Unemployment is falling, but so are wages. It's the latest of a very long slide

Extract from The Guardian

all

Australian economy

Opinion

Greg Jericho

It is hardly news any more to say that we have a record low in wage growth. But it’s becoming a problem for workers, companies and the government alike

• Greg Jericho is a Guardian Australia columnist

The “May budget figures contained some rather heroic projections for wages growth over the next four years – predictions which if they don’t come to pass will make it very unlikely that the budget will return to surplus” Photograph: Julian Smith/AAP

Contact author

Thursday 17 August 2017 04.00 AEST Last modified on Thursday 17 August 2017 04.03 AEST

The latest wages figures released by the Bureau of Statistics revealed that Australians’ real wages continue to fall, and that in the past year wages grew by a record low 1.9% – and it also marked the 20^th consecutive quarter of falling wages growth for private sector workers.
Any hope that wages growth has turned a corner will need to wait another three months. While the Fair Work Commission increased the minimum wage by 3.3% in June, this only took effect from the start of July, meaning any flow-on impacts won’t be observed until the September quarter figures come out in three months time.

And should those figures show some improvement, it will be a blessed relief, because the June quarter figures released on Wednesday showing wages for all workers grew by just 1.9% over the past year are just the latest of a very long slide:

For private sector workers the news was slightly worse – their wages grew by just 1.8% – a new record low, compared to public sector workers having a relatively solid 2.4% growth:

The growth of public sector wages came mostly from New South Wales and Victoria. Public service employees in the Australian Capital Territory (most for whom are commonwealth public servants) saw their wages grow by the least amount – just 1.6% – a rate lower than the national private sector growth.

The lowest private sector wages growth occurred again in Western Australia – the annual growth of 1.0% equalled last month’s record low level:

But to be honest, it is hardly news any more to say that a new record low in wage growth has been achieved. The last time private sector wages did not set a new record for low growth was December 2013.
There have now been 19 consecutive quarters of falling wages growth for all workers and 20 consecutive quarters for private sector workers.
The last time the annual growth of wages for private sector workers improved was June 2012:

A new record was also set for quarterly growth of wages. In the June quarter, private sector wages grew by just 0.4%. That made it 10 quarters in a row of quarterly growth not being above 0.5%. To give some context, prior to this current run such a feat had occurred only once before – in the GFC quarter of September 2009:

It is an utterly dreadful state of affairs because it means yet again, despite very low inflation growth, real wages are continuing to fall.
In the 12 months to June, the RBA’s underlying inflation measure grew by 1.84% – faster than the private sector wage growth of 1.78% and only slightly less than the 1.86% growth for all workers:

It means that private sector real wages remain at the level where they were four and half years ago:

And while this is bad news for workers and anyone hoping for an improvement in their standard of living, it is also bad news for the government.

As I noted at the time, the budget figures contained some rather heroic projections for wages growth over the next four years – predictions which if they don’t come to pass will make it very unlikely that the budget will return to surplus, because wages growth is a strong driver of income tax growth.
The budget predicted that wages in June this year would grow annually by 2.0% and the unemployment rate would be 5.75%. The final result of 1.9% is slightly worse, but the unemployment rate of 5.6% is slightly better.
And this is a problem, because generally there is a link between the unemployment rate and wages growth. When the unemployment rate falls, wages growth is expected to pick up.
But in the past two years, while the unemployment rate has fallen, so too has wage growth:

The problem for the government is its budget projections have wages growth improving very quickly, while the unemployment rate is expected to barely fall at all.
The budget actually predicts by next June the unemployment rate will be 5.75% – worse than it is now, and yet wages are meant to be growing faster than they are now at 2.5%. By June 2019, with an expected unemployment rate of 5.5% – just .01 percentage point better than now – wages are expected to be growing by 3% – 1.1 percentage points better than now.
This path of slightly improving unemployment rates but strongly improving wages growth continues until June 2021, when with an unemployment rate of 5.25% wages are supposed to be growing at 3.75%.

It is a path that would be rather unexpected – especially since the budget would have us believe that in June 2021 inflation would be rising at just 2.5%, meaning real wages growth would be 1.25% – a rate not experienced since 2012:

The record low wages growth is bad news all round. Bad for workers, bad for companies hoping consumers will begin to spend in the shops, and bad for the government hoping income tax revenue will grow as fast as its budget papers predict it will.