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CHART OF THE WEEK: Is this a 'gradual turning point' for Australian wages?

14 August 2019

Bob Cunneen, Senior Economist and Portfolio Specialist

Sources: Australian Bureau of Statistics, RBA Governor Dr Philip Lowe, and RBA Statement of Monetary Policy, August 2019.

 

Australian wage growth is barely crawling along. The Wage Price Index (WPI) showed a subdued 2.3% annual change to June (blue line). This modest gain in wages helps explain why consumers are so cautious with their retail spending. 

Why is wages growth so subdued? The Reserve Bank of Australia (RBA) suggested some key factors in their August statement. According to the RBA, “spare capacity remains in the labour market” and this has “weighed on wages growth”. One possible measure of this “spare capacity” is the Australian Bureau of Statistics (ABS) underemployment rate which is currently above 8%. This underemployment rate captures part-time workers wanting more hours. Workers appear to be more concerned with getting more work opportunities than pushing for higher wages. Other factors restraining wages include the Federal and State Government’s wage cap at circa 2.5% and workers perceiving diminished bargaining power in this age of globalisation and technology.

For the RBA, this slow wage growth suggests the task of generating higher inflation is much harder. Hence the RBA has pushed the envelope already by cutting the cash interest rate to only 1% (red line). The RBA Governor is optimistic that the Australian economy “may have reached a gentle turning point”. For workers, let’s all hope that the turning point is now.

 

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