The release of the latest wage price index data from the Bureau of Statistics yesterday brought the good news that wages are now growing faster than inflation. The bad news, however, is that growth unexpectedly fell in December and there are signs that it will be a long time before we get back to anywhere near the levels we once took for granted.

More than any other economic news, wages growth has stuck in the government’s craw. It’s all very well to talk up GDP growth or even more than a million jobs since 2013, but if wages aren’t growing it all seems a bit hollow.

The good news for the government then, with three months to go before the election, is that finally the story of wages growth is not horrendous.

If that sounds like faint praise, it is. In 2018 wages grew by 2.3% - the same as was recorded in the 12 months to September last year:

It marked a bit of a halt on the recent improving growth rates, and while it remains the fastest growth we have seen since 2015, it remains well below the long-term average of 3.2%.

But lest you think companies are happy about this, earlier this week came reports that investment bank Credit Suisse was warning businesses that the ALP’s industrial relations polices “represent a transformative shift in the bargaining power of labour in Australia with cascading implications across the whole of the listed market.”

It rather bells the cat that wages growth is not just low because of conditions in the economy, but because of government policies designed to weaken the power of workers to negotiate higher pay.

Ironically the stalling of wages growth should be a bit of a worry for the government given the mid-year fiscal and economic outlook predicts by June next year wages will be growing at 2.5% (last year’s May budget had predicted 2.75%, but clearly Treasury decided that was just a bit too ambitious). It then expects wages to be growing at 3% by June 2020:

If they fail to get there – and also fail to see employment growing as fast as they hope – then the current budget revenue predictions will also fall short.

And the problem with the recent wages growth data is that even though growth is better than a year ago we appear to have completely shifted to a new scenario where the old wages growth of above 3% would require much better economic conditions than was the case in the past.

From 1998 to 2009 wage growth and unemployment were nicely linked. If the unemployment rate fell one percentage point – for example, from 6% to 5% – then you would expect wages growth to increase by about 0.4 percentage points – for example, from 3.6% to 4%.

But after the GFC everything went a bit kerflooey – unemployment went down and so too did wages growth. Now, however, the link between the two is back in sync, but the problem is everything has shifted. While we can still expect wages growth to improve about 0.4 points for every one-point drop in the unemployment rate, at every level of unemployment we now see wages growth about 1.5% lower:

In years past the current unemployment rate of 5% would see wages growing at 4.8% rather than the current 2.3%. It suggests that to get wages growing at the old average of 3.2%, unemployment would need to fall to around 3.8%.

The other problem, of course, is that underemployment remains more important to wages growth than unemployment. Given the current underemployment rate of 8.4%, we would actually expect wages to be growing by exactly the level they are:

But that means to get wages back to 3.2% growth we need underemployment to fall to around 7.3% – a level last seen more than five years ago in April 2013:

Across the nation, New South Wales, Victoria and Tasmania had the fastest wages growth in the past year, with Queensland, Western Australia, Tasmania and the ACT seeing a slowing of annual growth:

At least the 2.3% growth is above the inflation rate – both the CPI and the Reserve Bank’s underlying inflation measure.

It means that for 18 months now we have had rising real wages:

But the growth of real wages remains utterly limp compared with in the past. Prior to the GFC, real wages grew at an average pace of 0.9% each year, and from 2010 to 2013 they grew at 1.1%. It is now four and half years since real wages grew by 0.5% and six years since they grew by more than 1%:

And so we are clearly in a new normal.

The horror run of flat real wages growth and record low wages growth appears to be over, but there is a long way to go before we experience anything like what was considered solid or even merely average wages growth.

And given there are already noises of concern about wages rising faster under a Labor government, it is worth remembering that wages growth does not happen by accident, and that companies will be happy for the new normal to remain in place – and will campaign strongly against any changes to industrial relations.