The past year has seen the strongest private sector wages growth for nearly seven years as construction and professional industries deal with the lack of labour due to pandemic restrictions and the government housing stimulus.
But far from being a sign of a coming wages boom, wages continue to struggle to keep up with inflation.
It says something that the latest wages growth figures released on Wednesday by the bureau of statistics showed private sector wages grew faster than they have since 2014 and yet at 2.4% they remain more than a percentage point below the RBA’s target of around 3.5%:
Overall public and private sector wages combined grew 2.2% over the past year – the same as they grew in the last 12-month period before the pandemic hit.
But the underlying picture is rather different now than it was in March 2020. Back then private sector wages grew 2.2% compared to the current rate of 2.4%, while public sector wages were growing at 2.4% compared to the current rate of 1.7%.
Government policy to cap public service wages during the pandemic has seen wages growth in that sector plummet. But in the September quarter the freeze was largely over and public sector wages grew by a fairly typical 0.5%:
And while the growth of wages over the past year has been strong, so too has been the growth of prices.
The consumer price index rose by 3.0% in the same period, meaning real wages fell. I tend to avoid using the CPI because it can be a bit bouncy. The reserve bank’s underlying inflation measure of the trimmed mean grew 2.1% in the 12 months to September, meaning there was an ever-so-slight increase in real wages (ignoring the impact of taxes and government support).
While for public sector workers, real wages have fallen dramatically.
Conservative commentators, politicians and business leaders tend to get overly excited whenever workers have the temerity to get a pay rise, but the weak real-wages growth really puts any arguments that there is some kind of wages boom to rest:
As it is, wages are growing at the level they would be expected given the current unemployment rate – but that level remains well below what it once was:
And while notionally we are back at pre-pandemic wages growth, the pandemic remains the major driver of those wages.
The government’s various housing stimulus programs, such as homebuilder, have led to a surge in housing construction that has clearly put pressure on construction wages as builders seek workers.
After a surprisingly slow growth of construction wages in the first half of this year, in the September quarter they shot up 1.1% – the quickest one quarter jump since 2011. Not surprisingly wages in real estate also increased the strongest they have for two years.
The professional, scientific and technical services industry is also scrambling for workers – not so much due to a surge in demand but because the border closures have kept foreigners from being able to come to Australia.
September is often a big wage growth quarter for that industry, but even still the 1.3% growth in the sector is the fastest since 2012 and comes off the back of an unusually strong growth of wages in the last three months of 2020:
Similarly while accommodation and food services workers got a smaller than usual September wages boost, they had had an unusually big jump in wages in the first three months of this year.
All up there is very little here that suggests anyone need fret that wages are about to explode. The annual growth of 2.4% wages only looks strong because the past decade has been so weak.
The particularly strong growth in sectors facing labour shortages shows that wages are doing what they should – reacting to demand and supply. But once the borders open and those shortages become less acute you would expect wages in those particular industries to moderate.
While we are back at pre-pandemic wages growth levels, we also remain stuck with the pre-pandemic mindset that wages growth needs to be tempered and we continue to have an industrial relations system that has kept real wages growth at minimal levels for most of the past decade.
Greg Jericho writes on economics for Guardian Australia