The Reserve Bank of Australia has finally admitted what many people have been saying for some time: there is a shift in the job market in the direction of lower paid work.
In its Quarterly Statement on Monetary Policy the bank made a very interesting admission.
“Wage growth has been slow, averaging an annual rate of around 2 per cent in recent quarters, but average earnings growth has been slower still,” it said.
So what’s going on to drive that? “Shifts in the composition of employment within industries to lower-paid work might partly explain this, along with the usual volatility in this measure of average earnings.”
That admission, says Nicki Hutley, chief economist with Urbis, is big news. “There’s a structural change in the employment market and its the first time they have said that.”
The structural change is in part a result of the end of the mining investment boom with its remarkable $150,000-salary cleaner and $200,000-plus tradesmen jobs. It’s also the result of a reduction in high-paid manufacturing like the car industry and the move to the gig economy.
“Disruption through the likes of Air Tasker and Uber are putting downward pressure on wages. That’s a bad thing for the economy because we need to lift wages to lift spending by consumers,” Ms Hutley said.
That lack of spending is making itself felt in economic growth that is adequate but below what we were used to before the global financial crisis and mining boom.
“The Australian economy is doing fine in some ways but it’s a long time since we’ve enjoyed the 3 to 3.25 per cent growth rates we were used to. Now it’s more like 2 to 2.75 per cent and that shows up in lower demand,” Ms Hutley said.
The RBA has noticed that too. “Growth in household consumption looks to have slowed in the September quarter given recent weakness in retail spending,” its report said.
That weaker demand is a factor in making employers unwilling to offer higher wages despite the rise in job numbers in recent times. “The economy feels sluggish and that is seen as a risk for business,” she said.
Housing has been a driver of growth since the end of the mining boom but this is not going to last, the bank said.
“Dwelling investment looks to have peaked earlier than previously expected, and the pipeline of projects to be completed is now being worked down in some states.”
However there are some other things happening that will take its place.
“There’s a rise in public infrastructure spending especially by state governments and housing construction is giving way to commercial construction of hotels and the like,” Ms Hutley said.
China, she said, will not fail us. “I’m a China bull although growth has moved down from 7 per cent a few years ago towards 5.5 per cent now. President Xi wants to hold it there to keep control of politics and the economy.”
“The Chinese economy is changing with more than half now coming from services. For Australia that means a greater emphasis on tourism and education exports and less on resources,” Ms Hutley said.