Finance Finance News Wages growth still sluggish – and it’s not getting better any time soon

Wages growth still sluggish – and it’s not getting better any time soon

wages growth slow again in June 2019
High underemployment is suppressing – and will continue to suppress – wage growth. Photo: Getty
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Australia’s stubborn wage growth could get an immediate $10 billion injection with three simple measures, according to a leading think tank.

The research comes as more data shows Australia’s wage growth crisis isn’t improving – and arguably getting even worse – and all but confirms at least one, if not two, more interest rate cuts.

Australian Bureau of Statistics figures for the June quarter showed year-on-year wages growth is still an anaemic 2.3 per cent, after growing just 0.6 per cent in the June quarter.

Long-term annual wage growth generally sits a little above 3 per cent, but since the September quarter of 2018, it has been stuck in a band of 2.3 per cent to 2.4 per cent since. (Although, wages growth did hit a low of 1.9 per cent in late 2016.)

The recent weakness in wage growth is also well below the Treasury forecast of 3 per cent to 2020-21 and 2.75 to 3.25 per cent beyond that – forecasts on which the government has predicated its goal of a $17.8 billion budget surplus in 2021-22.

It’s also well below the Reserve Bank’s aspiration of 3.5 per cent growth.

While anyone working in the public sector fared slightly better with a 0.8 per cent wage rise, private sector wages lagged well behind at 0.5 per cent during the quarter – and the private sector is the lion’s share of the workforce, with 85 per cent of workers.

According to AMP Capital senior economist Diana Mousina, things won’t get markedly better until late 2021.

Ms Mousina said stubbornly high underemployment, low productivity growth and forecasts for worsening unemployment would all limit wages growth for some time.

“We believe wages growth is set to remain around 2.3 to 2.4 per cent for most of the next two years,” she said.

A silver lining, however, is Australia’s weak inflation figures, which help to make the weaker wages growth “look a little bit stronger”.

But Ms Mousina said without the hike in minimum wage of 3.5 per cent in July 2018, the annual wages growth figure would have looked even more sick at just 2 per cent.

Economist with investment bank UBS George Tharenou said with GDP at its weakest since the GFC and a poor outlook for employment, “more policy stimulus is needed”.

“Hence, we still expect the RBA to cut rates by 25 basis points in October and again in February,” he said in a briefing note.

Callam Pickering, APAC economist at jobs site Indeed, said the underemployment rate would have to fall closer to 12 per cent – from a  current level of 13.5 per cent – before the RBA target wage growth of more than 3 per cent would be a reality.

But don’t expect that to happen soon, he said.

“That won’t happen overnight nor is it likely within the next year,” Mr Pickering said.

The three things the government can do right now

The Australia Institute’s Centre for Future Work argues the government could kickstart sluggish wage growth by $10.3 billion a year to solve some, not all, of the wages growth problem with three measures.

The measures include:

  • Reversal of the reductions in penalty rates for Sunday and public holiday work in the retail and hospitality sectors
  • Introduction of a “living wage” mandate for Australia’s federal minimum wage
  • Removal of the Commonwealth government’s cap on wage increases for own employees, and restoration of normal collective bargaining and traditional rates of wage increase.

Economist Dr Jim Stanford said the measures could boost wages for around 3.3 million Australian workers once they were fully implemented.

“That is equivalent to a 1.25 per cent boost in aggregate national wage income, thus helping to lift overall wage growth in the economy as a whole from current sluggish rates [of 2.3 per cent, according to most recent data] back toward normal historical rates of 3.5 per cent per year or more,” Dr Stanford wrote.

Dr Stanford argued workers were losing patience with market forces to take care of wage increases after six years of low wage growth.

“There is no reason to believe that wage growth is somehow going to pick up of its own accord. It is much more likely that things will get worse before they get better – unless government takes active measures to boost wage growth.”

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