In the peculiar world of economics, every now and then, a term takes hold in the popular mind. This seems to occur only when the economist in question is able to sum up their work in a manner that gives a name to an underlying but not properly understood phenomenon. Stagflation, Voodoo Economics, Brexit, are some of just a few.
The latest, or at least one of the latest, is the term ‘gig economy’, which purports to describe how work has changed from a stable, largely full-time, generally permanent basis, to so casual an affair that people are engaged from one task or ‘gig’ to the next.
This modern phenomenon, facilitated by technology and service providers like AirTasker, TaskRabbit and Uber, shifts the patterns of work in a way that often sees potential ‘employees’ bid their way to the bottom to secure a few hours work at the most.
This is a serious issue, infecting monetary policy as it is applied by central bankers the world over. Orthodox outcomes like lower unemployment, job creation and rising economic growth are supposed to lead to higher wages. But they are not, either in Australia or in other advanced economies.
Average wages are stagnating and wages growth is sub-inflation.
Australia’s own Philip Lowe, Governor of the Reserve Bank of Australia actually told workers to pursue higher wages increases during a speech in May. His thesis, and it is one being used widely now, is that economic growth depends upon a balance of movements, over time, where rising prices are only achievable where they are met by those with a capacity to pay more.
This is known as the Phillips Curve and it has, as John Kehoe pointed out in the Australian Financial Review in early July, flattened out.
It is true that there are economists who argue against the consumption driven model of this form of economic growth, but its orthodoxy has been largely settled for most of the last century.
Unfortunately, what the term ‘gig economy’ does is place the emphasis on the parties bidding for the wage increase or supplying the work opportunity. It ignores the facilitators (technology driven often) and the underlying driver of what is essentially a modern unrestrained labour mobility.
As former US Federal Reserve Chairman Ben Bernanke has pointed to globalization of economic integration as a feature that has made highly-skilled workers more valuable and sought after, but has placed others at the mercy of the same scenario.
In a speech in June, Andrew Haldane, the Chief Economist of the Bank of England said that the UK’s wages growth had been poor since the global financial crisis, despite relatively low unemployment. In part he attributes this to:
“…evidence technology and globalisation may have weakened the bargaining power of workers, leading to a secular fall in the share of income going to workers in several countries.”
Haldane continues on to provide some attributions, deploying the ‘gig economy’ terminology:
“Some have called them the “casualisation” of work, with jobs becoming less structured and more informal. Others have called them the “gig” economy, with work becoming less four-cornered and more task-oriented. Other still have associated these changes with heightened “insecurity” in the jobs market, with implications for households’ incomes and spending. All of these descriptions recognise that these shifts affect the quality of work in the economy, even as the quantity reaches levels not seen for many decades.”
If that was not enough, Haldane then goes on to personalize the experience, stating:
“…the rise in self-employment and part-time working has made work more divisible at the level of the individual worker. People are more likely these days to be paid by the task or the hour.”
Returning to Australia and drawing on just one further inference from Haldane’s speech, there is an underlying suspicion that the decoupling of wages growth flows into poor productivity at the economy wide level, if not the firm level. That come sin part from under-employment of precious and ultimately scarce human resources, and it might just be a bigger issue than we think right now.
Woe betide economies that under-utilise their labour resources, don’t maintain (pay and train) them adequately and then expect them to procure the goods they produce.
