Here's why Australian pay rises will stay low

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The July jobs report for Australia showed a bigger than expected rise of more than 26,000 jobs. But the data showed around 71,000 part-time jobs were created while 45,000 full-time jobs disappeared.

That monthly shift once again highlighted the recent, and emerging, trend in Australia that has seen employment growth being driven by the rise of part-time employment.

This shift means that even though the unemployment rate has fallen to 5.7% and more Australians are working than ever before, “a closer examination reveals that the headline figures overstate the true strength of the labour markets”, Capital Economics said in their latest Australia and New Zealand Economics Week.

For example, “although 220,000 jobs have been created in Australia over the last year, 85% of those have been in part-time positions”, Paul Dales, editor of the weekly and chief economist for Australia and New Zealand wrote.

That’s important because the growth of part-time employment, and the increase in reported labour underutilisation (that’s where respondents say they would like more work) speak of increased slack in the labour market, Dales says.

This slack is keeping wages growth low.

Data on wages released this week by the Australian Bureau of Statistics showed growth of wages at 0.5% in the second quarter which left the year on year growth rate at just 2.1%.

Dales says that is likely to persist:

“The current rate of underutilisation suggests there is still plenty of spare capacity in the labour market and it points to only a moderate pick-up in wage growth over the near-term. We expect wage growth to remain below 2.5% until at least the end of next year.”

And he has the chart to prove it:

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