Oh wages, where art thou?

Wages growth remains at record lows and this is unlikely to materially change any time soon.

For those feeling the pinch from the current period of record low wages growth, a sluggish economy, lots of slack in the labour market and changes in the composition of the workforce, are all factors that will bias wages growth lower for at least another year.

Wages growth is likely to remain depressed, notwithstanding the decision of the Fair Work Commission to raise the minimum wage from 1 July 2017 which will see overall wage growth temporarily lift to around 2.5 per cent. Outside this one-off increase, annual growth in wages will be lucky to remain at 2 per cent.

How ever welcome the rise in the minimum wage is for the lowest income earners in the country, it is not due to market forces which drive broader wages growth. It is an administered change that may not be repeated.

Also read: Commonwealth Bank to be sued by thousands in Australia’s largest class action

As such, the fundamental and underlying drivers of wages need to improve for there to be economy wide and sustained wage increases.

One big problem for workers and their wages is the on-going slack in the labour market. The relatively high unemployment rate, and near record level of under-employment, both increase the difficulty workers have when asking for a pay rise. Employers can simply refuse to give a pay rise because there is a large pool of willing workers to take their job if the wage claim is too high.

For wages growth to return to decent levels, generally around 3.5 per cent per annum, the economy needs at least a couple of years of strength and the unemployment and underemployment rates need to drop sharply.

Not even Treasury or the Reserve Bank of Australia see that happening until 2019 at the earliest.

Rather, 2017 will end with GDP growth lucky to be 2.5 per cent and the unemployment rate nearer 6 per cent than 5 per cent. That trend is set to remain in place into 2018 unless there is a sudden and unexpected boost to the economy.

With the housing sector starting to slow, consumer sentiment dominated by pessimists and household spending just muddling along, the spark to a growth pick up appears to centre on exports, which are doing well, a turn in business investment, which currently is weak or a lift in government infrastructure spending, which at a State Government level, looks positive.

The mix performance of the economy remains.

Another problem for workers is the move to gig employment and more casualisation in the workforce rather than regular hour contracts.

For the increasing share of the workforce outside the traditional 9 to 5 full time work environment, a struggle to find regular work means that wages are often discounted to ensure getting the work, which by definition undermines wages. And with the large firms increasingly moving to ad hoc casual employment to meet seasonal or other needs in their business operations, it is not only weak wages that are a concern for many consumers, but also the absence of regular work.

Also read: The Aussie has weakened – here’s why

Amid this obvious problem for the economy, the government is disconcertingly quiet. It has no policy approach to drive the economy to a faster growth pace, nor to tackle the changes in the structure of the labour market.

This policy vacuum will only reinforce the concerns on wages, employment and labour market conditions for some time to come. As such, consumer sentiment and household spending is likely to remain subdued.