“Recent information from liaison and survey measures provided further evidence that wages growth had started to pick up from the low rates of recent years,” the Reserve Bank noted in the minutes of its August board meeting, released on Tuesday.
It’s a familiar refrain. “Other information received in June had affirmed the outlook for faster wages growth in the period ahead,” read the July minutes. “Labour market conditions were the tightest they had been in many years and wage pressures were emerging,” it said in June. In May, “members observed that price pressures were intensifying and there was upward pressure on wages”. In April: “reports from the Bank’s liaison program suggested that private sector wages growth had continued to pick up in the March quarter”.
You have to go back to the March meeting — the second last one where the RBA left interest rates on hold — to find the RBA expressing scepticism about wages. Back then, it noted that wages growth had only returned to pre-pandemic levels.
But in the ensuing six months, wages growth hasn’t increased at all. In the December 2021 quarter, wages growth rose from a measly 0.6% to 0.7%. It’s been 0.7% ever since. The only reason the annual rate for the year to June rose to 2.6% is because the terrible June 2021 result was replaced with the quarter just finished.
And this while the jobs market hit an unemployment rate of 3.5%.
But don’t let those facts get in the way of the narrative. There were signs of an “uptick” to come, said a KPMG economist. “The quarterly change pushed the annual rate of wage growth higher for the sixth consecutive quarter,” said one outlet. There’s “growing momentum that will force the Reserve Bank to push the official interest rates to about 3%” reckoned The Australian Financial Review. Even Treasurer Jim Chalmers joined in suggesting higher wages growth was coming.
Some economists have sought to shift the goalposts and suggest the wage price index (WPI), which doesn’t include bonuses, is misleading. But bonuses are excluded for good reason — they’re a one-off, and even a substantial bonus will only ever be a small fraction of an annual wage, especially multiplied over several years.
If the economy turns in another 0.7% WPI result for the current quarter, then in three months’ time we’ll hear it all again — things are improving, the annual rate has just increased, better times are coming.
Fact is, no one has ever had the decency to apologise for getting wages growth forecasts so wrong, for so long — certainly not the Reserve Bank, which has now abandoned its focus on wages growth entirely and reverted to its Pollyanna-ish ways of most of the past decade in insisting that growth will pick up any quarter now.
Growth with a two in front of it is wage stagnation at the best of times. At the moment, it means massive real wage cuts. More than 1% in one quarter for Australian workers; 3.5% over the year. Even if the RBA’s fantasies are fulfilled and we hit 3% growth — still far below the levels of the Gillard-Swan years — workers will still be going backwards at a rate of knots.
But the perpetual sunny optimism of the RBA and much of the commentariat means no one ever has to come to grips with the fact that our industrial relations system is tilted too heavily in favour of employers, and that corporations wield too much market power over workers and consumers. It’s a form of denialism that’s seriously impeding addressing a core problem with the economy.
The result is workers will be patted on the back and told to celebrate if growth crawls to a feeble 3%, when every day they go backwards. Policymaking at its worst. It should be a big red flag to Chalmers and the intransigent neoliberals at Treasury.
