weakened workers’ bargaining power.

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How our economic prospects turn on wage growth

You know the world's behaving strangely when you hear a heavy from the central bank saying it's expecting more "progress" on the "turnaround in inflation", then realise they're hoping inflation will go higher.

That's just what Dr Luci Ellis, the Reserve Bank's third heaviest heavy, told a bunch of economists at a conference this week.

Why would anyone hope for prices to be rising faster than they are? Not so much because higher prices are a good thing in themselves, as because rising inflation is usually a sign of an economy that's growing strongly and keeping unemployment low.

By contrast, very low inflation – say, below 2 per cent – is usually a sign of an economy that's not growing strongly, with unemployment either rising or higher than it should be.

Ellis' remarks are a reminder that the economy's biggest problem at present is weak growth in wages. She knows that if prices started rising faster, the most likely explanation would be higher growth in wages, which employers were passing on to their customers by raising their prices.

What could oblige employers to increase the wages they pay? Their need to retain or attract more workers – particularly skilled workers – at a time when the demand for labour was rising, caused typically by increased demand for the goods and services businesses were employing people to produce.

The point to note here is that the Reserve's mental model of inflation is of what economists used to call "demand-pull" inflation. It's simple: the prices of goods and services rise when the demand for them is outpacing their supply.

Note, too, that this involves an inverse relationship between inflation and unemployment: when one goes up, the other goes down, and vice versa. Economists call this the "Phillips curve", named after its discoverer, Bill Phillips, a Kiwi economist.

Ellis confirmed that, although the economy (real gross domestic product) grew at a trend rate of just 2.4 per cent over the year to September, the Reserve's forecast that growth will pick up to about 3¼ per cent over this year and next remains unchanged.

This will involve a pick-up in wage growth and inflation, she said.

The Reserve is more confident of these forecasts than it was when it first made them in early November. Even so, Ellis admitted to some particular "uncertainties": how much production capacity in the economy is going spare at present, and how much, and how quickly, wage growth and inflation will pick up as spare capacity declines.

How much unused production capacity remains in the economy matters because, until it's used up, the economy can grow much faster than it can once the economy's at full capacity – full employment of labour and capital – without this causing inflation pressure to build.

Once the economy is at full employment, how fast rising demand can cause the economy to grow without also causing higher inflation is determined by the economy's "potential" growth rate – that is, by the rate at which rising participation in the labour force, increasing investment in capital equipment and improving productivity are adding to the economy's ability to produce more goods and services.

That is, how fast potential supply is growing. So the economy's potential growth rate sets the medium-term speed limit on how fast demand can grow before causing a build-up in inflation.

The Reserve's most recent estimate is that our potential growth rate has slowed to 2.75 per cent a year (mainly because of the retirement of the bulge of baby boomers).

But how do we measure how much spare production capacity we have at any time? We measure the spare capacity of our mines, factories and offices mainly by looking at answers to questions in the regular surveys of business confidence.

That's physical capital. In the labour market, idle production capacity is measured by the rate of unemployment.

But it's wrong to think full employment is reached when the unemployment rate falls to zero. That's partly because, at any point in time, there will always be some workers moving between jobs (called "frictional" unemployment).

Also because of a much higher rate of "structural" unemployment. The structure of the economy is always changing, with some industries expanding and some contracting. This increases the number of workers who don't have the particular skills employers are seeking, or who do have them but live far away from where the job vacancies are.

In the old days, there were a lot of low-skilled jobs that could be filled by people who had left school early and hadn't learnt much. These days, there a far fewer of those jobs, so people with inadequate skills are often out of a job.

Economists measure full employment by estimating the rate to which unemployment can fall before shortages of skilled labour cause employers to bid up wages and thus cause price inflation to accelerate.

They call this the NAIRU – the non-accelerating-inflation rate of unemployment – and the Reserve's latest estimate is that it's "around 5 per cent". It says "around" because every economist's estimate is different, so it's wrong to be too dogmatic.

This week's trend figures from the Australian Bureau of Statistics for the labour force in January show the unemployment rate has been steady at 5.5 per cent since July. That's well above the NAIRU.

Over the same six months, however, employment has grown by almost 180,000, or 1.5 per cent, causing the rate at which people are participating in the labour force to rise by 0.4 points to 65.6 per cent – its highest for seven years and a record high for participation by women.

If the laws of supply and demand still hold – a safe bet – this unusually strong growth in the demand for labour should lead to higher wages and then higher prices sooner or later. But Ellis warns it's likely to be "quite gradual".

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Seeking the truth about the extent of unemployment

So, the Australian Bureau of Statistics told us this week, the rate of unemployment fell a tick to 5.6 per cent in July. Trouble is, most people know the official unemployment rate understates the extent of the problem.

What many people don't know, however, is that when you take the rate of unemployment and add the rate of under-employment, which in May took us up to 14.5 per cent, you overstate the extent of the problem.

It's well known by now that the official definition of unemployment is a very narrow one because you only have to do one hour's work in a week to be classed as employed.

A lot of people also know – or think they know - that this amazing definition was introduced by the government some years ago to stop the figures looking so bad.

Labor voters know it was a Coalition government that fudged the figures; Liberal voters know the villain was a Labor government.

Sorry, this is an urban myth. It is just not true. The bureau would never allow any bunch of politicians to fiddle with the definitions it uses.

As it has explained many times, the bureau uses internationally agreed standards to define unemployment, which are set by the International Labour Organisation, part of the United Nations.

They had to draw the dividing line between unemployed and employed somewhere, and they chose one hour – a choice that was easier to make in the days when almost all the jobs were full-time.

Even today, there'd be very few people actually working just an hour or two a week. Most would work at least one shift of seven or eight hours.

Even so, there's no denying that such a narrow definition understates the extent of joblessness. This is why the bureau also publishes a measure of underemployment.

The underemployed consist of all those people who are working part-time – defined as less than 35 hours a week – but would prefer to be working more hours.

When you take the rate of underemployment and add it to the rate of unemployment (with both unemployment and underemployment expressed as proportions of the labour force) you get what the bureau calls the "labour underutilisation rate", which we can think of as a broader measure of unemployment.

If you look over the years, the rate of unemployment tends to go higher and lower in line with the downs and ups in the business cycle.

You can also see the business cycle reflected in the rate of underemployment, but it has a much clearer underlying upward trend. It was 2.6 per cent in 1978, but 8.3 per cent in November 2015 and 8.8 per cent this May.

Until early 2003, the unemployment rate was higher than the underemployment rate, but since then the underemployment rate has been higher, with a growing gap.

Between February 2015 and this May, the unemployment rate fell by 0.5 percentage points, whereas the underemployment rate rose by 0.3 points.

The underemployment rate is a lot higher for females, 11 per cent, than for males, 6.9 per cent.

It's also greatest among people in lower-skilled occupations and lowest among people in higher-skilled occupations. (Uni students please note.)

Now get this: although workers of all ages suffer underemployment, it's much more a problem for the young. More than a third of the underemployed are aged 15 to 24, and their rate is 18.5 per cent.

But why has the trend rate of underemployment been rising steadily since the late 1970s?

Since underemployment is an affliction of part-time workers, the steady rise in part-time employment over that time – so that it now accounts for about a third of all jobs – does much to explain why there's more part-timers who happen to be saying they'd prefer to be working more hours.

Professor Jeff Borland, of the University of Melbourne, adds that "younger workers appear to have experienced the largest increase in underemployment because they have had the largest growth in part-time employment".

He reminds us that more young people have part-time work because more of them are in full-time education and needing a part-time job.

But here's my punchline: although the official unemployment rate understates the size of the problem, just adding the underemployment rate goes to the other extreme of exaggerating it.

Why? Because it adds apples to oranges. We worry most about underemployment because we assume it involves people who need full-time jobs but have had to settle for part-time.

It does. But it also includes people who are happy to stay part-time but, even so, would prefer to work an extra shift or maybe just a few more hours.

It doesn't make sense to add people with such a small problem to people with the much bigger problem of needing a full-time job but not being able to find one, as though they were similar.

Remember, too, that almost a third of the people included in the official unemployment rate are looking only for part-time work.

This is why, if you search very deep on the bureau's website (clue: catalogue no. 6291.0.55.003, table 23b) you find that, as well as just counting heads, it also does a more accurate measure of underemployment that counts the hours people are looking for – meaning part-timers needing a full-time job count for a lot more than those just wanting a few more hours.

This "volume" measure shows that, in May, the underemployment rate was 3.2 per cent of all the potential hours the whole labour force could work, and the unemployment rate was 4.3 per cent, giving an hours-based measure of labour underutilisation of 7.5 per cent.

Which is closer to the truth of the matter.

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Why wage growth will strengthen before long

It's become deeply unfashionable to presume any of the present weakness in wage growth is merely cyclical (and thus temporary) rather than structural (and thus lasting). Sorry, my years of economy-watching tell me it's never that simple.

It's the mark of an amateur – a journalist who prefers sexy stories to boring stories that are more likely to be true; a youngster who believes all they're told on social media – to believe the established patterns of the past have no bearing on the present.

Note, I'm not denying the likelihood that a significant part of the problem may arise from deep, structural causes requiring correction by judicious government intervention.

What I'm saying is it's far too soon to conclude no part of the weakness is temporary. We'll know the truth of the matter only with hindsight.

We know the importance of "confidence" in driving the business cycle, but it doesn't just apply to businesses and consumers. It also applies to workers negotiating pay rises.

There's a chance that, with all the union movement's exaggerated talk of an ever-rising tide of "precarious employment", organised labour has spooked itself into accepting lower pay rises than it needs to.

As Reserve Bank governor Dr Philip Lowe keeps hinting, one day workers will decide to contest bosses' claims that they couldn't possibly afford more than a 2 per cent pay rise.

For another thing, it's surprising the wage-rise pessimists have failed to take heart from the Fair Work Commission's decision in June to raise not just the national minimum wage, but the whole structure of award minimums, by 3.3 per cent.

This compares with a rise last year of just 2.4 per cent.

It's true that only about a quarter of employees are directly affected by this decision, but many more are affected indirectly because the "individual arrangements" by which their wages are set consist merely of a set margin above their award rate.

And why would the supposedly more industrially powerful workers on enterprise agreements settle for another 2 per cent rise when, all around them, weaker workers were getting 3.3 per cent?

But there's a more technical argument that a period of weak wage growth was just what was needed as part of our transition from the decade-long resources boom. With that transition close to completed, it shouldn't be long before wage growth strengthens.

As Professor Ross Garnaut warned in 2013 in his book, Dog Days, the big fall in the nominal exchange rate that (eventually) followed the collapse in mining commodity prices wasn't all that was needed to restore the international price competitiveness of our export and import-competing industries.

We also needed the nominal depreciation to become a "real" depreciation, with the costs faced by Australian firms rising much more slowly than the average of costs faced by firms in our major trading partners' economies.

Garnaut doubted we could achieve the high degree of wage restraint need to make the depreciation stick but, as former top econocrat Dr Mike Keating pointed out in a recent blog post, that's just what's happened.

Keating says you'd expect that, over the medium to longer term, real wages, the productivity of labour and "real net national disposable income" per person (a version of gross domestic product that's adjusted for swings in our terms of trade) would each grow by about the same amount.

Between 2002 and 2012, the period of the resources boom, real wages grew faster than productivity, though by less than the strong growth in the real national income measure.

But Keating notes that, following the 2012 peak in the resources boom, these relationships were reversed, with real national income actually falling between 2012 and 2016. Real wages then needed to rise by less than productivity, which is just what's happened.

"My judgement is that equilibrium between productivity, [real] wages and real net national disposable income per person has now been restored," Keating concludes – implying there's now scope for real wages to grow in line with improvements in productivity.

This fits with the Reserve Bank's conclusion in its May statement on monetary policy that, as measured by comparing our "nominal unit labour costs" (nominal wage growth versus the change in labour productivity) with those of our trading partners, our real exchange rate has fallen to about its post-float average. This wouldn't have changed much since May.

So there's been a sound economic justification – the need to restore our industries' international price competitiveness – for our weak wage growth over the past three or four years.

But that need has now been satisfied, allowing us to hope for a return to real wage growth.

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The way wages are set is changing

Since we've all got so excited about the weak growth in wages, let me ask you a personal question: How much do you know about how wages are set?

For instance, how many workers are affected by the 3.3 per cent increase in the federal minimum wage, announced by the Fair Work Commission in June?

Some people say the weak wages growth is explained by the efforts to discourage collective bargaining under John Howard's Work Choices and neo-liberalism more generally. Any signs of this?

Wages can be set in different ways. So what are they, and how many workers are affected by each?

These questions are answered by a box on the minimum wage decision in the Reserve Bank's latest statement on monetary policy, issued last week. Many of its figures came from the Australian Bureau of Statistics publication, employee earnings and hours, catalogue number 6306.0, for May 2016.

The bureau finds three main ways of setting the wages of employees: "award only", collective agreements and individual arrangements.

Industrial "awards" are legally enforceable determinations made mainly by the federal Fair Work Commission, which set the minimum pay and conditions for employees in a particular industry or occupation.

They form a safety net for the great majority of employees. Any employer paying less than the minimum wage specified in the relevant award is breaking the law and could be prosecuted.

Every year the commission reviews, and usually increases, the "national minimum wage", which is the lowest amount any adult employee may be paid. In this year's review, the national minimum was increased by 3.3 per cent to $18.29 an hour.

What's less well understood is that, at the same time it adjusts the national minimum wage – the minimum minimum, so to speak – the commission also adjusts all the various minimums for workers in different classifications set out in each of the many industrial awards.

Since 2011, the commission has increased the full set of award minimum wages by the same percentage as its increase in the national minimum wage.

According to the bureau's latest figures, for May last year, about 23 per cent of our 10.1 million employees were totally reliant on the relevant minimum wage set out in their award.

Next on the list of wage-setting methods is the 36 per cent of employees whose wages are set by "collective agreements".

Most of these agreements are "enterprise bargaining agreements" negotiated with employers by a union representing the workers at the enterprise.

Enterprise agreements – which should be registered with the commission – build on the provisions of the employees' award, usually involving wage rates and conditions (such as paid leave) that are more generous than provided for in the award.

That leaves 41 per cent of employees – the largest share – having their wages set by "individual arrangements". But this is a rag-bag group.

It may include some people still on formal "individual contracts" left over from the Work Choices era, and it certainly includes managers and employees in highly paid professions whose wages and conditions have always been set by direct negotiation with the boss.

But there's another, big and interesting group: all those ordinary workers whose "individual arrangement" is that they get the award wage plus $X a week, or plus Y per cent.

This means a lot more workers' pay is protected by the award system than a quick look at the figures would suggest. Similarly, the commission's annual increase in award wage rates has a bigger effect on overall wage growth than you'd think.

So how have the proportions of employees in the three wage-setting categories been changing?

Over the 14 years to the start of 2016, the share of employees covered by collective agreements has fallen by 1.8 percentage points to 36 per cent, while the share of individual agreements has fallen by 0.4 points to 41 per cent, meaning the share of award-only employees has increased by 2.2 points to 23 per cent.

But before you take this as proof that a campaign against collective bargaining has forced more workers back to mere reliance on their award, remember there are other possible explanations.

Changes in the composition of the workforce, for instance. Since most part-time employees are award-only, the slowly increasing proportion of part-time jobs could explain much of the increase in the award-only share.

And remember this: some industries are growing faster than others, but different industries have different degrees of reliance on particular wage-setting methods.

For instance, collective bargaining is most common in public administration (covering 78 per cent of employees), education and training (63 per cent), utilities (60 per cent), and health care (55 per cent). That is, industries dominated by the public sector.

Individual arrangements are most common in professional and technical services (80 per cent), wholesale trade (70 per cent), rental and real estate services (63 per cent), construction (58 per cent) and – get this – manufacturing (55 per cent).

That leaves the award-only method most common in hospitality (43 per cent), admin services (42 per cent) and retailing (34 per cent).

It's true that hourly rates of pay are highest for employees with collective bargaining ($39.60), with individual arrangements next on $38.50, and award-only last on $29.60.

But the gap has been narrowing, with the average hourly rate under collective bargaining growing by 89 per cent in nominal terms over the 16 years to May 2016, while award-only grew by 97 per cent and individual arrangements by 109 per cent.

Again, however, this is likely to be explained more by the changing structure of industries and occupations – for instance, a higher proportion of high-paid managers and professionals in the individual arrangements category – than by campaigning against collective bargaining.

Statistics – especially these broad averages – can be misleading. But ignoring the stats and listening only to anecdotes will leave you with a much more distorted picture of reality.

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All the things that aren't causing weak wage growth

There's just one problem to remember before we work ourselves into a complete tizz over the War on Wages, convincing ourselves globalisation and digital disruption mean we'll never get a steady job or a decent pay rise again.

It's this: so far we've heard a lot of suspiciously confident predictions about the way robots and digitisation are about to destroy millions of jobs, a lot of anecdotes about law-breaking employers, a lot of scary stories about "the gig economy" and "portfolio jobs", a lot of adults assuring impressionable school children they'll have 10, or is it 17, different jobs in their working lives, a lot of propagandising by the unions about the rise of "precarious employment" and a lot of speculation about how all this somehow explains why wages growth is the slowest it's been since the early 1990s.

Know what we haven't got a lot of? Hard evidence that any of all that has actually started happening to any significant extent.

This is not to say some version of all that won't happen at some time in the future. I can't say it won't since I don't know that the future holds, unlike all the self-proclaimed experts with their precise predictions.

(Next time you hear someone telling you exactly how many jobs robots will have destroyed by 2020, or how many jobs or occupations you'll have in the next 40 years, ask yourself this question: How – would – they – know?)

But if there's no evidence this frightening future has got going yet, there's no way it can explain why wage growth has been so weak for the past three or four years.

For once, let's take a close look at what we actually know has been happening.

It is true that, as we saw in this column two weeks ago, the structure of occupations in the workforce is changing. Research by Dr Alexandra Heath, of the Reserve Bank, shows the share of routine jobs has fallen by 14 percentage points, while the share of non-routine jobs has risen by 14 points.

Similarly, the share of manual jobs has fallen by 5 percentage points, while the share of cognitive jobs has risen to the same extent.

But this is a long-term trend. These figures are for the change over the 30 years to 2016, and there's no sign of the trend accelerating over recent years.

A lot of detailed – and reassuring – research on the official statistics has been done by one of our leading labour-market economists, Professor Jeff Borland, of the University of Melbourne, and reported on his website, Labour Market Snapshots.

For one thing, Borland's been searching for evidence that our jobs are being taken by robots – and failing to find it. He breaks the issue into two parts.

First, has computerisation reduced the total amount of work needing to be done by humans, as many people assume?

No. The total amount of work available per head of population has bounced around with the ups and downs of the business cycle but, overall, has shown no downward trend. The latest figures show, if anything, a bit more hours of work per person than there were in the mid-1960s.

Second, consistent with Heath's research, Borland finds evidence that the progressive introduction of computers, which began in the early 1990s, is probably changing the types of jobs being done by workers.

But he, too, finds that the pace of change in the composition of employment "is no quicker today than in the period before computers".

"So while computers may be having some impact on the Australian workplace, most claims about their impact are vastly overstated," Borland concludes.

Next, Borland shines his statistical spotlight on all the claims about work becoming more insecure or "precarious".

You don't have a proper, full-time permanent job. You get a bit of work here and a bit there. If you do have a job, it never lasts long.

The Australian Bureau of Statistics has long published figures for job "tenure" – how long people have been with their current employer.

If all the talk of growing instability was a genuine trend – as opposed to the experience of a relatively small number of individuals – you ought to be able to see it in the job tenure figures.

But you can't. The reverse, in fact. Borland finds that, from the early 1980s to the present, the proportion of workers who've been in their job for 10 years or more has been steadily increasing. This is greatest for women, for whom it's gone from 12 per cent to 25 per cent.

At the same time, the proportion of all workers in their job for less than a year has been decreasing.

Next, how insecure do workers feel? When the bureau asks employees whether they expect to be with their present employer for the next 12 months, the proportion of men who don't has been steady at about 9 per cent between May 2001 and May this year.

Over the same period, the proportion for women has fallen steadily from 11 per cent to 9.5 per cent.

From all the talk, you'd expect the proportion of employees working for labour hire companies and temporary agencies to be rising strongly.

It ain't. Actually, between 2001 and 2015 it's fallen from a tiny 3.1 per cent to a tinier 2.2 per cent.

And though it's true the proportion of jobs that are part-time is continuing to rise, over the 10 years to 2016 it rose at the slowest rate for any decade since the mid-1960s.

Of course, none of this is to deny that wages growth in Australia has been surprisingly weak for several years, as it has been in other developed economies.

But in our guessing game about what might be causing that weakness, let's not get too fanciful.

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Occupations are changing as the jobs total grows

Have you heard that most of the jobs being created in the economy these days are part-time? No? Good. Yes, you have? Sorry, your info's out of date.

It was true last year, but not this year. As this week's figures for the labour force from the Australian Bureau of Statistics showed, of the 176,000 additional jobs created in the first six months of this year, 93 per cent were full-time.

That, BTW, was an exceptionally rapid annualised rate of growth of 2.9 per cent. Doesn't sound like the economy's dead yet.

Admittedly, it was a very different story last year. The calendar year saw growth in total employment of just 100,000 jobs – a very weak 0.8 per cent – of which 135 per cent were part-time.

Huh? Think about it: there must have been a fall of 35,000 in the number of full-time jobs. And there was.

It was a particularly bad year, and with all the happy scare stories about the rise of the "gig economy" it was enough to convince a lot of education-leavers that their chances of ever getting a decent, full-time job were low.

Moral: don't count your nightmares before they've hatched.

Dr David Gruen, a deputy secretary in the Department of Prime Minister and Cabinet, noted in a speech this week that "the displacement of jobs by technology ... is one of the developments that is leading to a sense of unease among many in the community."

People may fear that their own job may be taken over by a machine, or worry there'll be insufficient meaningful jobs for their kids.

Maybe, maybe not. Before we leap to cataclysmic conclusions, Gruen reminds us that fears of technological advances rendering many jobs obsolete is an idea with a long pedigree – back to the Luddites going around smashing machines in the early 1800s.

In the 200 years since then, employers have never ceased seeking out the newest and best labour-saving technology, but so far this has failed to cause mass unemployment.

Coming to today, Gruen says there's little sign of a quickening in the rate of change in occupations that might signal big, new technology-driven changes in the labour market. Nor is there any sign of the rapid improvement in the productivity of labour that you'd expect to see if there was widespread replacement of workers with machines.

But what's been clear for some time, he says, is that jobs across the economy are not equally susceptible to being displaced by technology and automation.

"Routine or predictable tasks are more susceptible to displacement than non-routine tasks. This observation applies to both manual and cognitive tasks – whether manual or cognitive, routine tasks are easier to automate than non-routine ones."

Dr Alex Heath, of the Reserve Bank, has used the stats bureau's figures on workers by occupation to see how these distinctions have affected our workforce over the 30 years to 2016.

She finds no sign of a recent quickening in the pace of change in occupations, but she certainly does find such change over the 30 years since 1986.

The proportion of routine manual jobs (such as labourers and machinery operators) in total employment has fallen from 40 per cent to 30 per cent, while the proportion of routine cognitive jobs (such as salespeople and clerical workers) has fallen from 27 per cent to 24 per cent.

In contrast, the number of non-routine manual jobs (such as nurses and hospitality workers) has risen from 6 per cent to 11 per cent, with non-routine cognitive jobs (such as management and professional occupations) rising from 27 per cent to 36 per cent.

This means routine jobs' total share of the workforce fell by 14 percentage points, whereas non-routine jobs' share rose by 14 points.

The share of routine and non-routine manual jobs fell by 5 percentage points, meaning the share of all cognitive jobs rose by the same.

(If you're wondering, over that 30-year period, total employment grew by almost 5 million jobs – an increase of more than 70 per cent – with the extra jobs spread about equally between part-time and full-time.)

Gruen says we should expect these trends to continue. But he makes a point first made by American economist Daron Acemoglu, that there's not one big trend going on in the workplace, but two.

The one that gets all the headlines is automation – jobs being taken over by machines. But the trend that gets much less notice – thus contributing to the public's excessive anxiety – is the continuous creation of new, useful, complex (that is, non-routine) jobs.

We've seen that, for at least the past 30 years in Oz, both trends have been at work. One displacing jobs, the other creating them. And so far, their effect on the composition of jobs has been roughly equal, and hasn't prevented continued growth in the total number of jobs.

Of course, it remains possible that the digital revolution will cause an acceleration in trend of displacement of jobs by machines, thus overwhelming the creation of new, complex jobs.

But another American economist, David Autor, has explained that certain tasks are particularly hard to automate.

These are tasks "that people understand tacitly and accomplish effortlessly, but for which neither computer programmers nor anyone else can enunciate the explicit 'rules' or procedures ... [The] tasks that have proved most vexing to automate are those demanding flexibility, judgment and common sense – skills that we understand only tacitly".

Of course, it's possible that "machine learning" may overcome these problems, but there's another constraint on machines taking all our jobs away to remember: the need for interpersonal skills in a growing number of jobs, plus our human preference for being served or helped by humans, not robots.

Don't discount the human factor.

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How politicians use claims about 'jobs' to mislead us

What's the four-letter word politicians of both stripes most use to bamboozle voters? Jobs. Or, as Neville Wran, former NSW premier and never given to understatement, used to say Jobs, Jobs, Jobs.

Economists and business people worship at the shrine of Growth because it raises their material standard of living. Materialism is the god of our age.

But growth is rarely what the pollies try to sell the public on. No, what presses the right button with ordinary folk is jobs.

Just as most of us don't know much about art, but know what we like, so most of us don't know much about economics, but do know there's an eternal shortage of jobs. We can just never hope to have enough of them.

So the sleaziest, most obviously self-aggrandising business person knows to say about whatever money-making project they want permission to undertake that it will create loads and loads of new jobs.

No matter what damage your scheme would do to the surrounding environment – and thus to the prospects of other industries – nor how great the risk you'll skip town if it's not working out, promise jobs and you're already half way in the door.

You can always find a friendly economic consultant who, for a small consideration, will do some modelling of your proposition and produce a generous – even exaggerated – estimate of the many thousands of jobs your plan will generate. Directly and, not forgetting, indirectly. Thousands.

Then there's a high chance government politicians will take up your cause, accepting without question or qualification you inflated job estimates, and castigating all those who lack the vision to see how much your scheme will contribute to the community's wellbeing (not to mention their re-election).

This, among many other instances, is the story of the resources boom, which our leaders applauded all the way and made little effort to control.

Think of all the jobs created. The main price we paid was that the dollar, caused by the boom to stay way too high for too long, prompted a slab of our manufacturing sector to give up the struggle.

Perversely, the highly-publicised loss of jobs that followed has served only to reinforce the public's conviction that we can never have enough jobs and that anyone claiming to want to create a few should be welcomed without further question.

It's true, of course, that a healthy rate of growth in employment is the most important thing we should expect of our economy, given our growing population.

Trouble is, our uncritical obsession with jobs – any jobs – leaves us open to manipulation by business people and politicians with their own barrows to push.

Promoters of projects exaggerate the number of jobs they will create secure in the knowledge that politicians and the media will repeat their claims without bothering to check them.

And no one but no one will return a few years later to check the gap between what was promised and what was delivered.

With mining projects, too little is done to remind people that almost all the promised jobs are for the construction, not running the thing. As soon as the project's completed, the construction workers go back where they came from – often overseas – leaving the nearby towns as flat as a tack.

Many development projects require skilled workers. But workers with particular skills are usually in short supply, meaning the project doesn't create additional jobs for plumbers or whatever so much as create vacancies that have to be filled by attracting plumbers away from their existing jobs elsewhere.

Every dollar anyone spends has indirect, flow-on effects beyond what was originally spent on. But these indirect effects are hard to measure and easy to exaggerate.

My rule of thumb is that whenever you hear the promoters of projects talk about all the jobs to be created indirectly, they ain't to be trusted.

As you recall, the centrepiece of Malcolm Turnbull and Scott Morrison's "plan for jobs and growth" was their desire to cut the rate of company tax from 30 to 25 per cent over 10 years.

Last week the Senate agreed to cut the rate to 27.5 per cent for companies with turnover under $50 million a year.

Turnbull and Morrison have chosen to regard this a big win, and are already assuring us it will do wonders to encourage small and medium businesses to expand and create jobs.

ScoMo​'s demanding to know whether Labor would reverse the tax cut and spend the money on other things, such as education and health, accusing it of "playing cynical politics all along with no regard for the jobs and wages that are at stake".

Get it? Cutting company tax creates jobs; not cutting it doesn't. Nor does spending the money on education and health create jobs.

This is economic nonsense. ScoMo regards it as a self-evident truth that cutting taxes creates jobs whereas raising taxes destroys jobs. Unfortunately, no one's told the Scandinavians.

In fact, there's no empirical evidence of a relationship between countries' level of taxation and their success in creating jobs.

ScoMo's own Treasury modelling predicts that the full company tax cut would do almost nothing to increase employment.

Beware of politicians trying to sell propositions on the basis of all the jobs they'll create. They just know which of your buttons to press.

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Economists' changing view of the labour market

The newly invigorated Australian Council of Trade Unions is demanding a $45 a week increase in the federal minimum wage, a rise of 6.7 per cent, which has shocked and appalled the employer groups and the Turnbull government.

If I was on the minimum wage, however, I wouldn't start spending the increase yet. It's all a bit ritualistic, with the unions demanding far more than they expect to get, while the employers cry poor and predict huge job losses should anything more than the tiniest increase be imposed on them by the Fair Work Commission.

Not that many years ago, most economists would have shared the employers' doubts about the wisdom of even a modest increase in the minimum wage.

Indeed, conventional economic analysis – using the "neo-classical" model of markets – told them that government intervention in the labour market to set a "binding" minimum wage – that is, one higher than would be set by the unfettered interaction of supply and demand – might benefit those workers who managed to retain their jobs, but must inevitably mean many unskilled workers would be prevented from getting jobs.

Just how many people were unemployed as a consequence of holding the minimum wage above its "market-clearing" level would be determined by the "elasticity" – the degree of sensitivity to price changes – of employers' demand for unskilled labour.

There are probably plenty of economists who still believe all that, particularly those who don't make a study of the economics of the labour market and rely on elementary analysis of any and every market.

After all, such analysis is completely logical, given the assumptions on which the simple model rests.

Trouble is, it's long been obvious to those who cared to look that the conventional model isn't much good at predicting what will happen to employment and unemployment.

For instance, those economists who use the neo-classical model – as opposed to a Keynesian approach – to explain the behaviour of the macro-economy are obliged to argue that the jump in unemployment during recessions is voluntary rather than involuntary.

It's just a lot of workers choosing that moment to take an unpaid holiday.

But the big challenge to economists' conventional wisdom that minimum wages cause unemployment came in 1995, when two American economists, David Card and Alan Krueger, published empirical evidence showing that a 19 per cent rise in New Jersey's minimum wage actually saw a small rise in employment.

Many studies since then have come up with similar findings.

This suggests the conventional model of markets doesn't offer a useful description of how the labour market works. Either the model's many assumptions don't hold, or there are key factors affecting labour markets that the model doesn't capture.

This is no radical idea. A father of neo-classical economics, Alfred Marshall, argued as long ago as 1920 that the market for labour differed from two other "factor markets" – markets for the factors of production - land and capital.

Why? Because, according to Marshall, workers retain ownership of their human capital (skills) – they're free agents – and because workers must be present in the workplace for the delivery of their skills.

The first characteristic means that anything workers learn on the job, or are trained to do, remains their property, not their employer's, thus giving them some control over the use of those skills.

The second characteristic – that every unit of labour an employer purchases comes with a human being attached – means workers can't live very far from the workplace.

Since moving homes involves cost and inconvenience – especially if the worker has a family – this may give employers some ability to exploit their workers.

Remember this and the notion that a model for the buying and selling of land, or machines, or for the borrowing and lending of dollars, would work just as well in explaining the buying and selling of labour, is fanciful.

So what other, better models of the labour market are there? Labour economists are working on many. A favourite of Professor Alison Booth, of the Research School of Economics at the Australian National University, is the "oligopsony" model.

Huh? Monopoly means there's just one seller of a product. Monopsony means one buyer of a product or, in this case, input. Oligopsony means just a few buyers – by no means uncommon in a modern economy where a few big companies dominate many product markets.

The oligopsony model assumes that even if workers have identical skills and abilities, they have differing preferences on which employer they want to work for, influenced by such things as how far the firm is from where they live, the hours they want to work, or whether they like the boss and their fellow workers.

It takes time and effort (that is, cost) for workers to find alternative employers they like at least as much as their present one and, similarly, it's expensive for employers to find a worker they like as much as the one they could lose.

This makes many workers reluctant to change jobs and many bosses reluctant to change workers. And because these preferences are private information – the other side can't be sure how strong they are – there's scope for "economic rents": for workers to be paid less, or more, than the value of their work. Less is more likely (except for me).

Booth says the attraction of the oligopsony model is its ability to show how a minimum wage can actually increase employment, as well as why employers provide general training to workers who could leave and take the training with them.

Trouble is, these alternative models of the labour market may be more realistic, but they're also more complicated and harder to reduce to a set of equations.

Keynes once said it was better to be roughly right than precisely wrong. A lot of economists disagree.

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Why the growth in wages is so slow

Economists may not be much chop at forecasting how fast the economy will grow in the next year or two, but that doesn't mean they haven't learnt a few things about how economies work that the rest of us could benefit from knowing.

It helps us get a better handle on the future if we remember the macro-economists' rule that economies move in cycles, not straight lines.

So something that's been going down will, one of these days, start going back up, and vice versa.

A related rule is that, at any point in time, what's been happening in the economy will be partly the result of "cyclical" (and thus temporary) factors, and partly the result of "structural" (longer-term, lasting) factors.

At any particular time, the bigger, easier-to-see factor is likely to be cyclical influences; the smaller, harder-to-see factor is the underlying, longer-term structural (or "secular") trend.

Let's use this understanding to look at the present weak rate of growth in wages.

As measured by the Bureau of Statistics' wage price index, wages have usually grown by between 3 and 4 per cent a year in nominal terms, though they got up to 4.3 per cent just before the global financial crisis.

Since their subsequent peak of 3.7 per cent over the year to September 2012, however, their rate of growth has slowed continuously to a pathetic 1.9 per cent over the year to December.

Some people have leapt to the conclusion that employers have finally got the upper hand over workers, so that wage slaves will never get another decent pay rise again and, indeed, will probably see their rises get even more microscopic.

Sorry, it ain't that simple.

The question of what's causing wage growth to be so low is examined in an article by James Bishop and Natasha Cassidy in the latest Reserve Bank Bulletin.

Not surprisingly, they account for much of the weakness as caused by cyclical factors – by the relatively weak state of the labour market.

Note that the fall in the rate of wage growth began after the prices we receive for our exports of coal and iron ore stopped shooting up and started falling rapidly.

When our "terms of trade" – export prices relative to import prices – were improving, the nation's real income was rising strongly (because we could now buy more imports with the same quantity of exports) and it wasn't surprising to see our wages growing strongly, more strongly than consumer prices were growing.

But when our terms of trade began deteriorating, it was equally unsurprising to see wages start growing more slowly, especially relative to consumer prices.

Roughly a year after minerals export prices started falling, the amount of mining construction activity began falling sharply as projects were completed and no new ones were begun.

Thus began a period of weakness in the economy. Mining construction activity contracted and we began the slow transition back to an economy led by the other sectors, which had been held back by the expansion of mining.

Economists expect wage growth to be slower when there's "slack" in the labour market – when unemployment is higher than normal, employers have less trouble finding the workers they need and workers and their unions are less inclined to campaign for big pay rises.

With the actual unemployment rate fairly steady at 5.8 per cent,  but economists having revised their estimate of full employment (known to economists as the non-accelerating-inflation rate of unemployment) down to 4.75 per cent, plus a relatively recent rise in under-employment, there's plenty of reason to expect wage rises to be small.

And, of course, there's less need for big pay rises because consumer price rises have been below the bottom of the Reserve Bank's 2 to 3 per cent inflation target for the past two years.

There's a circular, chicken-and-egg relationship between prices and wages. Wages don't need to rise as much when prices aren't rising much, but prices don't rise much when wages (the biggest cost most businesses face) aren't rising much.

Don't be a victim of what economists call "money illusion". It shouldn't matter to workers how big their wage rises are in nominal terms. What matters is how wages are rising relative to prices – that is, what's happening to real wages.

The good news is that real wage growth has generally been positive in recent years.

The bad news is that real increases have been minuscule, whereas in a normally functioning economy they should grow by a per cent or two most years, as workers get their share of the continuing improvement in the productivity of their labour.

The first point to make is that there are good cyclical reasons for wage growth to be low, meaning that as the economy completes its transition to more normal sources of growth, we can expect a return to more normal rates of consumer price inflation and wage rises.

But here at last is the point: the Reserve's Bishop and Cassidy admit that all the normal cyclical factors we've discussed simply aren't sufficient to fully explain why wage growth is so weak.

That is, there does seem to be some underlying structural change at work. And it's not peculiar to Oz.

"It has been posited in the international literature that low wage growth may reflect a decline in workers' bargaining power," they say.

With all the globalisation of production, all the technological change and digital disruption – plus, in Australia and elsewhere, all the changes to wage-fixing arrangements to shift bargaining power back to employers – that's not hard to believe.

It's a warning to governments that if they want to see their economies return to normal functioning - and workers return to voting for mainstream parties – they should have another think about whether they've got the balance of industrial relations bargaining power right. Doesn't look like it.

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The future of work won't be as bad as we're told

I can't remember when there's been so much speculation about what the future holds for working life. Or when those who imagine they know what the future holds have worked so hard to scare the dickens out of our kids.

Getting on for 100 years ago – 1930, to be precise – the father of macro-economics, John Maynard Keynes, wrote an essay, Economic Possibilities for our Grandchildren, in which he calculated that if technological progress produced real economic growth per person averaging 2 per cent a year for 100 years, by then people would enjoy a comfortable standard of living while needing to work only 15 hours a week.

He was writing during the Great Depression, so I doubt if many people believed him. He was right, however, to predict the Depression would end and growth would resume, powered by continuing advances in technology.

By the 1960s and early '70s it was common for futurologists to predict that more and more labour-saving technology would allow big reductions in the standard 40-hour working week.

What a laugh. Today's futurologists – amateur and professional – are predicting roughly the opposite to what Keynes and the '60s futurologists were.

Thanks to continuing technological advance and the digital disruption it's producing, working life is getting ever tougher and less secure, we're told.

As we learnt last week, all the extra jobs created in Australia over the year to February – a mere net 100,000 – were part-time, with full-time jobs actually falling by 21,000.

So there's the proof we're going to the dogs – and it'll keep getting worse. All those part-time and casual jobs. The growing army of the "under-employed".

We're moving to the "gig economy", where full-time, permanent jobs become the exception and most workers are employed on short-term contracts, many are self-employed like Uber drivers or need a "portfolio" of jobs on different days.

Frightening, eh? I read someone confidently assuring school kids they'd have 10 different jobs – or was it 10 different occupations? – in their working lives. Then I read someone assuring kids they'd have 17 different jobs. Not 16, or 18, but 17.

This growing job insecurity is why there's a renewed push among progressives – including Greens leader Richard Di Natale – for a "universal basic income". It'll be needed because so many people will be earning little or nothing from employment.

Have you detected my scepticism? This is people during a period of weakness in the jobs market predicting – like Keynes's pessimists – it will stay weak forever – and get worse.

That's part of it. The other part is the futurologists who, unlike us mere mortals, can see with perfect clarity what our technological future holds.

If you think economists aren't good at forecasting, futurologists are much worse. Much of what they predict never comes to pass and most of what they correctly predict takes much longer than they expected. Then there's the things they failed to predict.

The only safe prediction is that the future will be different to the present. Any more specific prediction is mere speculation.

The futurologists generally know – or profess to know – a lot more than the rest of us about all the new tricks the latest technology will soon be able to do. What they almost always underestimate is the human factor: whether we'll want it to do those tricks.

If the futurologists had been right, by now most of us would be working from home. We aren't – because it suits neither bosses nor workers.

It's tempting to predict the digital revolution will eliminate many jobs in the services sector, leading to mass unemployment.

Trouble is, employers have been installing labour-saving equipment since the start of the Industrial Revolution, and so far the unemployment rate is hardly up to double figures.

That's because improving the productivity of a nation's labour increases its real income. When that income is spent, jobs are created somewhere in the economy.

Technological advance doesn't destroy jobs, it "displaces" them from one part of the economy to another.

It's possible the digital revolution is so different to all previous technological revolutions that what's been true for 200 years is no longer true. Possible, not probable.

Those predicting our kids will be tossed out of their jobs many times in their working lives forget that market forces involve the interaction of supply and demand.

Their prediction of almost universal job insecurity in the gig economy assumes this will happen because it's what the demanders of labour – employers – want.

This is naive. It assumes all labour is unskilled – so employers don't care who does it and never have trouble recruiting and training a constantly changing workforce – and that there's no such thing as "firm-specific knowledge".

No employer would treat skilled labour in such a cavalier fashion. Employers know the suppliers of labour – employees – wouldn't want to work for such an appalling outfit.

And such an apocalyptic prediction fails to allow for what economists call the "policy reaction function" – if things get too bad for too many workers, governments will step in and legally require employers to treat their staff fairly – just as they already impose paid public holidays, annual leave, minimum wages, penalty payments and much else on unwilling employers.

Why do they do it? Because, in a democracy, workers have far more votes than bosses.

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Cut in penalty rates another win for 'bizonomics'

When we look at all the crazy behaviour in the United States, we comfort ourselves that it couldn't happen here. Well, last week we took another step in that direction.

Why do blue-collar workers get so alienated and fed up they vote for someone as mad as Donald Trump? It couldn't be because, while America has waxed fat over the past 30 years, their pay has been stagnant in real terms.

How have the top few per cent of US households captured most of the economic growth for three decades?

Three main reasons, which apply in varying degrees to us.

First, because globalisation and "skill-biased" technological change have produced a small number of winners and a large number of losers.

Second, because far from using the tax-and-transfers system to require the winners to compensate the losers, we've gone the other way, making the income-tax scale less progressive and tightening up on payment of benefits to people of working age.

Third, because although the economy has changed in ways that weaken organised labour, we've doubled down, weakening legislative arrangements designed to reduce the imbalance in bargaining power between bosses and workers.

The unions have been weakened by the greater ease with which employers can move their operations overseas and by the technology-driven shift from goods to services.

The legislative attack has focused on removing union privileges, weakening workers' rights and weakening workers' bargaining power by discouraging collective bargaining and favouring individual contracts.

In the US there's been a failure to raise minimum wage rates. Here, there's been a decades-long campaign to eliminate penalty rates for people working "unsociable" hours which, supposedly, are anachronistic.

The mentality that produced these developments is "bizonomics" – something that sounds like economics because it repeats buzzwords such as "growth" and "jobs", but isn't.

In Australia, micro-economic reform has degenerated into a form of rent-seeking that's saying the way to a prosperous economy is to keep business – the people who create the jobs – as happy as possible.

This bizonomics isn't new, of course, as attested by its slogan: What's good for General Motors is good for America.

As it relates to the labour market, the proposition is that the way to make things better for everyone is to make life tougher for the workers.

Pay them less, give them less job security in the name of greater "flexibility", acquiesce to business's ambition of making working life a 24-hour, seven-days-a-week affair, and we'll all be better off.

The flaws in that argument – and the price to be paid for playing this game for decades – are now more apparent.

For a start, the number of workers and their dependents far outnumbers the bosses and owners and their dependents. So if all you end up doing is transferring income from the workers to the bosses, far more people lose than gain.

Of course, that's never what we're promised. The promise is always that the loss to existing workers is justified by the gain to all the would-be workers who'll now get a job.

Trouble is, too often you end up with a lot of workers making a sacrifice with only a handful of would-be workers finding jobs.

The Fair Work Commission's decision to cut Sunday and public holiday penalty rates for workers in hospitality and retail is an experiment in trickle-down economics, based on faith rather than evidence.

That makes it like everything else on big business's "reform" agenda: the immediate benefits come directly to business – in the form of cheaper labour – but, not to worry, those benefits will trickle down to the rest of us, so in the end it will all be much better for everyone.

Do you wonder why the punters don't believe it and conclude simply that "the government" has cut wage rates to benefit its big business mates, thus adding to their disillusionment and willingness to vote for populist fringe parties?

As I've explained before, the claim that lower penalty rates in retailing will lead to growth and jobs is – like the argument for protection – based on a fallacy of composition and the absence of "economy-wide" thinking.

The most likely effect is that total consumer spending remains little changed, but more of it's done on Sundays and goes on recreation and retail.

Plus an apartheid weekend, where the high-paid still get it, but the poor have to work.

A fearless prediction: now business has got some of the "reform" it's seeking, no one will ever bother to come back in a few years' time and do a proper study to check whether all the promises we were given came to pass.

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If the economy’s acting dumb, don’t blame the econocrats

Has it occurred to you that, with the Reserve Bank now run by Dr Philip Lowe and his deputy Dr Guy Debelle, Glenn Stevens may have been the last governor we'll see without a PhD?

All Stevens and his predecessor, Ian Macfarlane, could manage was a master's degree.

Of course, nothing is certain. After Dr Ken Henry was succeeded as Treasury secretary by Dr Martin Parkinson, I convinced myself the era of PhD-only secretaries had arrived at Treasury.

Wrong. It didn't occur to me that Tony Abbott would intervene, sacking Parkinson and replacing him with John Fraser (honours degree), a throwback to Treasury's (John) Stone Age.

My point is to remind you that the nation's top econocrats get ever-better educated. And take my word for it – they're not just highly qualified, they're whip smart.

When you spend as much time talking to them as I do – mainly before they make it to their top slots – you have to keep reminding yourself how exceptionally bright they are to stop you underrating your own brainpower.

They're the kind of people who – while you were at uni chasing the opposite sex, playing at politics or just goofing off – were swatting flat out, preparing for every lecture and starting early on every essay. You skimmed the texts; they read every word.

While chatting about other people's academic qualifications I suppose I should disclose my own: scraped through a bachelor of commerce, pass level.

Had to repeat several subjects, and the last pass I got, for international economics, was conceded. I couldn't see the point of economics until long after I left uni.

If by now I do know a bit about the topic, it's thanks mainly to long telephone tutorials from the aforementioned and their predecessors.

As citizens we should find it reassuring that our politicians are being advised by such smart people.

For the most part they're more intelligent (and better qualified) than their political masters – and than the politically ambitious young punks in the minister's office who stand between them and the boss.

We'd be better governed if more of the people in ministers' offices came from the department, if there was a less adversarial relationship between the office and the department, and if ministers and their private advisers were more conscious of their need for policy advice from the more expert.

After Scott Morrison's major speech about "the taxed and the taxed-not" I stopped myself saying it was clear Treasury hadn't written it because of all the bad grammar in it.

The broader point is that, although the nation may not be doing as well as we should be in increasing the human capital of the workforce, there's no doubt our workforce is getting better qualified.

Over just the 10 years to 2015, the proportion of our population aged 20 to 64 with a bachelor degree or above rose by 7.5 percentage points to 29.3 per cent.

This would include a lot of our brighter young people getting double degrees – the benefits of which I'm yet to be persuaded of. (Whether too many of our workers have actually become overqualified is a worry for another day.)

So rest assured, the economic bureaucracy is at least keeping up with the trend to better qualified workers, and probably exceeding it. Of course, people with doctorates are popping up throughout the workforce, not just the bureaucracy.

Most of the Reserve's PhDs are home grown. As you may remember from Peter Martin's fascinating biography of its new leadership, Lowe joined straight from school, meaning the Reserve funded his education all the way from undergrad university medal to doctorate from MIT in Cambridge, Massachusetts.

Since the Reserve earns a fortune each year by printing bank notes for less than 10¢ a pop and selling them to the banks at face value (only most of which it eventually passes on to the government), it's well able to afford to ensure its troops are well educated.

It's harder for Treasury, whose bright young things compete against the rest of the public service for a limited number of scholarships (one of which was endowed by the will of a former Treasury secretary).

You could be forgiven for wondering whether having our top econocrats so well-qualified academically is such a wonderful idea. Fortunately, there's a big difference between an econocrat with a PhD and a university lecturer with one.

Too many trainee academic economists are just learning to do mathematical tricks that will impress their peers. A post-grad from the bureaucracy knows they're learning how to prescribe better economic policy.

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Economy steams on for another quarter

Just about everyone who doesn't look at the numbers - which is most people - is convinced the economy is "slowing", suggesting disaster may be just around the corner.

How do they know it's slowing? Because almost all the economic news is bad. They don't notice that most of the bad news comes from somewhere else - Britain, Europe, Japan, China, even the US.

And people who warn that the economy is slowing always sound wiser and more knowing than people who say it seems to be going OK and will probably stay OK.

Of course, if you do look at the figures you find little sign the economy is slowing. Indeed, the national accounts we got from the Bureau of Statistics this week show that real gross domestic product grew by 3.3 per cent over the year to June.

Three months earlier, the figures tell us, real GDP grew by 3 per cent over the year to March. Before that we had growth of 2.8 per cent over the year to December and 2.6 per cent over the year to September 2015.

During all that time we've had people confidently telling us the economy is "slowing". What's more, within a week they'll have forgotten this week's good news from the national accounts - as they did all the other times - and be back telling us the economy is "slowing".

The good thing about the national accounts is you can always find something that's not looking too hot - provided you ignore all the things that are going OK.

This time you can say that, since the economy grew by 1 per cent in the March quarter, but by only 0.5 per cent in the June quarter, it must be "slowing".

But you have to be an amateur to believe the accounts can be taken so literally.

They're too subject to lumpiness (big transactions, such as the purchase of jumbo jets, which happen irregularly rather than smoothly from quarter to quarter), to error (such as a big transaction getting into the wrong quarter) and to frequent revision (there's a lot more statistical guesswork in the first estimate of growth during a quarter than people imagine, mainly because a lot of the figures needed are collected only yearly) for them to be treated as God's truth.

You could also say that growth in consumer spending of just 0.4 per cent in the quarter was surprisingly weak but, again, we shouldn't be too literal. Growth of 2.9 per cent over the year is pretty healthy.

Actually, if you're looking for something that really is "slowing" you'll find it not in the national accounts, but in the monthly job figures. They show that employment hasn't grown as strongly this year as it did in the last half of last year, meaning the rate of unemployment seems to have stopped falling and plateaued at 5.7 per cent.

This tells us there's been some instability in the normally fairly stable relationship between growth in the economy and growth in employment.

It would be more worrying if growth in the driver of that relationship - the economy - weren't holding up so well, and possibly increasing. This being so, employment should start behaving more normally in time.

The real growth in GDP over the year to June of 3.3 per cent was generated by, in descending order of contribution, growth in: the volume of exports of 9.6 per cent (with extra help from a 0.5 per cent fall in the volume of imports), consumer spending of 2.9 per cent, public consumption spending of 4.4 per cent, public infrastructure spending of 13.9 per cent, and home building of 8.3 per cent.

All of which was reduced by a negative contribution to growth of 2.2 percentage points from the 13.8 per cent fall in business investment spending, as the continuing fall in mining construction activity swamped still fairly flat growth in non-mining business investment.

If those figures make you think the public sector - federal, state and local - has been spending like crazy, don't be misled. Public sector spending is lumpy, and June quarter spending was overstated (and business investment spending correspondingly understated) by state governments buying prisons and other facilities previously built by the private sector.

Here's some indisputably good news: the productivity of labour in the market sector improved by 1.5 per cent during the quarter and by 2.9 per cent over the year.

There's an old rule that one quarter's figure doesn't equal the start of a new trend. Remembering this, there are some encouraging figures in the accounts we can hope will turn out to be improving trends.

The most significant is that, after deteriorating for nine quarters in a row, our terms of trade - export prices relative to import prices - improved by 2.3 per cent in the quarter.

This means stronger growth in real gross domestic income (real GDP adjusted for the terms of trade) of 1.9 per cent over the year. That is, the international purchasing power of the goods and services we produce wasn't cut back this quarter the way it has been.

When export prices fall far enough, nominal GDP grows more slowly than real GDP. This is a problem for the Treasurer because the taxes we pay are levied on our nominal income and spending.

But the improvement in the terms of trade helped nominal GDP to rise by 1.3 per cent in the quarter and 3.4 per cent over the year. This is the strongest result in more than two years.

The final good news is proof the economy is now well advanced in making the much ballyhooed transition from mining- to non-mining-led growth.

Over the year to June, the mining sector contributed about a quarter of the overall growth of 3.3 per cent, whereas the (much larger) non-mining sector contributed about three-quarters.

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