The latest wage price index figures show that wages growth has stopped accelerating and the struggle for workers’ incomes to rise faster than prices continues.
All those worried about a wage breakout can put away their sirens and fireworks. All those warning that wage rises could set off a wage-price spiral can calm down, put down their pens, retire from the governorship of the Reserve Bank.
Once again, the wage price index has revealed that we will have to wait yet further before seeing a wages breakout.
First the good news: wages rose 0.8% in the June quarter. That is OK, but not exactly red hot. It is consistent with annual growth of just 3.2% which would not have anyone suggesting things are out of control.
In April, May and June private sector wages rose just 0.77% – slower than in the December 2022 quarter and well below the 1.2% quarterly growth in the September quarter of last year that occurred not due to market forces but mostly due to the minimum wage increase:
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The reason this middling news is good is that in the June quarter inflation also rose 0.8%. That means after 11 straight quarters of prices rising faster than inflation, we finally have gone three months without real wages falling.
OK they didn’t rise either – but hey, small steps.
As it is, nearly three years of falling real wages means that the average wage is now able to buy you roughly the same amount of things you could back in 2009:
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And as much as I want to stay positive, wages only rose on average by as much as inflation did in the June quarter because of four industries. For most workers, wages did not keep pace with prices:
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So that’s the good news. The bad news is that wages in the past year rose just 3.6%. Solid enough in the best of times, pretty pathetic when unemployment is 3.5%, and quite dreadful when inflation has risen 6.0%.
Last year we saw wage growth accelerate quite sharply – from 2.6% in the June quarter of 2022 to 3.7% by the March quarter.
We were told by very smart people, including those at the RBA, that wages growth – as with inflation – would keep accelerating while unemployment remained so far below 4.5%.
Alas, that theory has taken a bit of a hit. Not only has inflation begun to decelerate, but so too now is wage growth:
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It would seem the mythical non-accelerating inflation rate of unemployment is rather lower than the 4.25% to 4.5% the Reserve Bank has been suggesting is the case.
If you squint at the below chart you can almost see that wages growth has slowed while unemployment rose – but we’re talking 0.1% either way and it’s all pretty much at the level of rounding errors:
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But more to the point, 3.6% is no one idea of fast wage growth.
Recall that before the pandemic the outgoing governor of the Reserve Bank said he wanted to see wages growth of about 3.5% over the medium term. Now it seems it is about the best we can get even when we have 50-year low unemployment and 30-year high inflation.
One of the reasons why wages growth has not kept picking up is because unemployment is not what it used to be.
Twenty or 30 years ago you could have just looked at unemployment and thought that was all you needed to know; now given the prevalence of part-time work and multiple job holders, you need to worry about underemployment.
In the past few months, unemployment has risen, and when underemployment rises, wages are generally slow:
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Given the past 20 years, it is unlikely we will see wage growth above 4% unless underemployment starts to fall again.
We should expect overall wages to get a boost next quarter when the 5.75% minimum award wage rises flow through the system.
The breakdown shows that most of the jump in wage growth in the past few years has occurred due to these increases in the awards and the individual contracts that rise in line with those levels:
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It highlights that even with the changes made by the government last year to bargaining that enabled workers in different enterprises within industries to bargain collectively, the negotiations remain massively weighted in favour of employers.
And so, the good news is that real wages are no longer falling The bad news, however, is that the fall has already been deep. And if nominal wage growth begins to slow, the journey of recovering that lost value will be rather long and slow.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
