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$1.10 a week: Why Aussie wage growth has stalled

·4-min read
People crossing a busy street and a person removing $50 notes from a wallet
Aussie wages have stagnated. Find out why. (Source: Getty)

If you haven’t had much of a pay rise in the last few years, you are not the only one. If you are a woman, the odds are your actual take home pay has fallen over the past year.

The recent updated data on wages growth has shocked many economists who were expecting to see some material pick-up in wages.

This was because of skills shortages, a fall in unemployment and closed borders preventing low wage workers from coming into Australia. Despite this, wages growth remains at or near record lows.

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The average weekly earnings (AWE) data on wages were the most disconcerting. The AWE numbers track the actual dollars and cents that are paid to workers and therefore are a better measure of incomes and real wages than the Wage Price Index (more of that later).

In the year to May 2021, all employees' average total earnings rose by just 0.1 per cent which equates to a miserable $1.10 a week. If you work in the private sector, it was worse – wages actually fell 0.1 per cent over the year to register the first fall in annual wages on this basis on record.

Women’s wages hardest hit

It was even worse for women.

Female total average earnings fell 1.3 per cent over the past year, which is against a 1.1 per cent for male wages.

Recall that over this time period, the rate of inflation was 3.8 per cent, which shows that real wages were falling, a fact that will act as a constraint on household incomes and spending over the next year.

The news is not much better for the Wage Price Index. It measures wages in like-for-like jobs for a given number of hours.

It rose by 1.7 per cent over the year to the June quarter 2021, locking in a year and a quarter where the annual increase has been below 2 per cent.

Even more disconcertingly, the annual increase in the WPI has been below 2.5 per cent since 2014.

The weakness on wages clearly pre-dated the COVID-19 crisis which saw a period from around 2013 to 2019 of below trend economic growth, stubbornly high unemployment and wage-dampening changes to labour market rules – note the casualisation of the labour market and the rise of the gig economy.

In a healthy economy with a strong labour market, annual growth in the WPI should be around 3.25 to 3.75 per cent.

This has not happened in a sustained way since 2012.

The vaccination roll out is hitting the economy

While much of the rest of the industrialised world have full vaccination rates of 55 or 60 per cent, and in some cases much higher, Australia is only just now hitting 30 per cent.

This is one critical reason why the lockdowns, and hit to the economy, are so severe. September quarter GDP is set to fall by 3 per cent, the second biggest fall in quarterly GDP on record.

A relaxation of the lockdown rules and hence a decent pace of economic recovery will not happen until vaccination rates hit at least 80 per cent. This is some months away which suggests the labour market news and pressures on wages will get worse before it gets better.

Indeed, the low vaccination rate is setting back the path to full employment and a much needed lift in wages growth.

Up until the middle of 2021, the broader economic news was generally good as Australia climbed out of the 2020 recession. Employment gains were strong and the unemployment rate had fallen to a decade low.

Such was the strength in the economy that the markets were pricing in interest rate hikes in late 2022, well before the guidance given by the RBA which was expecting to keep the official cash rate at a record low 0.1 per cent until at least 2024.

Where to now?

There remain grounds to be optimistic about the economy once vaccination rates hit their targets. But realistically, this mix of news is unlikely to show up before the start of 2022 by which time a second recession in two years, a spike in unemployment towards 6 per cent and a further half year of weak wages growth prevails.

This is one reason why the RBA will be keeping interest rates near zero and will continue its other monetary stimulus measures.

There is a need now for the government to roll out some fiscal stimulus to cushion the extent of the current downturn and to set the framework for a strong recovery in the months ahead. If it does not do this, the current optimism for a strong recovery in early 2022 may be dashed.

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