Australia’s terrible wages growth of just 0.4% in the June quarter despite unemployment falling below 5% has dashed any hopes that wages will be growing back above 3% anytime soon. It highlights the complete triumph of governments around the country aiming to keep wages low.
The latest wages price figures released on Wednesday by the Australian Bureau of Statistics might be the most disconcerting economic data for some time.
Yes, last year wages actually fell, and the economy as a whole went backwards. But that was expected – we were dealing with a pandemic and everything was shut.
But in the June quarter, which takes in April, May and June, things were going well – lockdowns were largely absent, people were going to the movies again, travelling across borders, seeing plays and musicals and eating out.
In that time there was a very sharp fall in the unemployment rate to a decade low of 4.9% and we were hearing all manner of talk about skills shortages and how, because our migrant intake had been slashed, wages would start to pick up because of supply constraints.
In the December quarter of last year and the first three months of this year, that seemed to be the story – wages grew by 0.6% in both quarters and things looked on the up.
But now we have the third-worst quarter of wages growth ever recorded outside of the Covid shutdown of last year:
If the graph does not display then click here
A major reason is state governments putting off wage negotiations and scheduled wage rises until some uncertain period after the pandemic. The federal government’s move to also limit public service workers’ pay rise to no more than the private sector growth has also begun to take effect.
The annual growth of public sector wages of just 1.3% is the lowest ever recorded. Public sector wages are now depressing wages growth and in turn the economy:
If the graph does not display then click here
The Reserve Bank governor, Philip Lowe, has repeatedly noted that for interest rates to rise, inflation needs to be consistently above 2% and for that to occur, wages would need to grow annually above 3%.
And yet overall wages growth is now just 1.7%:
If the graph does not display then click here
This week after a freedom of information request from Nine journalist Shane Wright, the Reserve Bank released some documents suggesting it was “possible that some structural factors”, including migration, could be contributing to “low wages growth”.
It would appear from these figures that government policy – both explicit with respect to its own workers and implicit through industrial relations legislation – might be more of an issue.
The real worry is not just the low wages growth, but that it comes at a time when unemployment is so low.
I have noted often how since 2016 the link between wages and unemployment has shifted – where once an unemployment rate of, for example, 5.5% would have wages growing over 3.25%, now only has growth of around 2%.
But things are even worse.
Since 2016 an unemployment rate of 4.9% would mean wages grow by around 2.4%; instead we have them growing by almost a third slower at 1.7%:
If the graph does not display then click here
Even worse, the problem is not high underemployment. For the first time we are also seeing a split in the relationship between wages growth and underemployment.
If the graph does not display then click here
Compared with the most recent consumer price index rate of 3.8%, you could argue real wages fell by 2.1% – the biggest drop ever recorded.
I actually think that is a bit unfair. The CPI is bouncing around like mad at the moment and is best ignored.
A better guide is the RBA’s underlying inflation measure of the “trimmed mean”. But even on this measure, real wages were essentially flat, and when taking into account taxation and government payments, likely falling:
If the graph does not display then click here
The problem is not just the public sector. In only four industries are wages growing faster now than a year ago:
If the graph does not display then click here
The construction sector has had the biggest recovery. This does appear to be a sign of skills constraints, given the government’s homebuilder package has created a big demand for construction workers.
But even here things are weak.
While construction wages jumped nicely in the second half of last year and led to a current annual growth of 2.2%, so weak is the growth in the first half of this year that it would only translate to annual growth of 1.8% – right on average of the five years before the pandemic:
If the graph does not display then click here
There is nothing good in these wages figures; but the worst part is we can’t blame the pandemic.
What we have is evidence of the structural change of how wages now grow in Australia – much less than in the past, and much less even with low levels of unemployment.
