Wage growth continues to be weak in Australia.
On a seasonally adjusted basis, Wage Price Index is at 2.1% for the year.
The public sector saw most of the increase, with a 2.3% raise. The private sector, where 77% of the Aussie force works, saw a 1.9% increase.
Wage growth has now stayed around 2% area since early in 2016…even with low unemployment.
Who were the biggest contributors to salary growth?
The education (2.4%) and healthcare (2.7%) sectors drove much of the salary gains. The mining industry (1.4%) and retail (1.5%) fell short.
As you can see in the graph below, wage growth has stayed low. Yet many of the essential items, like energy and health, have increased at a much faster rate.
Source: Sydney Morning Herald
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Meanwhile, inflation has stayed low, at around 1.9%, which means workers haven’t seen much of a real increase in wages.
To cover up the shortfalls, we are not only using more plastic but also tapping into our savings. The Australian household savings ratio has dipped in the last five years, as you can see in the graph below.
Source: Trading Economics
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Low salary growth will mean that it will be hard for inflation to pick up
You see, when unemployment decreases, companies struggle to find workers as there is a lesser pool of employees to choose from. So they increase salaries to attract more people into the workforce. This pushes up inflation.
In Australia, the unemployment rate is at a low 5.5%. Yet inflation has remained stubbornly under the RBA’s 2% target rate.
Australia is not the only country where wages and inflation are not picking up, even when the unemployment rate has been falling.
Other countries like the US and the UK are also in the same dilemma.
As RBA deputy governor Guy Debelle recently said in a speech, as reported by Business Insider:
‘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% seems to have become the focal point for wage outcomes, compared with 3–4% in the past.’
And, it doesn’t look like wages will be picking up any time soon if unemployment doesn’t go lower.
As Debelle continued:
‘[T]here is a risk that it may take a lower unemployment rate than we currently expect to generate a sustained move higher than the 2% focal point evident in many wage outcomes today.’
One explanation for this could be underemployment.
That is, workers who want to work more hours than what they currently have.
Underemployment is high
According to Roy Morgan Research, much of the increase in employment over the past year was due to an increase in part time workers. There were 156,000 part time jobs created compared to 40,000 full time jobs.
Roy Morgan estimates there are 2.59 million Australians, out of the 13.13 million workers, who were either unemployed or underemployed last January. In other words, almost 20% of Australians were either looking for more hours or work itself.
The following graph, published in a recent RBA chart pack, looks at employment growth by industry. The sector that has seen the largest employment growth has been, by far, household services, followed by construction.
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Household services include tourism-based businesses — such as accommodation and food services. There is also social assistance, recreation, home services. That is, jobs where underemployment is common and there is more casual work.
What’s more, according to the Australian Bureau of Statistics, one in four Australian employees are now casual. That is, they do not receive benefits or entitlements in exchange for a higher hourly rate of pay, something known as ‘loading’.
But, part timers wanting more work may only be part of the picture.
Statistics don’t pick up on people taking lower skilled or part time jobs on a temporary basis. Work they take to pay the bills and cover the costs of living until they can find a job in their field.
That is, marketers working in hospitality, engineers working as landscapers, you name it. People are settling for lower wage jobs, for which they are overqualified, because they cannot find a job in their own area.
Employment statistics usually classified these workers as ‘employed’, even though technically they are still looking for a job in their field.
We may be nearing full employment. Yet statistics are focusing on the quantity of the employment created and not the quality of the jobs.
Editor, Markets & Money