Jobless rate falling, but RBA says wages may still not budge

THE RBA expects a pick-up in stubbornly low wages growth given the strength of labour demand, but concedes that experience abroad suggests unemployment could fall further than in the past before a full recovery is seen.

Reserve Bank of Australia deputy governor Guy Debelle told an investment conference yesterday that the labour market was in pretty good shape overall.

“Employment growth is above average, the participation rate is at a high level, the vacancy rate is at an all-time high and the unemployment rate is falling,” Mr Debelle said.

Leading indicators of labour demand suggested the jobless rate should gradually decline further from the current sixyear low of 5.3 per cent and so push wages higher, he said.

Subdued wages growth is a major reason inflation has undershot the RBA’s 2 per cent to 3 per cent target band in the past couple of years and why interest rates remain at record lows of 1.5 per cent.

But there are a number of uncertainties about the outlook. “The recent international experience indicates that the unemployment rate could decline further than historical experience would suggest before we see a material increase in wages growth,” Mr Debelle said.

The RBA Governor said several developed nations had seen jobless rates fall to very low levels, notably the United States and Japan, without much of an increase in wages growth.