Extract from The Guardian
Even if wage growth does improve, it will probably go up by less than expected
The
news was not good this week for those hoping for an end to the weak
wages growth – weakening employment figures suggest little chance of
wages growth improving, and a speech by the head of the Reserve Bank
suggests the problem is unlikely to be improved soon.
Last year was certainly a good one for jobs. After a terrible 2016, which saw full-time employment go backwards, 2017 boomed – the largest increase in the percentage of adults working full-time in a calendar year observed since the bureau of statistics started recording labour force figures on a monthly basis in 1978.
Not surprisingly the government is loathe to let go of the year as the main reference point.
For example the minister for jobs and innovation, Senator Michaelia Cash, referred to it last month when she boasted to parliament of 2017 being “the strongest year of jobs growth on record. In excess of 415,000 more jobs were created and, colleagues, three-quarters of those jobs were full-time jobs”. The prime minister on 31 May also told parliament, “We’ve come a long way – record jobs growth last year, 415,000 jobs.”
But alas, 2018 has not been as good.
The latest labour force figures out this week showed that rather than the 415,000 figure of 2017, the past 12 months has seen just 303,900 more people employed – still a solid result, but certainly no longer the record-breaking number the government was once able to talk about.
The picture gets worse when we turn to full-time employment. In seasonally adjusted terms, the number of full-time jobs since December has actually fallen.
And with the fall also goes the likelihood – however slight it already was – of wages growth improving anytime soon.
While the drop in unemployment to 5.4% is always welcome (although in trend terms the rate has been at 5.5% now for 10 straight months), more and more (as I’ve noted over the past three years) the level of underemployment is the crucial measure.
Once upon a time this would not have been a major concern. If the unemployment rate fell, then so too would the underemployment rate.
Now, not so much.
Back in February 2013 when the unemployment rate was also at 5.4%, the underemployment rate was just 7.3% – that is a difference of around 160,000 more people being underemployed.
That is a lot of extra spare capacity in the labour market – people who would take more hours over a pay rise.
The issue for the government as it seeks to go to an election trying to persuade voters they are better off now than they were in 2016 or 2013 is that not only is wages growth unlikely to improve while underemployment remains high, the economy has changed such that even should the situation improve, wages will likely go up by less than we would have once expected.
The Reserve Bank governor Philip Lowe noted in a speech this week that while there were cyclical issues at play that were keeping wages growth down, there were also structural changes to the economy. Chief among these was “changes in the bargaining power of workers” and “an increase in the supply of workers as the global economy becomes increasingly integrated”.
The two are connected.
It is not migration numbers per se that is the issue, but that temporary workers brought in are being done so by companies seeking to ensure lower levels of unionised labour and higher levels of non-permanent staffing, which combined reduces the capacity for workers to argue for higher wages.
In effect the system is changing to keep underemployment high in order to ensure that wages growth remains low.
And that is just how businesses like it.
Heck, the mouthpiece for the business in the media, the Australian Financial Review this week editorialised that those worried about low wages growth were “whingeing” and workers should be happy given the solid wages growth they got during the mining boom (yes, a decade ago).
I guess the governor of the Reserve Bank must now be included as one of those whingers. He noted that the long period of low wages growth “is diminishing our sense of shared prosperity” and that “it is clear that the slow growth in wages is affecting our economy”.
In the old days the solution was higher productivity. But even here the issue is tied with Lowe’s talk of the global supply of workers. It is not just about temporary workers coming here, but businesses being able to offshore workers in order to reduce labour costs in work that once was considered imperative to be done by local workers.
And technology in the past was also seen as the answer for driving higher productivity – better machines to enable workers to produce more.
But now we see reports that are not about improving labour productivity but reducing labour. This week, Business Insider’s Paul Colgan reported on analysis which estimated that automation could enable the big four banks to cut 40,000 workers over the next five to 10 years – or around 25% of their staff.
Hardly the type of productivity growth that is going to lead to better wages or household incomes.
It’s not a great story, and it is why as we get closer to the election the government will need to explain why in the face of evidence to the contrary, voters should believe their predictions that wages growth will soon improve.
It’s an argument that in some ways echoes the labour market itself.
Being underemployed is better than being unemployed, and voters are more likely to be patient for better wages if employment is growing well and unemployment is falling. But if the jobs growth continues to slow it will more and more feel to workers like they have seen the best the government can deliver, and that best did not include an improved standard of living.
• Greg Jericho is a Guardian Australia columnist
Last year was certainly a good one for jobs. After a terrible 2016, which saw full-time employment go backwards, 2017 boomed – the largest increase in the percentage of adults working full-time in a calendar year observed since the bureau of statistics started recording labour force figures on a monthly basis in 1978.
Not surprisingly the government is loathe to let go of the year as the main reference point.
For example the minister for jobs and innovation, Senator Michaelia Cash, referred to it last month when she boasted to parliament of 2017 being “the strongest year of jobs growth on record. In excess of 415,000 more jobs were created and, colleagues, three-quarters of those jobs were full-time jobs”. The prime minister on 31 May also told parliament, “We’ve come a long way – record jobs growth last year, 415,000 jobs.”
But alas, 2018 has not been as good.
The latest labour force figures out this week showed that rather than the 415,000 figure of 2017, the past 12 months has seen just 303,900 more people employed – still a solid result, but certainly no longer the record-breaking number the government was once able to talk about.
The picture gets worse when we turn to full-time employment. In seasonally adjusted terms, the number of full-time jobs since December has actually fallen.
And with the fall also goes the likelihood – however slight it already was – of wages growth improving anytime soon.
While the drop in unemployment to 5.4% is always welcome (although in trend terms the rate has been at 5.5% now for 10 straight months), more and more (as I’ve noted over the past three years) the level of underemployment is the crucial measure.
Once upon a time this would not have been a major concern. If the unemployment rate fell, then so too would the underemployment rate.
Now, not so much.
Back in February 2013 when the unemployment rate was also at 5.4%, the underemployment rate was just 7.3% – that is a difference of around 160,000 more people being underemployed.
That is a lot of extra spare capacity in the labour market – people who would take more hours over a pay rise.
The issue for the government as it seeks to go to an election trying to persuade voters they are better off now than they were in 2016 or 2013 is that not only is wages growth unlikely to improve while underemployment remains high, the economy has changed such that even should the situation improve, wages will likely go up by less than we would have once expected.
The Reserve Bank governor Philip Lowe noted in a speech this week that while there were cyclical issues at play that were keeping wages growth down, there were also structural changes to the economy. Chief among these was “changes in the bargaining power of workers” and “an increase in the supply of workers as the global economy becomes increasingly integrated”.
The two are connected.
It is not migration numbers per se that is the issue, but that temporary workers brought in are being done so by companies seeking to ensure lower levels of unionised labour and higher levels of non-permanent staffing, which combined reduces the capacity for workers to argue for higher wages.
In effect the system is changing to keep underemployment high in order to ensure that wages growth remains low.
And that is just how businesses like it.
Heck, the mouthpiece for the business in the media, the Australian Financial Review this week editorialised that those worried about low wages growth were “whingeing” and workers should be happy given the solid wages growth they got during the mining boom (yes, a decade ago).
I guess the governor of the Reserve Bank must now be included as one of those whingers. He noted that the long period of low wages growth “is diminishing our sense of shared prosperity” and that “it is clear that the slow growth in wages is affecting our economy”.
In the old days the solution was higher productivity. But even here the issue is tied with Lowe’s talk of the global supply of workers. It is not just about temporary workers coming here, but businesses being able to offshore workers in order to reduce labour costs in work that once was considered imperative to be done by local workers.
And technology in the past was also seen as the answer for driving higher productivity – better machines to enable workers to produce more.
But now we see reports that are not about improving labour productivity but reducing labour. This week, Business Insider’s Paul Colgan reported on analysis which estimated that automation could enable the big four banks to cut 40,000 workers over the next five to 10 years – or around 25% of their staff.
Hardly the type of productivity growth that is going to lead to better wages or household incomes.
It’s not a great story, and it is why as we get closer to the election the government will need to explain why in the face of evidence to the contrary, voters should believe their predictions that wages growth will soon improve.
It’s an argument that in some ways echoes the labour market itself.
Being underemployed is better than being unemployed, and voters are more likely to be patient for better wages if employment is growing well and unemployment is falling. But if the jobs growth continues to slow it will more and more feel to workers like they have seen the best the government can deliver, and that best did not include an improved standard of living.
• Greg Jericho is a Guardian Australia columnist
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