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What does the coronavirus recession mean for Aussie wages?

Samantha Menzies
·Contributing editor
·4-min read
a male taking money out of the valet.
a male taking money out of the valet.

Thanks to the coronavirus recession, business activity almost ground to a halt in the final quarter of the 2020 financial year as the global pandemic took hold and plunged Australia into its first recession in nearly 30 years.

So, what does this mean for our wages?

According to the latest ABS data, Australia’s Wage Price Index (WPI) rose only 0.2 per cent higher in the June quarter and only 1.8 per cent higher over the year.

This is the lowest increase since the report began in 1997.

“After a steady period of wage growth over the previous 12 months, wages recorded the lowest annual growth in the 22-year history of the WPI,” ABS head of price statistics Andrew Tomadini said.

"The June 2020 quarter was the first full period in which Covid-19 social and business restrictions were captured in the WPI.

"The June 2020 quarter rise was mainly in the public sector (0.6 per cent). Private sector wage growth eased to 0.1 per cent as businesses adjusted to changes in the Australian economy."

More on Recession 2020:

He attributes the fall in private sector wages to the large wage reductions across senior executive and higher paid jobs across the country as our economy grappled to deal with the fall out from the coronavirus pandemic.

By location, South Australia and Tasmania recorded the highest annual growth of 2.4 per cent, and for the eighth quarter in a row, Western Australia recorded the lowest wages growth at just 1.6 per cent.

The main industry contributing to wage growth was education and training, while lower construction activity left the building sector among the highest proportions of wage reductions.

Which jobs have suffered the biggest wage hit?

According to the ABS, data collected on wages and salaries in June quarter 2020 highlighted the unprecedented impact of social distancing measures and restricted business activities.

The Covid-19 pandemic has resulted in large price changes for a number of jobs. Private sector businesses reported genuine market-based reductions in jobs paid by individual arrangement to ease financial pressures.

By job type, the June 2020 quarter WPI reported a higher proportion of wage reductions for manager and professional roles than for other occupations.

Which industries have suffered the biggest wage hit?

ABS data shows Covid-19 related lockdowns and social distancing impacted industries in different ways and to varying degrees.

Labour price index (LPI) falls were recorded across all industries but, as expected, industries receiving more wage subsidies had larger reductions in labour costs - private sector businesses were the main recipients of assistance packages from the government.

The largest reductions in the private sector LPI were in the arts and recreation services, accommodation and food services, other services and to a lesser extent the rental, hiring and real estate services industries.

Significant segments of these industries were affected by mandated business closures, with a large proportion of businesses satisfying eligibility tests for assistance.

The electricity, gas, water and waste services industry recorded the largest rate of wage growth and the lowest reduction in the LPI, followed by the mining, financial and insurance services, and education and training industries.

Wage growth will remain subdued for years

Going forward, the government expects wage growth to remain low with little expected improvement for some time to come.

The Budget papers last month show the government projection that wage growth will sit at around 1.25 per cent until June 2021 before climbing only slightly to 1.5 per cent through to June 2022.

But the expected wage increases in 2020-21 could actually amount to a real wage cut because the consumer price index is forecast to rise by 1.75 per cent over the same period.

The budget revealed that the government expects wage growth to remain below average over the forecast period, reflecting significant spare capacity in the labour market, but that a declining unemployment rate beyond the December quarter 2020 is expected to support a gradual pick-up in wages.

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