There was little good news for working people on Wednesday as wages growth in the March quarter continued its decade-long run of weakness.
It confirmed what you probably already know, that even after a bounce back from the COVID-19 recession most Australians aren’t better off.
A 0.6 percentage point increase in the Wage Price Index saw the annual pace of wages growth inch up to 1.5 per cent in the three months to March, up slightly from the record low of 1.4 per cent last December.
Adjusted for price increases, real wages (that’s your purchasing power, folks) increased just 0.2 per cent over the past 12 months, the ABS said.
The result was no surprise for economists: Despite high numbers of job ads and ample anecdotes about labour shortages, not enough bosses feel the need to increase wages to find the right workers.
“Wages growth was pretty mediocre across the board,” Indeed APAC economist Callam Pickering told The New Daily.
“There’s just no real sign of skill shortages at all.”
Decent pay rises are still a dream
Of course, this predicament is nothing new for Australian workers.
They haven’t had a decent pay rise in almost a decade and are unlikely to anytime soon.
The Reserve Bank only expects wages growth to hit 2 per cent by the end of the year, increasing to 2.25 per cent by midway through 2023.
That’s well short of the 3 per cent it expects will be required to get inflation moving, which is a necessary condition for lifting interest rates.
The bank said as much in the minutes of its May board meeting.
“A pick-up in inflation and wages growth was expected, but this was likely to be only gradual and modest despite the lift in the forecast for output growth,” the minutes read.
“It would take some time for spare capacity to be reduced and the labour market to be tight enough to generate wage increases consistent with achieving the inflation target.”
In other words, don’t hold your breath for a better pay rise anytime soon – even though we’re likely to see wages growth slowly build over the year as the unemployment rate falls and labour becomes scarcer.
As Commonwealth Bank economist Kristina Clifton puts it: “[Wednesday’s] lift in wages growth is consistent with the tightening labour market.
“The international border closure and the inability to source labour from overseas means that skill shortages and stronger wage pressures are likely to become a trend sooner than the RBA is expecting.”
On Thursday, the jobless rate (currently 5.6 per cent) is expected to fall further when labour force data for April is published.
But unemployment may need to fall below 4 per cent before wages growth gathers steam.
Sean Langcake, senior economist at BIS Oxford, said we’re unlikely to see that happen until 2024, in line with the RBA’s forecasts.
“We’re still in a world where the unemployment rate is still a long way from where the RBA has identified it needs to get to before wage pressure emerge,” he told The New Daily.
“The recovery has been better than expected, but we’re still a while away from hitting that unemployment rate.”
Labour shortages yet to show in wages
Mr Langcake said the wages data on Wednesday showed no signs of labour shortages developing in industries like hospitality.
That’s despite businesses complaining of shortages due to a lack of migrant labour and the economy’s rapid recovery from COVID-19.
“It could still be a bit too early for skill shortages to show up in wages,” Mr Langcake pointed out.
“Those narratives will become a larger part of the discourse over the next six months or so.”
There was good news for other industries, though.
The second tranche of the minimum wage hike showed up in a 1.2 per cent jump in pay across the accommodation and food services sector.
But in most other industries wages growth was mediocre.
Wages across the arts and recreation industry grew just 0.8 per cent in annual terms, for example, while the rental, hiring and real estate services sector saw a bump of just 0.4 per cent.
Governments holding back workers
Another discouraging result was the record low wages growth in the public sector.
Public wages growth fell to 1.5 per cent in annual terms over the March quarter, which was the lowest rate on record.
This is unusual because normally governments prop up workers’ pay after recessions because they are not subject to the same market forces as the private sector.
Among those who have had their pay frozen are those working for the federal government – a policy that economists say will contribute to lower wages growth in the private sector by weighing on spending and competitive wage pressures.
“It’s a misguided policy that doesn’t make any sense,” Mr Pickering said.
“If you want wages growth to be higher and you have control over what you pay your staff, then why not keep wage growth a little bit higher?”