The pandemic means, among many other things, that Australia’s wages growth projections will not be met in 2020 or likely for some time into the future. The issue with low wages growth is that it directly impacts the capacity of households to contribute – by way of extra spending – to economic growth. That includes spending and growth required for us all to recover from the worst effects of the pandemic.
Annual growth in wages has been slowing across the economy. The March quarter recorded the fifth successive decline in private sector wages growth – down to 2.2%. We can see that the longer-term average wages growth had been significantly higher than the recent experience.
Note that the charts here are from an item by Greg Jericho in The Guardian on 14th May 2020.
Fig. 26
In most situations, wages growth is pretty slow because there are contracts, agreements and periodic reviews. That means changes are usually recorded gradually and it takes a few quarters for a trend to be confirmed. It is probably reasonable to consider the downturn in already faltering wages growth to be the trend.
Australia’s projections of wages growth – from the 2019 budget – were always brave.
After all, wages growth was mainly trending down for most sectors through the year-ended March 2020. What is more, the wages growth data shows us that nearly all sectors saw wages growth decrease from March 2019 to March 2020, as the chart below shows.
Fig. 27
With the pandemic in full effect, the likelihood of June quarter wages growth is virtually non-existent. We will extend that to the September quarter without risk of disagreement, and beyond that, well the fundamentals of unemployment, underemployment and already low wages growth pretty much lock in a further period where wages growth will be hard to come by.
That does not bode well for the shape of the recovery.
