Young Australians have lost a decade of income growth, and as the nation enters a recession that looks perilously similar to a depression, it’s only going to get worse.
A new report by the Productivity Commission revealed that young people’s average incomes declined between 2008 and 2018. In contrast, wage rates for Aussies aged 35 to 54 continues to grow.
Retirees and those over 65 fared even better, with their income rising by 3.2 per cent per year.
The income slow is so severe, 15 to 25 year old Australians today have the same disposable income as a person of the same age in 2001, the research shows.
Aussies aged 15 to 24 have experienced a slow decline in full-time employment since the early 1990s, with the reason being an imbalance between labour demand and labour supply, according to the report.
“Some of this imbalance relates to the business cycle: the slowdown in the economy after the global financial crisis and the slowing of the mining boom reduced economy-wide labour demand after 2008,” the report stated.
“Some of this imbalance is due to long-term changes in the economy.”
Later retirement for over-55s and strong increases in the number of university graduates has also contributed to the wage growth decline, with more workers in the market for longer.
What’s more, with greater competition for starting positions, companies have started to offer lower graduate wages – but did not reduce wages for existing workers.
Today’s recession steals thousands from young Australians
While the Productivity Commission’s report shows that wages declined over the decade to 2018, research from EY reveals it only gets worse in the decade ahead.
21-year-olds entering the workforce this year will cop cumulative income losses over the course of the next 10 years to the tune of $32,000, meaning they’ll need to work four more months at the end of the decade to make up the difference.
These cumulative income losses are as a result of lower wage growth, the report found.
“A recessionary jobs market can have a disproportionate medium-term impact on those early in their career and with limited experience, through lower wage growth and fewer opportunities and flexibility,” EY economists Jo Masters and Bonnie Barker said.
“It’s unlucky timing.”
Wage growth and the super guarantee
Opponents of the super guarantee (SG) increase to 12.5 per cent have linked the increase to a decline in wage growth.
Grattan fellow Brendan Coats and associate Owain Emslie argued that increasing the SG wouldn’t significantly benefit workers in retirement, but would see smaller pay packets during their working years.
In fact, they estimated that a 30-year-old worker on a $58,000 salary would lose 2.5 per cent of their wages per year under the higher super guarantee, but would reap less than 1 per cent more in the nest egg at retirement.
Overall, it would leave them around $30,000 worse off.
But not everyone was convinced by this theory: actuarial firm Rice Warner said those claims were misleading, and Association of Superannuation Funds of Australia CEO Martin Fahy said it was based on “unsound assumptions”.
More recently, Industry Super Australia slammed backbench MPs for attempting to dump the increase.
“If those MPs get their way, more workers would be more reliant on the aged pension – a bill everyone pays through higher taxes,” it stated.
So what will it take to see wages actually grow?
AMP chief economist Shane Oliver said the answer is simple: a lower unemployment rate.
“Prior to the coronavirus, the unemployment rate was just around 5 per cent,” Oliver said.
“The problem was that underemployment was around 8 per cent. And so that combination of a relatively high level of underemployment was keeping a lid on wages growth.”
Treasury expects the unemployment rate to peak at 9.25 per cent this December, after reaching a 19-year high at 7.4 per cent in June this year.
But the real kicker is the effective unemployment rate, or the rate of Australians that are working zero hours or have left the workforce entirely, which the Government estimates is actually 11.3 per cent.
But even getting back to pre-coronavirus levels of unemployment won’t see an acceleration in wages growth, Oliver said.
“We really need to see the unemployment rate pushed a lot lower, and the underemployment rate return to where we were at the start of the year and beyond that,” he said.
“Otherwise, there are too many unemployed and underemployed people around, which means there’s too much competition for each job that comes out, and consequently there’s very little wage pressure.”
In terms of the super guarantee, Oliver said it’s a “side issue”.
“I don’t think it’s going to have a huge impact either way,” Oliver said. “The real issue is the weakness in the labour market.”
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