Stop me if you have heard this before – the latest wages data was disappointing. Private sector wage growth is stagnant and overall wages growth is falling in annual terms. Just five out of 18 industries have wages growing faster than they were at the end of 2018. And we remain a very long way from the government’s predicted 3% growth by June 2023.
Consider this: from 1997 to 2012, private sector wages on average rose by 0.9% each quarter, but since the start of 2013, not once have they risen by that amount. What was average is now impossible.
The latest figures released by the ABS on Wednesday showed private sector wages in December grew by just 0.5% and the public sector saw just 0.4% growth:
Low wages have become the norm, and worryingly they appear to have peaked at a level that in the past would have been considered disastrous.
Through 2017 and 2018 annual wages growth kept improving – incredibly slowly, but improving nonetheless.
But now we have had four consecutive quarters where annual private sector wages growth has fallen:
The current annual growth of 2.2% is the worst since June 2018.
It means the government’s prediction in the December mid-year economic and fiscal outlook for a growth rate of 2.5% by June is in a fair bit of trouble:
That of course should not be a shock – the history of the recent budgets is predictions of strong wage growth that failed to occur:
And worse, the disappointment is happening across the economy.
Just four industries posted stronger wages growth in 2019 than they did in 2018. And as Callam Pickering, economist at the job site Indeed, notes, healthcare and social assistance is the only industry that has “wage growth above its decade average”.
It’s a pretty sad state of affairs, and one to which at we have become all too accustomed. It means we have to look for silver linings to keep a degree of positive outlook.
The best thing you can say is that wages are at least growing faster than inflation. That doesn’t necessarily mean real wages are growing, let alone real household incomes, because we need to factor in taxation and government payments, but at least it is some good news:
The problem is that it is only occurring because inflation growth is woeful – and well below the long-term Reserve Bank target of between 2% and 3%.
This era of low wages and inflation growth is one where workers are much less confident about their employment situation.
This is something the shadow assistant minister for treasury and charities, Andrew Leigh, noted in a speech he gave on Wednesday to the John Cain Foundation.
He noted that over the past decade workers were much less likely than before to switch jobs. And because most people switch jobs for better pay and conditions, this desire to stay put and hold on to what you have is a major factor in lower wages.
Not only are people choosing more hours over higher wages, they are choosing to stay in their job rather than risk going elsewhere.
There has also been a massive shift in the link between unemployment and wages growth. In the past our current unemployment rate of 5.1% would provide wages growth of around 3.7%:
But since 2016 the link between wages growth and unemployment has been almost perfectly in synch. The problem is we now need unemployment to fall much lower than in the past to get decent wages growth.
To reach 2.5% wages growth we would now need unemployment to fall to around 4.7%, and to reach the 3% that the government hopes will occur by June 2023, it would need to fall to 3%.
Given the government predicts the unemployment rate to remain at 5% out till 2023, it is rather tough to work out just how wages are going to grow faster than they are now.
The era of disappointing wages growth looks set to continue.
• Greg Jericho writes on economics for Guardian Australia