The latest labour force figures released last week made it clear that hopes for an increase in wages growth is a long way off and the government’s predictions in its budget are absurdly optimistic.

Just how in need of stimulus is the economy? Consider that the day before the Reserve Bank cut the cash rate to 1.25% the market was predicting there was a strong chance of further cuts to 0.75% to occur sometimes late next year.

Now, just two weeks later, the market is fully pricing in a cut to 0.75% to occur by the end of this year and around a 30% chance of a cut to 0.5% to occur next year.

That 0.5% is even on the radar is utterly astonishing – and it would also mean an entire decade would have passed without an increase in interest rates. It does not mean rates will actually get that low but it highlights that the market expects without any change in policy from the government that is the likely trajectory – and it is clear the market does not expect any significant change in policy.

And this prediction for more interest rate cuts came after the latest labour force figures were released last week showing employment was growing generally well and unemployment was unchanged at 5.2%:

The trajectory, however, is pretty clear – this year has seen a distinct turn from the downward path that the unemployment rate had been on during 2018.

The growth of employment and hours worked is also quite solid – even if there does appear to be a slowing in the growth of hours worked:

To an extent you could think things are all good, and it’s not surprising that the government has been able to use the numbers to boast about how wonderful things are.

But when we delve a bit deeper, we can see the problems.

With the turnaround in the path of unemployment this year has also come an increase in underemployment. Underemployment is now as high as it has been for a year, and it continues to rise slightly faster than unemployment. The gap between underemployment and unemployment is now larger that it has ever been:

The increase in both rates has meant that the level of underutilisation is now also trending up. The jump in the underutilisation rate from 13.0% in February to 13.7% in April was the biggest two-month increase in five years and the second biggest in a decade:

And underemployment is rising for almost everyone – especially for men:

The problem for all of us is that underemployment and underutilisation are better determinants of wages growth than is unemployment. When underemployment rises, wages growth falls.

Given the March underemployment rate, annual wages growth in the first three months of this year was right on the long-term trend rate. This suggests that if we want to get back to 3.5% wages growth we need underemployment to fall to 7%, and yet since March it has actually risen from 8.3% to 8.5%:

Given there is now a 3.3 percentage point difference between the underemployment and unemployment rates, that suggests for underemployment to reach 7% unemployment would need to fall to around 3.7%.

That demonstrates just how far we are from the old average rates of wages growth. And yet the government would have us believe that we are going to get back to that level of growth with the unemployment rate remaining at 5.0%:

That is not going to happen. And it sure as heck is not going to happen in the current period of record low inflation growth.

My rough guide for inflation expectations compares the 10-year government bond yield with those of government inflation indexed bonds. This shows the expectations for inflation growth have nosedived this year and are now at record lows:

Businesses are not going to be giving workers higher wages in a period of increasing underemployment and decreasing inflation growth.

And it is why the market continues to foresee lower interest rates. There is no heat in the economy and, with little sign of the government doing anything to assist, the only hope to keep things going will be more rate cuts.

That might be enough to keep the economy growing, but it is unlikely to do much for our wages.

• Greg Jericho is a Guardian Australia columnist