Australia has just experienced the longest period of low wage growth seen since the early 1990s recession and, unfortunately, it looks set to continue.
That’s the depressing news to come from the RBA’s latest quarterly bulletin, with researchers at the bank noting that “the rate of annual wage growth has declined to around the pace of inflation, about 2–3%”.
Essentially real wages growth, adjusted for inflation, has been flat, and in some sectors going backwards, in recent years.
The scale of deceleration has surprised many, as the below chart shows.
Using data from the RBA and OECD, it reveals growth in Australian employee compensation – wages, in other words – recorded the largest downside surprise of all OECD nations last year with actual compensation undershooting forecasts by nearly 1.5%.
During a period of subdued wages growth globally that’s saying something.
According to the RBA there are several reasons that explain why wages growth is slowing fast. They suggest “spare capacity in the labour market, a decline in inflation expectations, a lower terms of trade and the need for the real exchange rate to adjust to improve international competitiveness” have all contributed to the decline.
In essence higher unemployment, an expected slowdown in inflation, lower national income and the elevated Australian dollar are largely to blame.
While there have been some improvements in these areas – unemployment has ticked lower while export prices for Australia’s key commodity exports have risen, albeit from depressed levels, the outlook for wages growth remains subdued at best.
Here’s the RBA’s assessment on the outlook for wages. Those hoping for a big increase in salary in the coming years best look away now.
“While a large wage adjustment has taken place, wage growth is widely expected to remain low. Evidence from the Bank’s liaison with businesses, alongside surveys of firms and union officials, suggest that the general pace of wage growth is not expected to pick up over the year ahead”.
The chart below tells the story. Whether from union officials or firms, growth is expected to remain in the doldrums.
While wages are expected to remain low, there is a silver lining for workers. Had they not decelerated “employment growth may have been more subdued than actually observed, and unemployment higher” the RBA observes.
It’s not much, but it’s something.