Australia’s labour market is humming again. In the year to October the economy generated a whopping 315,000 jobs, akin to the levels of annual growth seen before the global financial crisis.
While lower interest rates, and as a consequence a lower Australian dollar, has helped to spur hiring across Australia’s massive trade exposed services sectors, there has been another factor that has contributed to the sharp acceleration in hiring – record-low wages growth.
As the chart from ANZ reveals below, there has been a clear correlation between average earnings per employee and employment growth over the past 12 months.
Those industries that saw the fastest annual growth in employment – professional services, recreation, health and hospitality – all recorded declines in average earnings per employee. On the flip side, those industries that recorded the largest declines in employment – finance, mining and real estate – recorded the largest increases in earnings in the year to June.
Essentially, record low wages growth and a continued shift towards part time work allowed certain industries to hire more staff than what would otherwise have been possible.
While some people may deem that paying people less to employee more is simply akin to robbing Peter to pay Paul, that’s the reality of Australia’s labour market at present.
Wage growth is soft as unemployment remains elevated. There is a high degree of labour market slack – supply is exceeding demand – and until that’s absorbed Australia’s unlikely to see any significant wages growth, at least in the year ahead and potentially far longer.
Keeping that in mind, there’s unlikely to be any good news for those looking for a large pay increase when the ABS releases its quarterly wage price index tomorrow at 11.30am AEDT. Having grown at 2.27% in the year to June – the lowest annual increase seen since the early 1990s recession – economists expect wages to have grown 0.6% over the quarter leaving the annual increase unchanged at 2.3%.
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