The good news is that the latest wage price index data revealed the strongest annual wage growth since March 2013 and the fastest quarterly growth since March 2012. The bad news is given the 7.3% rise of inflation over the past year, wages in real terms fell 3.9% in the past year – the biggest fall on record.
In the latest minutes of the latest RBA board meeting, the board noted that “wages growth had continued to pick up from the low rates of recent years”. Finally, this is now showing up in the data as the September quarter saw a strong pick up in wages – up 1% in the quarter alone.
Mostly this came from the private sector, which had a 1.2% increase in wages compared to a pretty tepid 0.6% growth in the quarter for the public sector:
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What drove the boost was a spike in wages growth from individual contracts – which usually sees a boost this time of year as companies increase wages in the new financial year – and the award rise from the 5.2% increase of the minimum wage:
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It reinforces the importance of the minimum wage decision for driving wages growth. The ABS noted that “some individual arrangement jobs have also been directly influenced by the Fair Work Commission Annual Wage Review with increases benchmarked against the size and timing of this decision.”
Over the past 12 months private sector wages rose a very solid 3.4%. But the public sector grew a poor 2.4% – although you would expect this to rise as new bargaining agreements begin:
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But the problem for public sector workers is the new agreements continue to deliver weak growth. In the September quarter the annual wage increase for those who did get a pay rise was 4.3%, but for public sector workers it was just 2.3%:
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The minimum wage increase had the biggest impact in the retail sector. But it really was a long time coming, because over the past five years the retail industry has had below average wage rises:
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The overall wage rise of 3.1% also demonstrated that the relationship between wages and unemployment is very much set along the line that has been observed since 2016:
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The level of wages growth is what we would expect given wages and unemployment since 2016. But that level remains well below the old relationship which would have had wages growing at about 4.25% given the 3.5% unemployment rate.
The signs are that finally the low unemployment is causing firms to raise wages to attract and keep staff.
But of course, as anyone who has gone shopping recently will know, those wage rises are nowhere near the increase in prices:
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Even the 1.2% quarter increase in private sector wages is still well behind the 1.8% increase in prices, let alone the 2.0% average price increase of non-discretionary items.
It means that people’s ability to buy things with their wage (or the “real” wage) fell 3.9% in the past year – the biggest drop since the ABS began measuring wages growth in 1997:
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In its minutes, the RBA expressed concern about “avoiding a price-wage spiral”. Once again there is no sense of any such spiral.
And with wages continually rising by less than inflation the chicken littles predicting a return to the 1970s price-wage spiral after the Fair Work Commission increased the minimum wage by 5.2% really now need to admit their error.
As it is the real wage is now 4% below where it was before the pandemic hit and is back at the level it was in December 2011.
If you had a job paying $52,000 back then (close to the average earnings), successive average wage rises would now have you earning $66,628. But the impact of inflation means that in real terms your wages would be worth $51,787 in 2011 dollars:
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The recent spike in inflation has eroded people’s living standards – taking them back more than a decade. While wages are finally showing some sign of life consistent with what we would expect, so long as wages continue to lag behind inflation living standards will continue to fall.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
