Finance Finance News Unemployment is low, so why aren’t wages rising?

Unemployment is low, so why aren’t wages rising?

The low unemployment rate masks deeper problems in the labour market. Photo: Getty
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Unemployment may be trending upwards, but it’s still at historically low levels.

At 5.3 per cent, it’s only a fraction above what central bankers and economists consider “full employment” – the rate at which wages start to soar.

Despite this, wages lifted just 2.3 per cent in the 12 months to 30 June 2019, well below the historical average of 3-4 per cent.

According to BIS Oxford Economics chief economist Sarah Hunter, Australia’s sluggish wages growth has a lot to do with the casualisation of work.

For while ABS figures show 34,700 new jobs were added to the economy in August, a closer look reveals 15,500 full-time jobs were replaced with 50,200 part-time ones.

Dr Hunter said the declining number of full-time positions suggested people felt less secure in their jobs and were therefore less likely to ask for a pay rise.

“People moving from one casual position to the next – that doesn’t really [lend itself] to wage bargaining,” Dr Hunter said.

“Workers are almost trading off higher wages for that casualisation.”

According to the OECD’s latest Employment Outlook, one in four workers in Australia is now considered casual.

A high underemployment rate of 8.6 per cent suggests a high proportion of these casual workers want to work more hours, too – meaning employers have a plentiful supply of labour from which to hire new workers.

That reduces the bargaining power of workers and drags down wages – a trend exacerbated by lower rates of unionisation and shifting negotiating tactics, according to Dr Hunter.

“The Reserve Bank has done a very good job of anchoring inflation expectations … and what that has resulted in is when people are looking at their pay packet, they sort of say, ‘ok I want inflation, plus a little bit,” Dr Hunter said.

“They quibble over the little bit, and I think that naturally puts a bit of a limit on where wages can go, as opposed to 20 or 30 years ago, when people would sit around the table and say, ‘we want six per cent’.”

As Dr Hunter sees it, these “structural shifts” mean wages growth won’t lift even when the economy climbs out of its current rut.

Janine Dixon, senior research fellow at Victoria University’s Centre of Policy Studies, agrees – but for different reasons.

In Dr Dixon’s eyes, more telling than the weakening link between low unemployment and strong wages growth is the divergent trajectories of productivity and wages growth.

“Usually you’d expect the drivers of wage growth to be growth in productivity and growth in capital stocks,” Dr Dixon told The New Daily.

“Those things haven’t been particularly strong, but wage growth has been weaker than you’d expect from the current level of productivity.”

In other words: workers are getting paid less for producing more – a trend which Dr Dixon links to the type of technologies employers are adopting.

“Automatic check-out machines, more online purchasing, automated warehouses, and automatic production and manufacturing – they’re the sorts of technologies that are displacing low-wage labour,” Dr Dixon said.

“So then you’ve got to think, ‘well, what are those people going to do now that they don’t have those jobs’.

“And the sorts of opportunities that are available to these low-skilled workers today … are even lower-waged activities, and I think that’s really dragging down wage growth overall.”

That companies are sharing less of their profits only makes matters worse, Dr Dixon added.

“Capital owners are retaining more profits for themselves,” Dr Dixon said.

“Why is that? Is it market power, is it weak unionism? I don’t know.

“But some of it has to do with the concentration of market power – meaning companies don’t need to share profits with their workers, as there aren’t that many other places to work.”

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