The trend for lower wages growth in Australia, as firms seek to rebuild competitiveness and manage costs, is something we’ve covered a lot recently.
It’s what the finance geeks have dubbed “cost-out” and it means lower wages and slower employment growth.
In their quarterly statement on monetary policy this morning, the RBA has shown starkly just how far either wages, or the Aussie dollar, or a combination, will need to fall to make Australian business competitive once again.
The RBA said:
Businesses have been under pressure to contain costs due to a loss of international competitiveness. Over a number of years, this was brought about by the run-up in the terms of trade, which contributed to a sizeable appreciation of the exchange rate and some growth in wages. A measure of Australia’s international competitiveness that adjusts Australia’s nominal trade-weighted index by the relative growth of labour costs in Australia and its OECD trading partners illustrates that both factors contributed to a decline in Australia’s competitiveness up to 2013 (Graph 5.11).
The depreciation of the nominal exchange rate since early 2013, if sustained, can be expected to assist in improving international cost competitiveness. The relatively low growth of Australia’s unit labour costs – unchanged now for a few years – will also make a contribution to competitiveness (Graph 5.12).
It’s why the, RBA even with the Aussie dollar in the 85 to 87 cent-range has not backed off, saying the Aussie needs to be lower and it’s also why wages rises like the paltry 1.5% annually deal for our Diggers may become the norm, perhaps even on the high side, of wages growth in coming years.
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