Wage growth still weak and job fears remain as Delta casts cloud over Australian economy
Wage growth remained sluggish even before the Delta outbreak, while the fear of job losses still looms, according to two new economic reports painting a less than rosy view of the Australian economy.
The latest data from the Australian Bureau of Statistics shows wage growth fell to 0.4% in the June quarter, down from 0.6% in the proceeding two quarters, while public sector wages were growing at their slowest pace in 24 years.
That’s bad news for the private sector as well, with wage growth only exceeding 2% in three categories: construction, ‘other services’, and professional, scientific and technical services.
For wage growth to improve, the labour market would have to tighten. But with Australia’s two largest cities in Covid lockdown, unemployment is predicted to increase, meaning wages are expected to stay suppressed.
The fear of job losses is also impacting confidence, with the Reserve Bank of Australia examining the impact of job losses on the wider economy in a new research paper.
On average, people who find themselves unemployed cut their spending by 9% , while total consumption decreases for up to three years after a job loss, as people attempt to make up for income losses experienced during their unemployment.
Unemployment leaves scarring as well, by permanently changing spending habits for a lot of people, who either permanently cut down as a precaution against future unemployment or habitually spend less as a result of having lived on a low income.
This impacts spending in the wider economy, with the RBA researchers finding that income support policies, even if just temporarily, can minimise the effect of unemployment on spending. “The fact that some of the consumption losses associated with unemployment are due to income losses points to an important role for unemployment benefits in supporting households through periods of unemployment,” the researchers concluded.
“Our findings do not speak directly to the issue, but income support policies that increase the income replacement rate during periods of widespread financial stress, such as recessions, may also help to minimise overall consumption losses.”
With much of the east coast in lockdown because of Covid outbreaks, unemployment is expected to rise in Australia in the next survey, but the prime minister Scott Morrison said he expected to see a rebound similar to the one earlier in the year.
“The big difference between this time this year and say when we go back to May, April of last year, is there was so much uncertainty,” he said.
“As I said at the time, we were looking into a Covid abyss with complete uncertainty as to what that would mean and how things would play out.
“Now, there’s certainly still uncertainties, but people know that once you get the restrictions out of the way the customers come back, the businesses come back, and businesses from what the bankers are telling me are understanding that and planning for that.”
But with wage growth continuing to remain low, business confidence having taken a knock from lockdowns, and less cash in the economy, the opposition is calling for the government to act.
“In the Morrison government’s own budget, wages will not keep pace with the cost of living,” Labor’s treasury spokesman Jim Chalmers said.
“When the cost of living is set to grow quicker than wages, families will be forced to make difficult decisions about what they must go without. ”After putting in the hard work to overcome Covid-19, Australians will bounce back only to realise they are working harder but can afford less.”
The ABS will release its July labour force figures on Thursday, which will take in part of the impact of the New South Wales lockdown. The August figures, due to be released next month, will provide a more thorough picture of the lockdown ramifications on jobs.