Latest Australian salary figures are terrible and we can’t blame the pandemic | Greg Jericho

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Australian wage growth of just 0.4% in the June quarter despite unemployment falling below 5% dashed any hope that wages will return to above 3% anytime soon. It highlights the complete triumph of governments across the country aimed at keeping wages low.

The latest wage price figures released by the Australian Bureau of Statistics on Wednesday may be the most baffling economic data in some time.

Yes, last year wages actually went down and the economy as a whole contracted. But it was expected, we were dealing with a pandemic and everything was closed.

But in the June quarter, which covers the months of April, May and June, things were going well, closures were largely absent, people were going to the movies again, crossing borders, watching plays. and musicals and were eating out.

At that time the unemployment rate fell sharply to 4.9%, its lowest level in a decade, and we heard all kinds of talk about skills shortages and how, because our welcoming of migrants had been reduced, wages would start to rise due to supply constraints.

In the December quarter of last year and the first three months of this year it seemed like history, wages rose 0.6% in both quarters and things looked up.

But now we have the third worst quarter of wage growth on record outside of last year’s Covid shutdown:

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One of the main reasons is that state governments are postponing salary negotiations and planned salary increases until an uncertain period after the pandemic. Federal governments are also deciding to limit the increase in public service workers’ wages to no more than private sector growth has also started to take effect.

The annual growth in public sector wages of just 1.3% is the lowest on record. Public sector wages are now weighing on wage growth and, consequently, on the economy:

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Reserve Bank Governor Philip Lowe has repeatedly noted that for interest rates to rise inflation must be consistently above 2% and for this to happen wages would have to rise every year at -above 3%.

And yet, overall wage growth is only 1.7%:

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This week, after an access to information request from Nine reporter Shane Wright, the Reserve Bank released documents suggesting that it was possible that some structural factors, including migration, could be contributing to weak growth in wages.

It would appear from these figures that government policy both explicit towards its own workers and implicit through industrial relations legislation could be more problematic.

The real concern is not just weak wage growth, but that it comes at a time when unemployment is so low.

I have often noticed how since 2016 the link between wages and unemployment has shifted, when in the past an unemployment rate of, say, 5.5% would have increased wages by more than 3.25 %, now only has about 2% growth.

But things are even worse.

Since 2016, an unemployment rate of 4.9% would mean an increase in wages of around 2.4%; instead, we see them growing almost a third slower at 1.7%:

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Worse yet, the problem is not high underemployment. For the first time, we also observe a break in the relationship between wage growth and underemployment.

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Compared to the most recent Consumer Price Index rate of 3.8%, you could say that real wages fell 2.1%, the biggest drop on record.

I actually think it’s a bit unfair. The CPI is bouncing like crazy right now and it’s best to ignore it.

A better guide is measuring core RBA inflation from the truncated average. But even on this measure, real wages were essentially stable and, given tax and government payments, were likely declining:

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The problem is not just the public sector. In just four sectors, wages are increasing faster than a year ago:

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The construction sector experienced the strongest recovery. This seems to be a sign of skill constraints, given that the government’s house building program has created a high demand for construction workers.

But even here things are weak.

While construction wages surged in the second half of last year and led to current annual growth of 2.2%, growth in the first half of this year is so weak it would only translate into in an annual growth of 1.8% on average over the five years before the pandemic:

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There is nothing good about these salary figures; but the worst part is that we cannot blame the pandemic.

What we have is evidence of the structural change in the way wages are now rising in Australia much less than in the past, and much less even with low levels of unemployment.

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