The latest wages data released on Wednesday shows wages grew slower in the past 12 months than ever before. But more worrying is that even when the economy recovers, the government is working to ensure wages growth remains weak.
This week the latest payroll job numbers were both welcome and rather disappointing: the good news of a 0.7% increase in jobs since 10 October rather dimmed upon closer inspection.
While all states except Tasmania have seen an increase in payroll jobs since that date, Victoria is clearly leading the way off the back of the easing of restrictions:
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And yet most states remain significantly below where they were prior to the pandemic and Victoria still has a fair way to go to catch up to the rest of the nation:
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What is clear is that the recovery is very uneven. Women workers are recovering jobs quicker than are men because the industries that have increased employment the most of late – education and retail trade – employ more women:
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But what also has continued is the trend towards younger workers doing better than older ones.
As I reported last week, the recovery remains mostly about teenage workers getting jobs, but others barely seeing any increase:
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And the situation has not been helped by the government’s changes to the jobkeeper payment.
The tightening of eligibility rules at the end of September look to have clearly caused small-businesses to cut staff.
While large businesses employing over 200 workers since September then have increased payroll jobs by 1.7%, those which employ fewer than 20 have shed 4.9% of jobs:
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The latest lockdowns in South Australia demonstrate just how perilous a state of affairs is the economy, and that it will be so until a vaccine is delivered.
But even beyond that time the latest wages data out Wednesday suggests we will have weak wages growth for the foreseeable future.
In the June quarter, private sector wages grew just 0.1% - the second straight quarter of such weak growth:
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The public sector fared little better – just a 0.2% rise.
Over the past year that means private-sector wages grew just 1.2% and both private and public combined grew a record low of 1.4%:
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The governor of the RBA, Philip Lowe suggested on Monday that globilisation, technology and the pandemic means “labour markets are working differently than they used to and wage and inflation dynamics have changed”.
And yet one of the problems of the current wages growth is not that it is unexpectedly low, but even with the impact of the pandemic it is almost exactly what is expected given the past four years.
In the past an unemployment rate of 6.9% that we had in September would have meant annual wages growth of around 3.1%. But what is quite sobering is that going by the trend of the past four years, an unemployment rate of 6.9% should see wages growing by just 1.4% – ie exactly what they are now.
Since 2016 wages growth is around 1.5% to 2% lower than it would have been in the past for ever level of unemployment, and that such a relationship is holding even during a pandemic suggest this is a long-term shift:
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What this means is that even when things begin to improve, we are unlikely to see wages growth return to the previous levels. Even an unemployment rate of 5% would likely see wages grow by less than 2.5%.
That means that the likelihood of inflation rising to the 2% to 3% level and any interest rate rises are a long way off.
One thing that could improve the situation is for the federal government to help spur wages growth by lifting its 2% annual wage growth cap.
Last year Lowe advised such a move saying “caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes. At the aggregate level, my view is that a further pick-up in wages growth is both affordable and desirable.”
And so you might think that the announcement last week by the government to remove the cap is some good news.
But no. The government instead announced that “commonwealth public sector wage rises can no longer exceed wage rises in the private sector”
Ludicrously the government argues this will allow “public sector wage rises to follow the private sector wage growth when it eventually exceeds 2%”. And yet such a move will actually serve to reduce the likelihood for private sector wages to grow at that level because public sector wages help drive those in the private sector.
Even worse, public sector wages usually grow slightly faster than that of the private sector so this is actually a shift towards lower wages growth overall.
And so in the midst of a recession, at time when wages are growing slower than ever before and the jobs are increasingly becoming part-time and insecure, the government is working to keep such conditions in place.
The government is using the pandemic to lock in low wages and insecure work.
It means there exists a very real danger that when our economy does eventually recover, it will be much worse for workers.
