Reports of employers offering their staff extravagant sign-on bonuses and employee benefits in a bid to lure and retain workers in the face of a major Australian skills shortage aren’t reflected in September’s wage figures, Westpac economists say.
As Australia’s eastern states each emerged from lockdown restrictions over the last couple of months, employers flocked to the labour market to staff up in the face of a post-pandemic boom.
Several reports suggested that businesses from across the country, mostly in the professional and financial services sectors, were poised to offer bonuses of eye-watering proportions, unseen since the global financial crisis.
Workers from across the hospitality sector, too, found themselves with their pick of the lot, leaving cafes, pubs and restaurants so desperate to fill vacancies they asked state leaders to establish a government-backed sign-on bonus of as much as $1,000 to lure workers.
But in new wage growth analysis released by Westpac on Tuesday, economists say the trend hasn’t yet hit Australia’s wage growth figures.
Justin Smirk, senior economist at Westpac, said while wages growth continues to undergo a modest recovery, there was “little evidence” in September’s figures to suggest that bonuses were being deployed by employers to the degree that has been reported.
“Wages plus bonuses inflation tends to overshoot the Wage Price Index excluding bonuses in an upcycle and undershoot in a down cycle,” Smirk said.
“We saw this in the lead up to COVID (overshoot) and then through COVID (undershoot),” he said.
“Wages plus bonuses did lift as the economy reopened in late-2020 [to] early-2021, but appear to have stalled in Q3, most likely due to the recent lockdowns in New South Wales and Victoria.”
It’s possible that the deployment of bonuses across the private sector could instead see an uptick heading into 2022.
Smirk said it’s a segment his team is watching closely, and that if reports are true, could see a “larger than usual” performance of wages including bonuses next year.
Overall wage growth in Australia saw an 0.6% lift through the September quarter, while year-on-year wage growth swelled to 2.2% — still well short of the 3% growth or more the RBA is looking to capture to forge its way out of record-low interest rates.
Michelle Marquardt, head of prices statistics at the Australian Bureau of Statistics, said much of the growth seen through the quarter was brought about by wage and salary reviews conducted at the end of the financial year, along with a rise in refreshed enterprise agreements and annual award increases seen across the private sector.
It’s a sentiment that echoes a speech delivered by Philip Lowe, governor of the Reserve Bank of Australia, early last week.
Smirk said that private sector wage growth tracked in September’s figures was largely consistent with the broader labour market, based on underutilisation — or, the unemployment and underemployment rates combined.
“At a national level, and even more so at a state level, the relationship between underutilisation and wage inflation is nonlinear; that is it takes a larger fall in underutilisation at low rates of underutilisation to generate a comparable change in wage inflation to what can be generated at higher levels of under utilisation,” he said.
In effect, Smirk thinks the fall off in wages through the pandemic highlights just how much more responsive wage growth in Australia has been to COVID-19 supply shocks than it has in previous economic cycles.
Looking ahead, Smirk said his team is of the mind that wage inflation is set to hold its ground through to the end of 2021, before gathering stronger momentum in 2022.
“Key to this will be the spreading of wage rises from individual bargaining to awards [and the] minimum wage and enterprise bargaining,” Smirk said.
“A factor behind the lift will be the annual increase in the minimum wage which, in 2022, we expect to be [more] around the 2018 than 2021 or 2019 decisions.”