Good news Australia: A bigger pay rise may be just around the corner

Quinn Rooney/Getty Images

Earlier today we learnt that, 25 years on, Australian wages grew at the slowest rate since the 1990s recession in the 12 months to September.

Those in the private sector increased by 2.1%, marginally shading those in the public sector which accelerated to a still-benign level of 2.74%.

It’s all a tad depressing, even with the knowledge that both are running above Australia’s current CPI rate of 1.5%.

However, all may not be lost. An acceleration in wage growth may just be around the corner, at least according to this chart produced by UBS.

It tracks Australia’s three-month annualised employment growth rate against changes in the wage price index. UBS have advanced the former by two quarters to further enhance the relationship between the two.

The recent surge in Australian employment growth – although dubious in some analysts eyes given the unbelievably strong employment figure in October – suggests the wage price index may follow suit in the quarters ahead, at least based upon the historic relationship between the two.

It’s simple enough process to understand – if employment is growing faster than the labour market it lessens labour market slack. Employers have less job seekers to choose from to fill positions placing upward pressure on wages to attract suitable staff.

While there are several other factors that feed into wages growth – inflation, labour market productivity and national incomes just to name three – there’s enough to suggest it’s unlikely to slow much further, at least over the short-to-medium term.

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