Australia’s jobs market has finished 2022 in a remarkably strong position – unemployment is at its lowest in more than 50 years, participation is at a record high and full-time jobs, rather than part-time, are driving things.
In what can’t be described as anything less than an immense human achievement, hundreds of thousands of Australians found work after lockdowns – many for the first time in years.
But there’s a far more complicated, and frankly puzzling, picture beneath such jazzy headlines, which you’ve no doubt seen plastered across various newspapers at some point during 2022.
It’s that despite unemployment being the lowest since 1974, wages growth is far less impressive, having risen 3.4 per cent over the September quarter, according to the ABS.
It was the fastest rate that pay packets have grown since 2012, but as veteran labour market economist Jeff Borland explains, it’s still far lower than where economists thought it would be right now.
“It’s a genuine mystery,” Professor Borland told TND.
“Even if you look at WPI [Wage Price Index] including bonuses, which is a bit higher, it doesn’t take us to where we would have expected to be.”
There’s a sour note hanging over the wage growth that has happened too, because as Indeed APAC economist Callam Pickering explains, it has all been swamped by the cost-of-living crisis.
“Adjusting for inflation, wages are at their lowest level in about 11 years,” he told TND.
“If you think about how hard those wage gains were to earn in the first place, the fact that we’re back at square one is going to be devastating for a lot of households across the nation.”
Making matters worse, Mr Pickering warns workers now face a situation where, as the economy and jobs market slow in 2023, upwards pressure on wages growth could even start to ease.
Wage growth woes
The relatively slow rise in wages growth is strange, because economics 101 tells us that when labour shortages are as bad as they have been, workers should get a much higher return for their services.
“Somehow workers aren’t able to translate the high level of demand for their services into higher wages,” Professor Borland said.
Professor Borland suspects there are numerous problems causing sluggish wages growth, even in the face of such historic tightness in the jobs market.
Many economists have attributed the slow rise in pay packets to Australia’s industrial relations system, which relies on multi-year agreements that take time to be adjusted.
But another big issue, Professor Borland said, is that workers don’t have as much bargaining power as they used to, allowing bosses to get away with lower pay growth.
“Wages growth, in the end, depends on worker bargaining power,” he said.
“The long-run issue is that labour share of income has been declining for about 25 years.”
Mr Borland said Labor’s industrial relations reforms, which passed the Parliament earlier in December, should help improve the situation.
But whether workers across Australia will be able to secure wage gains that don’t just match, but exceed, inflation in 2023 remains to be seen.
Jobs market to soften
Mr Pickering said wage pressure could ease somewhat as the jobs market softens from its historic tightness at some stage next year, with interest rate increases slated to slow economic growth.
“There’s always a bit of a lag between what happens in the labour market and what happens in the broader economy,” he said.
If economic growth starts to soften next year, we would expect the labour market probably to follow suit a few months later, depending on the industry.”
As things stand the RBA predicts the unemployment rate will start ticking up in the second half of 2023.
It is predicting annual inflation will be about 4.7 per cent at that time, while wages growth, as measured by the WPI, could be just 3.9 per cent.
In other words, the RBA foresees a situation where the jobs market begins souring before workers relish real pay increases.
