The latest wages price index figures reveal the continuing struggle to get wages to rise at levels that would see long-term real wage increases. While the past 12 months saw the fastest growth in real wages for six years it was due to the extremely low inflation growth rather than a strong pick up in wages and given the weakening economy might be the best we will see for some time.
With only a few days until the election, the latest wages figures from the Australian Bureau of Statistics are not terrible news for the government. At least they can say that the latest annual growth of 2.3% is better than it was a year ago, and a year before that:
Clearly we are no longer having to worry about record low wages growth that was the case from 2013 through to 2017.
But when we look at the quarterly growth figures there really is no great sense of a strong improvement:
Private sector wages are still yet to even get back to the consistent level of growth that was observed in 2014, let alone the more normal growth of 2011 and 2012.
The growth mostly came from the healthcare and education sectors, and the figures also showed that wages growth in the construction sector are now the slowest across all industries:
The continued weak growth also suggests the government’s hope for wages to reach above 3% annual growth by June 2021 are rather optimistic. Should growth continue to improve as it has for the past two years by June 2021 it should be around 3% rather than the predicted 3.25%:
But the problem is getting to that point will require employment growth to remain strong, and the signs are not good. The Department of Jobs leading indicator of employment, which looks at economic sentiment and activity across Australia and China and the US (to account for overseas impacts), is now at its lowest level for three years:
It suggests the good employment growth of 2017 and into part of 2018, which in turn led to falling unemployment and an improvement in wages growth, is likely coming to an end.
And the problem is that this latest data shows just how greatly the relationship between wages growth and unemployment has shifted. The current level of unemployment would in the past have seen wages growth of around 3.75%:
To get to wage growth around the long-term average of 3.5% again, either we are going to have a historically strong increase in wages despite little change in unemployment, or we will need unemployment to fall below 3.5%.
The link however between underemployment and wages growth remains intact, but it suggests to reach 3.5% wages growth underemployment would need to fall from the current rate of 8.2% to around 7.0% – the equivalent of around 150,000 workers getting the hours they desire:
The good news is that in real terms wages are again growing. The bad news is it is because inflation is growing so slowly.
The Reserve Bank’s long-term inflation target is 2% to 3%, which means we should be aiming for wages growth consistently above 3% if we also wish to have long-term real wage growth.
The problem is wages haven’t grown faster than 3% since March 2013:
And while private sector wages grew by 0.7% in real terms over the past 12 months, the past two terms of governments have been dreadful for wages – and without the excuse of an actual global recession, it is rather tough for the government and its supporters to defend:
And so the last wages growth data before the election reveals what we all have known and have known for a very long time – things are improving, but very slowly. To say that things are better now than two years ago however is akin to saying you feel better after being knocked out in a boxing match because the punching to your head has stopped. Sure you’re in need of medical care and require multiple surgeries, but at least the worst is behind you!
And should the Labor party win on Saturday we can also expect worried statements about low wages growth from business groups and conservative media outlets to be behind us. Not because of any immediate improvements but because no doubt they will return to the standard narrative whenever the ALP is in power of wages breakouts.
After the past six years of pathetic growth, that actually would make for a nice change.
• Greg Jericho is a Guardian Australia columnist and economics writer