Well done, Australia. If you work in the private sector, your wages last year grew at 1.9%, according to today’s wage price index figures for the December quarter. So you had real wage growth of exactly … 0%, based on the CPI reading of 1.9% for 2017. Though if you live in Sydney or Brisbane, bad luck — you had a real wage cut in the December quarter, because CPI is higher there and wages growth was significantly lower — just 0.3% in the quarter for NSW private sector workers (2% across the year). Queensland was even worse, at 0.2% in the quarter (1.9%).
Wages overall grew by 0.6% for an annual result of 2.1% — a lift from the September quarter figures of 2%. But that was driven by an increase in public sector wages, which grew at 0.6% for annual growth of 2.4% in 2017 — healthcare and social assistance, where much of the government’s “record jobs growth” is coming from, was the sector with the highest growth, with education, another public sector, also recording strong growth. But the rest of us continue to mark time in the longest period of wage stagnation ever recorded, with the long-promised “corner” on wages growth yet to be turned.
The government only has two policy ideas to address this — keep forecasting higher growth until it comes true, even if it takes a decade (we’re now in the sixth year of Treasury overestimating wages growth), and of course giving a tax handout to multinationals.
While the government continues to insist wages growth really is coming eventually, wage stagnation is spreading its tentacles through the most vital part of the economy — household spending, crunching sales and retailers (look at Myer’s woes and those at Target and Coles), costing jobs and hurting suppliers. Look what the head of the Reserve Bank’s Economic Department, Luci Ellis (she’s the chief economic adviser to the RBA board) said recently:
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Continued weak income growth presents a particular risk to the consumption outlook in the context of high household indebtedness. Households do not just wake up one day and collectively decide to pay down their debt. But if incomes turn out weaker than they expect, or some other adverse news should arise, the households carrying the most debt might feel they have to rein in their spending quite a bit.
The more serious problem, Ellis noted, is when this becomes permanent:
If households start to see this weakness in income growth as permanent, they are likely to change their spending patterns in response. We might be seeing this in the details of the consumption figures: growth in spending on discretionary items, like travel and eating out, has slowed while growth in spending on essentials has held up.
RBA governor Philip Lowe still insists growth will appear but it will take a long time. He told a parliamentary committee last week:
Through our liaison program we hear reports of pockets where the labour market is tight and firms are finding it hard to find workers with the right skills. In some of these areas wages are now rising more quickly than previously, but many firms remain wary of adding to their cost base in the current environment. Over time, we expect wage growth to pick up as the labour market strengthens further. The pick-up, though, is likely to be gradual.
Lowe believes that will eventually filter into inflation, with inflation not returning to 2.5% until 2019. Which probably means interest rates won’t rise until late next year (to the fury of commentators who argue, “stuff inflation, the RBA should just punish households for the sake of it”).
But the government has not merely a political problem that it is presiding over an unprecedented period of low wages growth and its boasts about “record jobs growth” ring hollow when many private sector workers are suffering real wage cuts. It has an economic problem that stagnant wages are in danger of becoming “normalised”, seriously affecting household demand and, in turn, economic growth. For the side of politics that has championed attacks on unions and giving employers more power over workers to cut pay and conditions, it’s a problem that couldn’t happen to a nicer bunch of people.