Yesterday’s Wage Price Index (WPI) data met market expectations for a weak reading and today’s jobs data for April will probably do something similar to confirm that the ending of JobKeeper on March 28 hasn’t done much to interrupt the employment rebound.
But despite claims that the jobs improvement will end up as being ‘good’ for wages, it means nothing of the kind.
The employment rebound has been going on for six months now as growth and activity has accelerated in the wider economy.
And while the WPI rose 0.6% quarter on quarter (the market expectation was 0.5%) for an annual rise of 1.5% (1.4% was the forecast), the slight improvement was nothing more than the impact of deferred wage rises finally starting to appear in workers’ pay packets after the freezes and cuts seen in 2020.
The rebound in jobs has, in fact seen wages growth fall behind inflation for many people.
And the chief reason for the weakness was the cap on increases imposed on Commonwealth public servants by the Morrison government, which will not allow wage rises faster than those in the private sector.
This is on top of wage caps in NSW and Victoria, the two states with the largest force of public servants after the Federal government (which is the largest single employer in the country).
In many cases wage rises are capped at less than inflation (currently 1.1%).
The ABS said the public sector recorded its lowest annual rate of growth (1.5%) since the commencement of the series, while the private sector remained at 1.4% for the second quarter in a row.
Not surprisingly, the ABS said the Australian Capital Territory recorded the lowest annual rise of 1.3%, with lower public sector growth “based mainly on the slowing rate of public sector wage growth.”
And while the usual groups had the biggest pay rises: education and training (2.2%, the largest of the groups), health and social care and infrastructure. Public administration and safety was near the back of the pack, along with now usual wages laggard, construction.
That’s despite the strong demand for homes and renovations driven by the government’s successful Homebuilder package don’t appear to have translated into stronger growth in wages for employees or contractors.
Three industries in fact still had annual wage growth of under 1% in the quarter: booming real estate at just 0.4%, arts and recreation at 0.8%, and administrative and support services at 0.9%.
The WPI outcome won’t come as a surprise to the Reserve Bank.
“Wage and price pressures remained subdued,” the Reserve Bank explained in Tuesday’s minutes of its May monetary policy meeting “despite the strong recovery in economic activity in Australia.” And a big part of that is the refusal of governments to increase public sector wages. “Members also noted that public sector wage policies were likely to restrain aggregate wage outcomes,” the minutes continued.
The weak wages group has reinforced the central bank’s view on the outlook for jobs, wages and inflation which it again made clear in the minutes:
“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth would need to be materially higher than it is currently. This would require significant gains in employment and a return to a tight labour market. The Board viewed these conditions as unlikely until 2024 at the earliest.”
Those caps on wages by the federal and some state governments is making the RBA and the economy’s job harder to get wages growth higher and sustainably so.
The Budget and the RBA forecast the WPI to be growing at 2.25% midway through 2023. That won’t be enough to get monetary policy tightened and heading back to normal by 2024.
