reserve bank

After yesterday’s jobs figures, it’s clear that any wages growth for most workers is way off in the future, even if we accept the rather silly arguments advanced by the “just around the corner” mob.

The argument from the government is that we just need to wait a little longer and the strong jobs growth we’ve seen will finally push wages growth up. Only problem is, that strong growth has definitely peaked and is falling away. It’s still solid growth, welcome growth — but well down on what we enjoyed in 2017.

Most commentary focused on the fall in the seasonally adjusted jobless rate to 5.4% from 5.6%. Unfortunately, that was driven by a slide in the participation rate as people left the labour force, when we’ve been used to stable or rising participation in recent months; indeed, rising participation has been the Turnbull government’s unquestionable achievement. But the less volatile trend series showed a more realistic picture: no fall in the jobless rate at 5.5%, which is unchanged since August last year.

That’s because jobs growth continues to slide — from an annual rate of 3.3% in December 2017 and January of this year, to 2.6% in May. In terms of the number of actual jobs created, they peaked at an annual rate of 400,000 in February, and are now down 20% to an annual 318,000 in May. Sixty-eight thousand extra workers were employed during the past six months, (seasonally adjusted, 78,000 on a trend basis) down from 208,000 employed in the previous six months, which means the government will have to redo its advertisements claiming 1,000 jobs a day — now it’s just over 500. And the slowdown is mainly in full-time jobs — in May, they grew 4000 in trend terms compared to 12,000 part-time jobs. 

In his speech on Wednesday, Reserve Bank governor Philip Lowe noted that there remains some “space capacity” in the wages market, meaning low wages growth was “understandable”. His deputy, Guy Debelle suggested last month “it may take a lower unemployment rate than we currently expect to generate a sustained move higher than the 2 per cent focal point evident in many wage outcomes today.”

Given yesterday’s jobs numbers, that suggests there’ll be no wages growth (and no inflation or interest rate rises) any time soon, and certainly not the kind of optimistic wage growth the government based its budget forecasts on. It’s hard to see how it will even hit its dramatically lowered forecasts for 2017-18. In 2016, the government told us WPI would be growing at 2.75% this year. Last year’s budget lowered this to 2.5%. MYEFO in December lowered it to 2.25%. In the year to March, it was 2.1%. It’s possible that it could hit 2.25% in the June quarter. Then the government will claim vindication against the naysayers, hoping we’ve forgotten how much it was already ratcheted its forecast down — and hoping that we’re OK with the new normal of wages growth that is only ahead of inflation in a few booming sectors like health and education, leaving private sector workers going backwards in real terms.

And while the Reserve Bank is at least prepared to discuss wages growth and what to do about it, some others in the governing class remain utterly obtuse. An extraordinary editorial in today’s issue of The Australian Financial Review effectively suggests workers should just suck it up on low wages growth.”Those who whinge most about the limited growth in national income typically are the most strident opponents of changes that would actually increase it. They call it ‘fairness’,” according to the Fin’s anonymous ranter (though it sounded a lot like the comments on the same subject on Insiders by Fin editor Michael Stutchbury), arguing that workers enjoyed big pay rises during the mining boom. “At least part of the growth slowdown since then is statistical,” he/they say. “Statistical”. That should comfort workers around Australia going backwards, that their declining real wages are just “statistical”. Kinda like the massive falls in the Fin’s circulation in recent years have been merely “statistical”, eh?