Low Wage Growth: Why It Matters and How to Fix It

Neoclassical economic theory and its supply-side account of the drivers of economic growth has been influential amongst Australian economic policymakers and advisors. In the post-Keynesian tradition, we argue instead that aggregate demand drives economic growth, even in the medium term. In particular, the investment and innovation that depends upon that investment are mainly determined by the investment response to consumer demand. Currently, weak wages growth in Australia is weakening that consumer demand. The paper examines the causes of weak wages growth and offers solutions.