beyond pt 0 23/1

Higher activity is sustained even after the full effect of the modelled
e-commerce changes have taken place after a decade. In fact real GDP
continues to rise slightly. This reflects dynamic benefits. E-commerce will
be used intensively in the fastest growing parts of the economy (including
services such as banking). This means that the technological
improvements become progressively more important.
Aggregate employment and wages
Greater use of e-commerce is expected to generate increases in real wages
and employment. Initially, real wages are fixed and employment adjusts to
changes introduced by e-commerce. As more use is made of e-commerce,
activity in the economy and employment will rise over time. Real wages
eventually also rise. In the longer term, the increase in employment
declines somewhat because of higher real wages, but it remains above the
base case forecast reflecting the increased supply of labour associated
with the technological change. While job numbers may rise or fall in
specific industries (discussed in more detail below), the net effect is an
increase in employment.
The increase in real wages is a benefit of the expected structural change.
It is part of the means by which employees obtain a share of the
productivity gains. The increase in real wages could be brought about in
one of two ways. One way would be through reductions in prices below
their forecast path. This would involve wages staying on their forecast
path and producers passing on the efficiency gains as reductions in their
prices. It seems more realistic, however, to expect that the Reserve Bank
will preserve its medium term objective of keeping underlying inflation to
within 2–3 per cent and allow real wages to rise than expect it to permit
prices to fall below its target band.
Implications for national welfare
But what is the implication for the economic welfare or material
wellbeing of Australians? To assess the welfare significance of the change,
the increase in activity is translated into an increase in real consumption
that it allows. Real consumption is a primary purpose of economic
activity and is a better measure of welfare or material wellbeing than
GDP. While there are many factors which shape welfare outcomes,
including environmental factors and others that are not always reflected
comprehensively in the national accounts, all else being equal, most
people would consider themselves better off with an increase in their
ability to consume. 14
One step in the conversion of the results from changes in activity to
consumption is to note that income is influenced by changes in the terms
of trade. 15 As part of the economic expansion generated by the greater use
of e-commerce, export volumes expand. Despite this, it is likely that
e-commerce will increase the prices of exports relative to imports. This is
because e-commerce will increase foreign awareness of Australian
products. The resulting improvement in export prices relative to import
prices (i.e. the improvement in the terms of trade) will increase
14 It is also notable that it does not seem likely that greater use of e-commerce would contribute
significantly or disproportionately to greater environmental degradation or higher crime rates or other
negative factors that would reduce welfare gains from increased consumption.
15 In order to produce conservativeresults it is assumed (fairly realistically) that e-commerce does not alter
the overall fiscal balance and therefore change the aggregate consumption rate. That is, governments do
not raise or lower tax rates, although the level of spending rises and falls with changes in the overall
level of activity.
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