NAB: This change in the labour market gives hope for wages growth

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Australia’s anaemic wage growth could get a boost, says National Australia Bank.

“While inroads are likely needed to be made into underemployment to lift wages growth, there are some reasons to hope,” NAB said.

“Firms are finding it a bit more difficult on average in finding suitable labour. At the moment most of the difficulty is seen as only a minor constraint, but even the proportion of firms who cite it as a major difficulty is now back to its long-run average.”

These two charts from NAB put its thoughts in perspective:

Signs of a tick up in wages will be welcomed by policy makers, who have slashed official interest rates to record levels to spur investments that will create jobs.

Australian wages failed to keep up with inflation in the March quarter for first time in three years.

Wages grew by 0.5% during the March quarter, leaving the year-on-year increase at 1.9%, government statistics showed. With consumer price inflation currently running at 2.1%, it means that real wage growth went backwards for the first time since the June quarter 2014.

NAB cited an International Monetary Fund analysis that found underemployment and lower inflation expectations can almost fully account for subdued nominal wages growth over the past few years.

Measures of underemployment have a close relationship with the difficulty firms report in finding suitable labour. Such a relationship could be due to firms gradually using up existing labour capacity.

That is starting to tighten, NAB said.

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