By Gareth Vaughan
Technology is playing a role in suppressing wage growth, and although technology’s also impacting productivity growth, this relationship is more complicated, according to ANZ’s global chief economist Richard Yetsenga.
Speaking to interest.co.nz in a Double Shot interview, Yetsenga said that whilst he believes technology is playing a role in suppressing wage growth, he believes weak productivity data will ultimately be revised higher because it’s not currently including new entrant, technologically advanced firms.
This comes after Yetsenga last year told interest.co.nz the impacts on the global economy of technology will probably be wider than the emergence of China over the past couple of decades into a full participant.
“I think it [technology] is playing a role [in suppressing wage growth]. I think the evidence to some extent is circumstantial. But what we can say is we have very disparate economies at different stages of the economic cycle where this wage issue has emerged at roughly the same time. Commonsense suggests some sort of common driver. It doesn’t make sense to me [that] it’s things like globalisation or declining union participation. They’ve been around since the 1980s. There must be something else which has made them particularly relevant now,” Yetsenga says.
“Technology has raised price transparency over virtually the entire economy. One of the messages I think most people who talk to businesses will get back is ‘even when I’m facing excess demand for my product, [if] I try and raise my price the demand kind of evaporates’,” Yetsenga adds.
“The other issue is trade in services has exploded the last decade or so and that is entirely a technology story. How do you trade legal services across borders without the cloud, without the ability to communicate seamlessly across countries?”
Yetsenga says he believes this means trade pressure that used to be seen in the goods part of the economy, with for example manufactured cars being exported and imported causing deflationary pressure in the global marketplace, is now being felt by service industries as well.
“Service industries now see that as well, financial services, legal services, other professional services like accounting.”
“The evidence is largely circumstantial at this point [of technology suppressing wage growth]. [But] to me it’s the only explanation which really ties the whole thing together,” says Yetsenga.
‘The statisticians will revise what the present looks like when the present becomes history’
In terms of weak productivity growth, he says he believes that’s also being impacted by technology.
“There’s a famous quote from a few decades ago. An economist said ‘you can see the impact of computers everywhere except in the productivity numbers.’ You could say the same today,” Yetsenga says.
“Again productivity growth is weak in New Zealand, Australia, the UK, the US, most of Europe even some of the advanced Asian economies like Korea. It looks to me that what’s happening is that as more technologically advanced firms enter sectors and some of the firms which are less efficient find their businesses diminishing, that they’re the ones who we capture in the productivity data. So that we’re not necessarily capturing the new entrants. I think that we’ll find the statisticians will revise what the present looks like when the present becomes history, and we’ll find I think that productivity’s actually been a bit higher than we thought.”