Australia – Wage growth hits record low

Figures released yesterday by the Australian Bureau of Statistics (ABS) show that wages grew by a record low amount of 2.27% for both private and public workers combined over the past year, reports The Guardian.

The annual growth of 2.27% dipped low enough to just break the old record set in the three months to March 2015 of 2.29%. It means that wage growth has been below average for two and half years, and is showing little sign of turning.

The growth of wages was weak across the board. In the private sector, wages grew by just 0.5% for the second straight quarter. The public sector had slightly better growth in the quarter of 0.57% growth (in trend terms), the lowest quarterly growth in public sector wages ever seen.

The private sector experienced better wage growth if you include bonuses (0.8% in the quarter) but wage growth including bonuses remains quite erratic. The improved wage rise when you include bonuses could be an indication that companies are keeping pay growth low and instead transferring pay rises into bonuses.

Justin Smirk, senior economist with Westpac Economic Research, noted that the recent increase in hours worked would usually be accompanied by an improvement in wages growth, but instead the opposite has occurred.

Since September 2013, the total number of hours worked has increased, yet during that period growth of wages has continued to slow.

The Reserve Bank referred in its recent statement on monetary policy to this conundrum of low wages growth at a time when employment and hours worked is improving.

“[Several] factors explain the decline in wage growth”, and among these are the “increase in spare capacity in the labour market”, it said.

While more hours are being worked overall, the increase is in effect only starting to fill the gap of capacity in the labour market. If we look at employment and hours worked since the middle of 2012, it’s clear that the number of hours worked has not kept pace with actual employment growth.


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