The good news from the latest wages data released on Wednesday by the Australian Bureau of Statistics is that the past six months has seen a recovery from the near zero growth of last year. The bad news is the figures suggest that last week’s budget prediction of terrible wages growth for the next four years looks likely to be right.
If you are looking for some bright points in the economic recovery, the latest wages price index figures for the March quarter of this year may provide you with some solace – so long as you don’t look too closely.
In March, overall wages grew by 0.6%, matching the same level of growth in the last three months of 2020. That’s the first time we have had six months of wages growth that high since 2018:
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The private sector growth of 0.6% was down a touch on the very strong 0.7% growth in the December quarter, but it was still relatively solid growth, which if it continued would see annual growth of around 2.4% – a level we haven’t had consistently for over six years:
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The problem however is the strong past six months are really just making up for the awful times of 2020.
The annual growth of 1.5% would be a record low were it not for the pandemic, and it shows just how we are still dealing with the impact of Covid-19.
Every single industry currently has slower annual wages growth than it did 12 months ago:
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Now you would expect that to improve, but it will take a while – only seven out of the 18 industries had faster annual wages growth in March than they did in December.
And while there has for example been a steady increase in wages growth in the construction sector, it still remains well below pre-pandemic levels, let alone a decade ago:
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The catch up from last year is evident for example in the hospitality sector. Normally hospitality workers in the accommodation and food services industry get a big wage boost in September.
This is not surprising given it comes after the downtime of winter and as spring and the peak period of summer are about to begin. But last year there was next to no increase in wages in the September quarter, and so the big boost came in March this year:
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That of course is not going to continue, and so we do need to wait a bit to see what washes out of the system over the next half a year or so.
The good news is that we can say real wages increased in the past year. The bad news is they increased only because inflation was at record low levels:
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The last time real wages increased when underlying inflation was also within the Reserve Bank’s target range of 2%-3% was just as the Coalition won the 2013 election.
And this goes to the current systemic issue of wages. Although unemployment fell significantly from December to March, wages growth actually slowed.
Wages growth in March was much slower than it has ever been with an unemployment rate of around 5.6%.
In the first decade of this century such an unemployment rate would be consistent with wages growth of around 3%; and even in the weak wages period since 2016 you would expect growth on 2%. Instead it was just 1.5%:
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It suggests the budget prediction for wages to grow slower than expected given various levels of unemployment might be unfortunately accurate:
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What is also worrying is that while the link between unemployment and wages growth broke down five years ago, the link with underemployment held true.
Until now.
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For the past 17 years an underemployment rate of 7.9% would see wages growing by at least 2.5%.
The big worry is that not only do we now need unemployment to be lower than ever before to get decent wages growth, so too might we need underemployment to fall to near record lows just to achieve previously average increases in wages.
