Some commentators yesterday declared that Australia had “turned the corner” on wages growth following the 0.6% rise in the wage price index (WPI) for the December 2017 quarter. Yep, turned a corner, all right — in the middle of a maze.
The only thing that spared the government from an even worse result was state government spending on health and education. Scott Morrison should be writing a thank-you note to Daniel Andrews: public service wages in Victoria rose 0.9% in the December quarter and 3.2% across 2017 — compared to 0.6% and 2.4% for the whole of Australia.
Normally, a Labor government giving pay rises to public servants is the stuff of lamentation about left-wing fiscal recklessness, but we suspect we won’t hear too many complaints from the feds. If the Victorian government had behaved more like the NSW government and increased wages by just 2.4% in 2017 — and a miserly 0.2% in the December quarter — there’d be no talk of turning any corners.
The AMP’s chief economist Dr Shane Oliver isn’t convinced either, noting yesterday:
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… underlying wages growth may be bottoming, but it’s premature to conclude that its starting to lift: as the stronger than expected December quarter gain likely reflects a continuing flow through of last year’s minimum wage rise … wage increases in new enterprise bargaining agreements have been tending to be lower also suggesting there has been no real lift in underlying wages growth and spare capacity in the labour market remains very high.
Policymakers say that if jobs growth keeps coming, then eventually wages will pick up. That’s arguably what’s happened in health and education, which in the year to September 2017 provided nearly half the massive jobs growth in that 12-month period. According to the ABS, health and social care had the highest wages growth, followed (after arts and rec, which doesn’t employ many people) by education. Big government investments in those sectors (schools, pre-schools, hospitals, the NDIS) have pushed wages up as health bodies and school systems look for medical and teaching professionals.
Alternatively, you might note that health and education, and the public service, are far more heavily unionised than the private sector. Perhaps wages growth in those industries is more about unions’ ability to demand wages rises when they’re stronger.
For the rest of us in the private sector, though, wage stagnation is the order of the day. We’ve compared the ABS’ state-based WPI data for private sector workers and CPI in the relevant capital city. It’s not a perfect way to determine real wage growth at the state level (especially in Queensland), but it’s at least indicative. And for private sector workers on the east coast, the news isn’t good.
In Sydney, private sector wages have lagged CPI by a net total of 0.2% since December 2015, the first quarter of the Turnbull government, meaning NSW workers have had a small real wage cut — and real wages actually fell 0.3% in the December quarter. In Melbourne, wages and CPI have risen by the same level since 2015, so real wages have remained static, though they went backwards a little in December. In Brisbane, wages also lagged CPI by 0.2%. There was better news in Adelaide: since 2015, wages have outperformed CPI by 0.7% due to lower inflation, although they did go backwards in December. And in Perth, due to very low inflation, real wages are actually up 1% since 2015.
Bear in mind inflation is forecast to rise over the next two years — from 1.9% currently to 2.5%. That means that private sector workers on the east coast will start to go materially backwards unless wages growth breaks out of the 0.4-0.5% rut that it’s been in since 2015.
But corporations like our wage growth just where it is, thank you — even in industries where it’s obvious that low wages growth is actually hurting the industry, like retail. Every quarter that goes by with them able to screw real wages down is more profit for them, and they’ll keep inventing excuses — currently it’s “we need to maintain our competitiveness” — as long as they can.
One more thing: Acting Prime Minister Mathias Cormann claimed the WPI result vindicated his forecasts. “Actual performance seems to suggest that our forecasts were pretty well on the money,” he told the AFR. Cheeky. Too bad neither Cormann nor the AFR pointed out that in December, Cormann lowered the WPI forecast by 0.25%.