Australian workers are continuing to see little improvement in their pay packets, with wages growing only 0.5 per cent in the first three months of the year.
On seasonally adjusted basis, the Wage Price Index is up only 2.1 per cent over the year, with private sector workers’ wages up 1.9 per cent, outpaced by a 2.3 per cent increase in pay for the public sector.
With inflation running at 1.9 per cent, that means in real terms most workers have not seen any growth in their wages over the past year.
While the market was not expecting much from the March quarter figures, the data was still disappointing, coming in below the consensus forecast of 0.6 per cent growth, while the far-from-impressive December quarter figures were revised down a notch.
The figures will again frustrate the Reserve Bank which has previously said it was difficult to see inflation moving into the middle of its 2-to-3 per cent target band if wages continue to grow at just 2 per cent.
It also puts into doubt assumptions behind last week’s federal budget, which was built on wage growth averaging 2.75 per cent over 2018/19.
Wage growth has now decelerated for three consecutive quarters, and the March quarter represents the second slowest wage growth since the Australian Bureau of Statistics started calculating the WPI in 1997.
JP Morgan economist Tom Kennedy said, although wage growth may have bottomed-out, it is still considerably weaker than the historical relationship with unemployment would suggest.
“The weakness in the wage data is particularly striking given the strength of labour demand over the past year,” he wrote in a note.
‘Years’ before wages growth returns to ‘normal’
The Asia-Pacific economist for global job site Indeed, Callam Pickering, said with quarterly wages falling a touch shy of underlying inflation, on average, workers earned less in early 2018 than they did at the end of last year.
“The fate of the federal budget rests with the assumption that wage growth will rise sharply in the next couple of years, but so far there is no evidence that wage growth has improved,” Mr Pickering observed.
Mr Pickering said, while stronger business conditions and lower unemployment should in time lead to higher wage growth, progress is likely to be slow — much slower than predicted in the recent federal budget.
“Job seekers have little bargaining power and, to some extent, soft wage growth may have become ingrained in their expectations,” he noted.
“We may not see a material improvement in wage growth until the unemployment rate dips below 5 per cent and unfortunately policymakers don’t expect that to happen in the next three years.
“It will take years for wage growth to return to the levels once considered normal.”
Health workers lead the pack, miners in the pits
Sectors such as mining, retail, scientific and technical services barely saw any growth in wages over the quarter (+0.2 per cent), while education and training were the biggest contributors to what little growth there was.
On an annual basis, healthcare workers enjoyed the biggest pay rises (+2.7 per cent), while the boomtime for miners is well and truly over (+1.4 per cent).
By state, Victoria and Tasmania — which both saw solid public sector pay rises in the quarter — led the pack in trend terms (+2.3 per cent), while the Northern Territory (+1.1 per cent) is suffering from declining wages in real terms.
The WPI is a measure of changes in ordinary hourly rates of pay and excludes hours worked, bonuses, superannuation and penalty payments.
It also doesn’t reflect changes in the workforce, such as the switch to part-time work from full-time.
CBA’s Belinda Allen said the data suggests that any thought of a return to more normal wages growth is still some time away, particularly given the significant amount of spare capacity in the labour market.
“Underemployment and underutilisation rates remain elevated,” she noted.
“Both the RBA and the federal budget forecast wages growth to return to above 3 per cent over coming years. But there is limited evidence to date that we are getting closer to this.”