Australian wage growth has been
pretty atrocious in recent years, falling to the lowest level
on record in the 12 months to March this year.
At 1.79%, wages in the private sector went backward in real
terms, failing to keep up with a lift in consumer price inflation
of 2.1% over the same period. Public-sector workers fared a
little better with their wages increasing by 2.33% from a year
In comparison to the giddying 4%-plus levels in the years before
the financial crisis, it’s been nothing but one-way traffic ever
since — lower.
However, salvation may be at hand.
Labour market conditions, whether measured by the
Australian Bureau of Statistics (ABS) or
the private-sector, have noticeably improved, seemingly
laying the platform for higher wage growth in the future should
labour market slack continue to reduce.
Like any market, when demand continually outstrips supply, it
generally leads to higher wage pressures.
However, we’re still a long way off that point being reached yet,
with labour market underemployment and underutilisation still
remaining at elevated levels even with the strength in recent
And throw in a lack of wage pressures in other advanced nations
such as the US, UK and Japan — where labour market conditions
are far tighter than Australia — and it’s little wonder why many
think that any increase in wage growth, should it arrive, will be
pretty tame at best.
While that’s creating plenty of uncertainty on the outlook for
inflation and household spending, we may be about to get a sneak
peek on what the future holds for wage increases across Australia
should labour market conditions continue to strengthen.
As seen in the chart below from the National Australia Bank
(NAB), New South Wales’ unemployment rate is currently just below
the 5% level the Reserve Bank of Australia (RBA) thinks is required
to spur wage pressures.
“New South Wales is arguably already close to full employment,
with an unemployment rate of 4.8%,” says the NAB.
“Investors should therefore be watching developments in the state
first for evidence as to the extent of any cyclical improvement
in wage growth in the coming years.”
That provides a more than interesting tidbit before the release
of Australia’s June quarter wage price index later this week,
with New South Wales’ figure now likely to be zeroed in upon to
gauge when, and by how much, wage growth could increase across
Australia should unemployment levels continue to reduce.
It’s likely that it won’t only be workers in New South Wales who
will be smiling should an acceleration take place, providing hope
that the trend of ever-slowing wage growth may be coming to an
However, should no acceleration be seen, it will only help to
fuel doubts as to how far labour market slack will need to
diminish in order to stir wage pressures.
For the June quarter, economists expect that average hourly wage
rates will increase by 0.5%, seeing the year-on-year growth
remain steady at 1.9%.
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