Money Finance News Yet again, wages growth fails – our biggest domestic challenge
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Yet again, wages growth fails – our biggest domestic challenge

wage price index inflation
Wages grew just 0.5 per cent in the March quarter and 2.3 per cent for the year. Photo: Getty
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The latest Australian Bureau of Statistics graph tells the story – wages growth continues to go nowhere.

The “green shoots” the Reserve Bank keeps seeing (apparently through powerful binoculars) turned to straw again in the March quarter for most workers.

And, yet again, it’s worse than it looks.

Two of our three biggest employers – retail and construction – recorded just 0.2 per cent growth for the quarter and 1.9 and 1.8 per cent respectively for the year.

This was a year that included a 3.5 per cent minimum wage rise last July. It barely touched the sides.

Indeed, the previous July saw a 3.3 per cent minimum wage rise from the Fair Work Commission.

With the little compounding effect, that was an increase in the minimum wage of 6.9 per cent in 13 months – and the scorer scarcely noticed.

Which makes some of the current pre-election hyperventilating about the danger of higher wages under Labor look curious.

Labor is yet to define what a “living wage” minimum wage might be, but that rise of nearly 7 per cent didn’t cause the mass job losses critics currently threaten.

Jobs growth was strong over that period. The seasonally-adjusted unemployment rate has fallen from 5.6 per cent in June, 2017, to 5 per cent in March.

What is threatening employment is consumption continuing to weaken as the result of years of sub-inflation, real take-home wages growth.

Last week the RBA downgraded its 2019-20 consumption growth expectation to 2 per cent, compared with the government’s forecast of 2.75 per cent.

There’s a growing list of private sector economists predicting the unemployment rate will start rising next year, despite expecting two RBA interest rate cuts. The latest outlook from the NAB economics team has unemployment ticking up to 5.1 per cent next year and 5.3 per cent in 2021.

More immediately, NAB’s monthly business conditions survey on Tuesday showed a dive in the employment index.

“At face value, the employment index based on historical relationships suggests ongoing employment growth of 14,000 per month – barely enough to see the labour market hold onto recent gains,” commented NAB.

Source: ABS/RBA

Wages growth comes at a cost to profits and/or inflation. Australia needs inflation to be a bit higher, so that part of the equation is not a problem. The cost to profits depends on how profitable a business is.

Australian business overall has been increasing profits while wages have been sub-par. Shareholders have done nicely.

But at the same time, many small-to-medium enterprises are being squeezed by big business enforcing economies on them and their own tendency to compete ruthlessly with each other.

Margin compression down the supply chain and minimal wage rises continue to deliver bonuses for those at the very top.

The unique concentration of our grocery trade means even big suppliers have been robbed of pricing power. Last month’s standoff between Nestle and Woolworths was an example.

Every Australian business wants to see wage rises everywhere except in their own business.

The irony is that while the problem of weak wages growth sending consumption south is readily acknowledged, any attempt to do something about wages, to reverse the present vicious cycle, is decried.

Cutting penalty rates was supposed to increase employment. It didn’t. It did reduce pay and, therefore, the ability of low-paid employees to spend.

Business wants people to spend more, but the Australian Chamber of Commerce and Industry has told the Fair Work Commission any wage rise should be limited to 1.8 per cent.

Within the complicated policy mess that is childcare, Labor is playing the Coalition’s game of thinking of a big number and then adding up multiple years to get there.

Increasing early childhood educators’ wages by 20 per cent sounds big – until it’s phased in over eight years starting from 2020, somehow insulated from other wage increases.

There are understandable policy concerns about such direct government subsidy of one particular industry’s pay packets, yet market forces should see a jolt in one major female-dominated service potentially flow on to others, all things being equal.

But they are not.

The aged care industry is cited as having similar low-wage, female-dominated characteristics as childcare, but it is an industry that relies heavily on foreign carers on temporary work visas to fill the gap created by the combination of low wages and difficult work.

Some 28 per cent of aged care workers were on temporary visas between 2012 and 2016, according to University of New South Wales research.

The alternative offered on May 18 to government support for higher wage rises and direct intervention is more waiting for a “strong economy” to reduce unemployment and underemployment enough to create labour-market tension.

The problem is that nobody, not even the government, expects unemployment to fall into inflation-causing territory in anything like the forecastable future.

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