Wages Growth Still Stuck In The Mud
The Federal Government’s main 2018-19 budget underpinning of a solid rise in wages is looking much harder to achieve after the March quarter Wage Price Index slowed in the three months to be unchanged over the year at 2.1%. The Australian Bureau of Statistics said yesterday the index rose 0.5% in the quarter, down from 0.6% in the three months to December 2017.
It was the equal second lowest quarterly rise for two decades and means the government has little hope of getting the forecast 2.25% wage rise forecast by June 30 for the 2017-18 budget (which was revised down in December from 2.5%, which was revised down from the original forecast of 2.75% a year ago).
To get to the 2.25% forecast by June 30, the Index will have to rise by 0.625% in the current quarter, which isn’t going to happen.
Private sector wage growth was unchanged at 0.5% for the quarter, while public sector wage growth (all seasonally adjusted figures) eased to 0.5% from 0.6% in the previous quarter. The ABS said that through the year, the Private sector rise to the March quarter 2018 was 1.9%, the Public sector rose 2.3%.
The latest figures mean employees are just keeping ahead of inflation (1.9% for the CPI and 2% for the Reserve Bank’s preferred core measures).
But that’s on average. The WPI data shows plenty of sectors where wages are behind inflation, - the mining industry for example where the likes of BHP, Rio Tinto and other miners are now back to making outsized profits. Rio Tinto for example is sharing its gains with shareholders but not its employees.
Retail wages rose an average of 1.5%, meaning hundreds of thousands of people are losing ground.
ABS Chief Economist Bruce Hockman said in yesterday’s release “Wage growth in the March quarter 2018 continues a period of subdued first quarter rises, primarily driven by regular increases in the Education and training and Health care and social assistance industries.”
In original terms, the ABS said annual wage growth ranged from 1.4% for the Mining industry to 2.7% for the Health care and social assistance industry (the impact of the build up in the NDIS).
Victoria and Tasmania both recorded the highest through the year wage growth of 2.3% and the Northern Territory recorded the lowest of 1.1%.
Given this weak result, its no wonder the Reserve Bank got in first on Tuesday with a warning from Deputy Governor, Guy Debelle that unemployment might have to fall under 5% or thereabout (the bank’s current forecast next year) to get wages growing faster, Dr Debelle said (https://www.rba.gov.au/speeches/2018/sp-dg-2018-05-15-1.html) that recent work at the bank had found that more and more wage settlements were “bunching around 2% over the past five years or so.”
"The experience of other countries with labour markets closer to full capacity than Australia's is that wages growth may remain lower than historical experience would suggest. In Australia, 2 per cent seems to have become the focal point for wage outcomes, compared with 3–4 per cent in the past,” Dr Debelle said yesterday.
"Work done at the Bank shows the shift of the distribution of wages growth to the left and a bunching of wage outcomes around 2 per cent over the past five years or so. As I said earlier, while there are signs of wage pressure emerging, they remain localised for now.
"There is a risk that it may take a lower unemployment rate than we currently expect to generate a sustained move higher than the 2 per cent focal point evident in many wage outcomes today,” he warned.
The question is what happens now with the budget if wage rises are not going to rise as fast as forecast?
Labour force data for April out later this morning (Thursday) should give us a clue - another weak month, like the first quarter was, and we could find that the strong jobs growth of the past 18 months is fading faster than thought.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.