Wages growth is no longer falling. That doesn't mean we have turned the corner
The latest wages data from the Bureau of Statistics shows that while things are not getting worse, wages continue to grow at such weak levels that real wages are not budging at all, and it is now more than five years since Australian workers have seen any significant increase in their standard of living.
First the good news – things don’t appear to be getting worse. The latest wages price data for the June quarter has wages for the public and private sector growing by 2.1% in both seasonally adjusted and trend terms. The bottom appears to now be behind us – with a generally steady if extremely slow improvement since the record lows of 1.9% growth in late 2017 and the early part of last year:
The growth remains powered by the public sector – with that sector’s wages growing by 2.4% over the past 12 months compared to 2.0% for the private sector. But even that weak growth is better than the record low of 1.8% private sector wages growth achieved last year:
The other good news is that in the June quarter wages grew the fastest they have in a quarter since March 2014 in seasonally adjusted terms.
But that 0.6% growth is a bit of a statistical flub. The original data shows no improvement – indeed the 0.39% quarterly growth in original terms is the worst ever recorded in a June quarter, and in trend terms the quarterly growth actually slowed from the March quarter:
So not surprisingly the government is focussing on the seasonally adjusted figures as they look the best, but that “best” is a pretty sad state of affairs. Were the past six months of growth to be replicated, we would still be only achieving an annual growth rate of 2.2%.
And while due to a bit of rounding up the government can say that the annual growth of 2.14% is equal to the 2.25% annual growth predicted in the May budget for 2018-19, the likelihood of wages growth reaching 2.75% by this time next year remains a rather bold hope:
It took two and half years for wages growth to fall from 2.8% in June 2013 to 2.16% in December 2015. The budget would have us believe that we are going to go from 2.14% to 2.75% in 12 months.
Three months ago the rather desperate hope was that the strong wages growth was there, but it was just coming via bonuses. In March there was a big jump in wages growth including bonuses – with the annual rate up to 2.6%, the best since the end of 2014. But alas it was not to last. In
June the quarterly growth of wages including bonuses was the second lowest in two years and it meant the annual growth fell to 2.5%:
So it is not terrible. But let’s be honest, it is not good either.
Annual private sector wages growth of 2.0% is pathetic – and lower than the 2.1% growth of inflation.
Using the more stable trimmed mean measure of underlying inflation that the RBA uses to help guide its decisions on interest rates, we can see that real wages have not grown by any appreciable amount since March 2013:
So long have we now had next to no growth in real wages, the very real problem exists that calls by unions and workers for wages growth above inflation will be viewed as excessive.
While the average annual wage rate of growth in enterprise bargaining agreements in the March quarter were above that achieved in December last year, they remain very low, and as I have noted previously, because fewer companies are engaging in the EBA process the impact of these better wage rises is becoming more muted:
Moreover, as AMP’s Shane Oliver noted, while the next quarter will see a bump from the 3.5% minimum wage rise, that rise is not greatly higher than the 3.3% achieved last year, so the overall impact on annual wage growth will be small. And the bump will be even lower than usual because the September quarter will also see the cut in penalty rates flow through into the figures.
The numbers again highlight how disjointed wages growth and unemployment has become. Whereas in the past the current unemployment rate would have seen wages growing by around 3.7%, the current rate of 2.1% looks in keeping with the trend from the end of 2016:
The better gauge of when wages should start improving is underemployment:
Currently the underemployment rate sits at 8.4%. History suggests we won’t see wages growing at the 2.75% hoped for in the budget until the underemployment rate falls to around 7.7% – a level it has not been since March 2014.
So what to make of the wages figures? Has the corner been turned? Well yes, if by that you mean things are mostly no longer getting worse. The time of falling wages growth looks to be behind us, but we remain a long way from the 2.5% that would be the rate at which over the long run would see real wages stable, and even further away from the Reserve Bank’s 3.5% target.
These figures show the lack of real wages growth is continuing. And for a government needing to go to an election by next May, time is running out for it to be able to point to incomes and be able to say that their standard of living is better now than it was when they took office.
• Greg Jericho is a Guardian Australia columnist