Australian wage growth remains weak, especially for those working in the private sector.
According to the Australian Bureau of Statistics’ (ABS) Wage Price Index (WPI), hourly wage rates rose by 0.5% in the June quarter in seasonally adjusted terms, seeing the year-on-year rate hold steady at 1.94%.
Despite that unwelcome result, it was still in line with expectations. Annual wage growth now sits marginally above the recent trough of 1.87% reported in the final quarter of last year.
The WPI measures changes in ordinary hourly rates of pay, and does not include changes in amount of hours worked.
“This low wages growth reflects, in part, ongoing spare capacity in the labour market,” said Bruce Hockman, chief economist at the ABS. “Underemployment, in particular, is an indicator of labour market spare capacity and a key contributor to ongoing low wages growth.”
The ABS said that private-sector wages, employing the vast majority of the Australian workers, grew by just 1.78% over the year, the slowest pace on record, undershooting the 1.79% pace reported in the year to march this year.
With consumer price inflation (CPI) running at 1.9% over the past year, that means real wage growth for private sector workers continues to go backwards.
Over the quarter, private wages grew by 0.4%, the weakest result since the September quarter of 2009. That’s GFC territory.
In contrast, public sector wages grew at comparatively brisk pace of 2.39% over the year, largely unchanged from the 2.4% level reported previously.
Over the quarter, public sector wages grew by 0.63%, up from 0.55% in the three months to March.
By industry, wage growth ranged from 1.1% for the mining industry to 2.6% for health care and social assistance industries, the ABS said.
The industry figures, along with those for states and territories, are not seasonally adjusted.
This table shows how wage growth fared by individual industry, both over the June quarter and from a year earlier. The ABS yet again made no adjustment to the scale, providing an unwelcome reminder on how fast wage growth in Australia used to be.
By location, Western Australia recorded the slowest wage growth over the year at 1.4%. At the other end of the spectrum, hourly wage rates in South Australia and Northern Territory grew by 2.1%, the fastest level of all states and territories.
This chart, also from the ABS, looks at the wage increases recorded for private and public-sector workers by state and territory over the past year.
For private sector workers, the strongest quarterly increase was recorded in the mining sector.
“Western Australia was the main driver of wage growth in the mining industry in June quarter 2017, with some employees receiving their first wage increases in several years, the ABS said.
Despite that strong quarterly increase, wages in the sector still grew at the slowest pace of all industries during the year at 1.1%. Health care and social assistance workers in the private sector recorded the the largest increase from a year earlier at 2.3%.
For public sector workers, the strongest quarterly increase was seen for electricity, gas, water and waste workers at 0.8%. At the other end of the spectrum, those working in professional, scientific and technical services, public administration and safety, and education and training saw their wages lift by just 0.2%, the smallest increase of all industries.
Over the year, wage growth in the public sector ranged from 1.6% for professional, scientific and technical services to 2.8% for health care and social assistance.
So while wage growth varied by location and industry over both the quarter and the year, the prevailing theme remains that hourly wage growth remains incredibly weak, especially for private sector workers.
To Paul Dales, chief Australian and New Zealand economist at Capital Economics, it looks set to remain that way for some time yet.
“Wage growth will probably nudge up, perhaps to 2.1%, in the third quarter due to the higher-than-usual increase in the minimum wage on 1st July, but that’s hardly a reflection of the health of the economy,” he said immediately following the release.
“And with the underutilisation rate — the best measure of spare capacity in the labour market — still very high, there isn’t going to be much of a cyclical boost to wage growth over the next year or so.”
Dales says that structural forces such as increased globalisation and a decline in the bargaining power of workers will also act to constrain wage growth, as has been seen in other advanced nations with far tighter labour market conditions that those seen in Australia at present.
As such, he remains sceptical that the Reserve Bank of Australia will be hiking rates anytime soon.
“There are two implications,” Dales says.
“First, underlying inflation is not going to rise much when wage growth is low.
“Second, with real wages not increasing at all, the pressures on households’ finances are mounting.
“(This) supports our view that the low wage, low inflation climate will mean the RBA won’t raise interest rates next year as the markets expect. With households’ real wages having been unchanged over the last year, consumption growth will surely slow soon.”
In the minutes of its August monetary policy meeting, the RBA acknowledged that its inflation forecasts partly reflect “an expectation of a modest increase in wage growth as labour market conditions tightened further”.
While the latter is occurring thanks to strong hiring levels in recent months, there’s little in today’s data to suggest that its contributing to a lift in wage pressures yet.
Upcoming labour and wage data will almost certainly play a key role in determining both whether the RBA’s upbeat forecasts for inflation and GDP growth will be met, as well as whether there’ll be a need to lift interest rates next year as some forecasters currently predict.
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