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Thursday, 17 September 1987
Page: 225

Mr BRAITHWAITE —My question is directed to the Treasurer. I refer the Treasurer to the fact that average weekly earnings are projected to increase by 6.5 per cent in 1987-88 and that this is based in part on the assumption of:

. . . second tier increases of up to 4 per cent flowing to the bulk of wage earners, but associated with negotiated productivity offsets.

I ask the Treasurer: How can the expected poor productivity performance be reconciled with this rise in average weekly earnings?

Mr KEATING —I answered that question yesterday, but for those honourable members who did not understand it I will go through it again. I made it clear yesterday that the implied increase in productivity by the simple deduction of employment from output-that is, making the broad national accounts assumptions about productivity-in fact hides much of what is happening in the economy in respect of productivity performance by individual industries. It assumes, as has been assumed in the past, that there is little or no productivity in some important sectors such as defence and finance. Given that in the course of the last couple of years we have seen extremely strong growth in service industries, particularly in the tourism industry, where productivity is low and pulls down the national average, one is in a sense seeing some distortion of the productivity measure. One can measure it only on a long term trend basis

As I indicated yesterday, at this stage less than 10 per cent of the wage earners in the economy are receiving the 4 per cent increase determined in the national wage case. Therefore, there is not an implied full 4 per cent in the figures. However, as well as that, many of the restrictive work practices are being unwound and that will benefit the economy over time. That is coupled with the fact that this will be the fifth consecutive fall in real unit labour costs. It is one of the reasons why last year we saw a greater substitution of labour for capital maintaining the higher level of employment growth and which, of course, has been maintained this year as well. Obviously, in many of these industries in which there is implied low productivity there is no large capital base behind each unit of employment. Last year we saw a higher level of employment because of the five consecutive years of decline in real unit labour cost. That is a very good thing for the economy.