The release of the wages price index last week saw annual wages growing by the lowest on record. Given the current weak employment growth and rising unemployment, it displayed that the current IR system works exactly as an efficient IR system should. But the data also reinforced that wage rises have an odd position within the political and economic debate – where workers and unions get criticised for high wage claims, but never get any credit when the opposite occurs.

Last week, in a provocative article on Comment is Free, Jason Wilson argued that leftwing governments have tried “to effect social change through market-based, capital-friendly mechanisms.” And that while they have done this successfully, Wilson argued “capital showed precious little gratitude to them.”

Nowhere is this more obvious in Australia than in industrial relations.

In January the employment minister, Senator Abetz, was warning of a “wages breakout” due to powerful unions pushing around employers (who, despite union membership being at all time lows, were suddenly rendered powerless to negotiate). It was part of his spiel to suggest IR laws needed to be changed.

And then, last week, the ABS revealed that in trend terms wages grew slower in the past year than at any time since it began calculating the wages price index in 1997.

The overall increase of 2.5% in the 12 months to September “beat” the previous record low of 2.6% that occurred in the 12 months to June this year. The quarterly increase of 0.6% was the second lowest of all-time, only beaten by the 0.4% rise that occurred in the midst of the GFC in September 2009.

And, of course, there was silence from Senator Abetz. When the treasurer, Joe Hockey, was asked about wages growth on ABC radio, the only concern was the impact on the budget. Lower wages means less income tax revenue and the 2014-15 budget estimated wages growth of 3% for 2014-15.

Our current industrial relations framework was largely put in place by Paul Keating’s ALP government. And yet the current low wages and solid productivity are never recognised as competitive by business leaders or conservatives, who always believe there is some magic fairy of greater competitiveness, productivity and economic growth that will occur if we could only just rid ourselves of the rest of the union movement and get everyone onto individual contracts.

During the mining boom period of the early 2000s, wages actually far outgrew labour productivity. When this happens over a lengthy period inflation generally rises – as indeed occurred in 2007 and 2008.

But over the past three years – under the Fair Work Act – for the first time since the wage price index has been calculated, labour productivity has actually grown faster than wages. This is pretty much your aim when you are devising a flexible and efficient IR system:

Of course any wage rises have to be considered within the context of price rises. In the past 12 months inflation has risen at the same level as have wages, meaning that while peoples’ wages on average have grown by 2.5%, because prices have risen by the same amount, in effect you have had no “real wage” increase.

The GFC fairly smacked the stuffing out of real wages. In the 10 years from June 1998 to June 2008, real wages grew on average by 0.85% each year. In effect, while the prices of goods and services in that time rose on average 2.75% a year, wages rose by an average of 3.6% - so your pay rise actually meant your standard of living could rise because you could afford to buy more things than you could previously.

But since then, real wages have grown by just 0.58%. And most of the reason that the growth is not lower is that during 2010, as wages recovered from the plunge during the GFC, inflation dropped to decade lows due to a soaring dollar that caused import prices to plummet:

Wages growth, however, soon reacted to the slowing inflation (and slowing economy) and since June 2012 real wages growth has been falling till it reached the current state where people’s real wage growth is weak.

Given the dreariness of the labour market, where unemployment is at 10-year highs, it is not surprising that wages in every industry are currently growing by less than their 10 year average.

And when we look at wages growth across each industry the general strengths and weaknesses of the economy are revealed.

The mining sector recorded the lowest quarterly growth of any industry of just 0.24%, with the construction industry at 0.42% not far ahead. This reflects how the declining investment in the mining industry has an impact across other industries as well:

The strongest growth came in the accommodation and food sector and the arts and recreation services sector. But this is not actually a sign of great strength more the impact of the national minimum wage increase of 3.0% granted by the Fair Work Commission came into effect from 1 July 2014. Thus this increase in the minimum wage rates was reflected in this quarter.

But it should be remembered that the lowest paid workers and the wages of accommodation and food services workers over the past 10 years grew by less than any industry:

But elsewhere the forces of demand and supply are evident.

Firstly, if we compare wages growth in the mining sector to the overall wage growth, it’s clear that for most of the past 14 years the mining sector has been growing much faster than the pack, but now wages growth in that industry is on average over the past 12 months but below average for the past nine months:

The construction industry during the early 2000s mining and housing boom also had wages growing well in excess of the average:

But during this recent housing boom, wages growth in the construction sector has been pretty much on average. Without a booming mining sector to compete for labour, the housing sector has had a plentiful supply of construction workers.

The RBA confirms in its recent Statement on Monetary Policy, that labour cost pressures in the construction sector “have been subdued to date, with construction wage growth around its slowest pace in the past decade or so”. It noted that “workers with skills in construction are reported to be readily available, in part because demand for such labour from the resources sector has declined.”

Thus, in effect, the industrial relations system is doing what an efficient IR system should do. In a time of weaker employment and weaker inflation, wages, rather than outpacing the economy, are reacting to reduced demand and excess of supply by slowing.

It is essentially a successful “capital friendly” system instituted by the labour friendly side of government. Yet there is no thanks for it, only complaints that it doesn’t go far enough. And ironically, given the lower wages will hurt Joe Hockey’s bottom line, right now he might actually be wishing the IR system was not operating so efficiently.