- The Reserve Bank of Australia (RBA) says a record level of job vacancies and increasing reports of skills shortages will help to bolster wage growth.
- Businesses surveyed by the NAB suggest skill shortages are now more acute than average levels seen in the past couple of decades.
- Australia’s latest wage report for the September quarter will be released on Wednesday.
The Reserve Bank of Australia (RBA) says a record level of job vacancies and increasing reports of skills shortages will help to bolster wage growth in Australia in the years ahead.
On the latter factor — skill shortages — policymakers at the bank will no doubt be pleased with the chart below from the latest Australian Business Confidence report released by the National Australia Bank.
Of the more than 400 businesses surveyed, the vast majority reported difficulties in finding suitable labour in the October report.
Regardless of industry, the proportion of firms reporting skill shortages is now well above the average level seen since the middle of 2000.
The NAB, echoing similar views to the RBA, believes this is a good sign for faster wage growth in the period ahead.
“While the difficulty in finding suitable labour does not appear as high as in the lead-up to the GFC, where unemployment fell to 4%, it suggests conditions are tighter than they have been for some time,” the bank says.
“Accordingly, we believe wages growth should begin to pick up as firms compete harder for labour.”
We’ll get the opportunity to test that theory on Wednesday when the ABS releases its September quarter Wage Price Index, a report that measures the change in average hourly earnings before bonus payments.
A modest increase in wage pressures is expected, helped in part by a continued decline in unemployment, another measure that suggests spare capacity in the labour market is being eaten up as economic growth accelerated in the first half of the year.
At 5%, Australia’s unemployment rate is now at the level where many suspect wage pressures will begin to pick up, known as the non-accelerating inflation rate of unemployment, or NAIRU for short.
This is the point where the pool of available workers falls to levels where businesses have to lift wages in order to retain or obtain suitable staff.
However, while in theory Australia already reached this point in September, no one knows what level NAIRU truly is until wage growth actually accelerates. And beyond that, the evidence from other major advanced economies abroad in recent years suggests NAIRU levels are now significantly lower than where they were in prior decades.
That alone means there’s plenty of reason to be cautious about how fast any potential pick-up in Australian wages growth will be.
Still, unemployment is low and skill shortages, at least according to businesses, are elevated, a far better scenario to that seen just a couple of years ago.