- Quarterly wage data due to be released tomorrow is expected to show annual wage growth in Australia of 2.1% — still well below the long-term average.
- ANZ Bank’s latest “Wage Gauge” continues to point to upward pressure on wages, although any lift is still likely to be gradual.
- Economists Felicity Emmett and Jack Chambers said workers may be poised to benefit from rising unit labour costs and more frequent bonus payments.
Leading indicators continue to point towards upward pressure on Australian wage growth. And workers may also benefit from more bonus payments in future, ANZ says.
Australia’s record run of low wage growth continued in the March quarter, with an extra drag from the private sector.
Tomorrow’s Q2 wage price index, set to be released by the ABS at 11:30am AEST, isn’t expected to bring much respite for workers either.
Quarterly wage growth is forecast to rise by 0.6% leaving the annual rate at 2.1%, still well below the long-term average.
However, modelling by ANZ Bank suggests there are signs that wage pressures in the economy are beginning to build — albeit gradually.
Economists Felicity Emmett and Jack Chambers said further increases in their latest “Wage Gauge” are cause for cautious optimism.
“The ANZ Wage Gauge continued to rise in the June quarter and now stands at its highest level since mid-2011,” the pair said.
While the Wage Gauge continues to strengthen, the chart above shows a clear recent divergence from actual wage growth.
Emmett and Chambers said one reason for the recent split is that Australia’s rate of underemployment — defined as people who have a job but would like to work more hours — remains high.
In addition, “while businesses are having difficulty finding the right sorts of labour, they appear to be more reluctant than in the past to commit to higher wage costs,” the pair said.
However, closer analysis of the data shows the Wage Gauge still has a strong correlation to two other inputs: Unit labour costs and bonus payments.
1. Unit labour costs
Unit labour costs are calculated by measuring labour costs per unit of output produced.
“The lift in the Gauge in early 2017 foreshadowed the pick-up in unit labour costs later that year,” Emmett and Chambers said.
“So it is significant that the Gauge suggests further upward pressure on unit labour costs in the near term.”
2. Bonus payments
While annual wage growth in the March quarter came in at just 2.1%, growth rates rose significantly to 2.7% when bonus payments were taken into account.
“Interestingly, the ANZ Wage Gauge has also more closely tracked the WPI including bonuses index,” the pair said. And it could be reflective of a shift in employer behaviour.
“Our interpretation of the gap between the two measures is that firms are paying higher bonuses to retain flexibility without locking into permanently higher wage bills,” they said.
And according to the RBA’s business liasion program, Australian firms are looking into more innovative ways of paying staff, “which is consistent with a greater use of bonus payments”.
The two economists said that in aggregate, ANZ’s Wage Gauge continues that wage growth is likely to go up.
Unfortunately, Australian workers will have to remain patient. ANZ shares the Reserve Bank’s view that any lift in wage growth is likely to be gradual.
“We look for a 0.6% quarterly rise in the Wage Price Index in Q2. This would be a step-up from the 0.5% q/q result in Q1 and would leave annual growth in wages unchanged at 2.1%, but with a gradual uptrend still in place,” Emmett and Chambers said.
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