If you're hoping for a larger pay increase, keep an eye on what's happening in Victoria

Scott Barbour/Getty ImagesShane Warne getting a big payday during his time in the Big Bash League.

Australian wage growth remains weak, according to official data released by the ABS on Wednesday.

Across the country, average hourly pay excluding bonuses grew 2.3% in the year to March, unchanged from the level reported in the prior two quarters.

Put bluntly, annual wage growth has stalled having lifted marginally from record low levels in 2016. Compared to what was seen before and immediately after the Global Financial Crisis, it’s still incredibly low, both for public and private sector workers.

It’s a pretty gloomy story for anyone looking for a return to the days of 3% per annum growth or more in their annual pay.

However, maybe — just maybe — there’s a glimmer hope on the horizon that those days may eventually return.

Here’s a snippet from a research note released by Westpac explaining why:

Since 2018, Westpac watched the rapid fall in the Victorian unemployment rate, and because of this, we are now looking for signs of an acceleration in wage inflation there. In the March quarter, Victorian wages lifted 0.5%, a moderation from the 0.8% gain in Q4, but with base effects, the annual pace was flat at 2.7% year-on-year –the fastest pace by any state and the fastest pace in that state since December 2014.

Tighter labour market conditions in Victoria appear to be generating some wage inflation. If this lift in Victorian wage inflation continues into 2020, we would expect this would lead to modest wages pressures in other states — particularly in New South Wales — as employers start competing for labour.

This chart from the bank may explain why average Victorian wages grew by 2.7% over the past year, faster than anywhere else in the country over the same period.

Westpac Bank

The proportion of its workforce who are deemed to be underutilised — either unemployed or those who have a job but want to work more — has fallen quite sharply in recent years, albeit from elevated levels.

In the past, changes in underutilisation have typically led annual wage growth in Victoria, as demonstrated by the chart.

So IF underutilisation continues to fall there, potential skill shortages could start to prompt employers to lift wages, something that may start to attract workers from other parts of Australia. In turn, that could act to create skill shortages, and possibly faster wage increases, in those locations too.

It’s largely a hypothetical scenario at this point, with a lot having to go right before average annual wage growth nationally sits or 3% or higher.

Just Smirk, Senior Economist at Westpac, says it’s likely that underutilisation will have to fall a lot more in other parts of the country if wage growth is to pick up meaningfully.

“The overall impact is likely to be modest given that the improvement in the national labour market, as measured by the fall in underutilisation, has not been as significant as it is has been in Victoria,” he said.

On Thursday, Australia will receive an update on underutilisation across the country when the ABS releases its April jobs report. In March, the national underutilsation rate stood at 13.2%, more than 3 percentage points above the level seen just before the GFC.

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