Here's why record low wage growth in Australia isn't such a bad thing

Getty/Christopher-Furlong

It has been well documented that Australian wages growth has slowed to a crawl.

Based on recent data released by the ABS, wages grew by a paltry 2.27% in the year June 2015, the lowest level on record. The private sector, in particular, recorded incredibly benign levels of growth – just 2.195%, also a record low.

The public sector, on the other hand, saw wage inflation accelerate to a comparatively rapid 2.50%, up from 2.43% in the year to March.

Yes, it’s been incredibly weak, and not in isolation.

As the chart below shows, from the RBA’s quarterly statement on monetary policy released earlier today, not one sector recorded wage growth above its decade average in the past 12 months.

Everywhere you look it’s subdued, particularly for mining and construction workers who were the previous beneficiaries of a once in a lifetime China-led mining boom.

“Over the past year, wage growth has generally declined further in industries where employment outcomes have been weaker and has been little changed in industries where employment has increased,” noted the RBA.

Essentially, industries that have been shedding workers generally recorded the slowest wage growth over the past year, while those in industries adding workers – predominantly services – has seen no acceleration in wages growth despite stronger levels of hiring.

“The weakness in wage growth is consistent with spare capacity in the labour market,” wrote the RBA: simply another way of saying there’s more unemployed Australians looking for work, and willing to accept lower wages as a consequence.

The RBA believe this has allowed firms “greater scope to adjust wages”. Declining national incomes, largely as a result of lower commodity prices, is also likely to have contributed to the moderation in wage inflation.

Whatever the reason, wages are growing slowly, and are expected to remain so for many years ahead based on the chart below, also supplied by the RBA. Whether a business owner or trade union official, there’s no belief that wage growth will accelerate.

While not great for those looking for a pay rise, there is a silver lining to record-low wages growth.

“This low wage growth may have encouraged firms to employ more people than would otherwise have been the case,” state the RBA.

That is, low wage growth is helping to put unemployed people into work. While there is also an argument that stronger wages growth could help stimulate economic activity, and as a consequence employment growth, for the 772,500 Australians currently out of work, that currently means a lot.

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