First, let us celebrate the strongest wage growth since 2012. Too often the narrative around wages seeks to undercut the positives – saying wages growth will hurt businesses or that they will force the Reserve Bank to raise interest rates further.
Please. Stop.
Wages growth is good. People are the economy and people deserved to get rewarded.
And the latest wage price index, released on Wednesday, show that the wages of private-sector workers rose on average 3.8% over the past year, the fastest since June 2012:
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This is good news. With unemployment about 3.5%, wages should be going up. The fact that we can say we have the lowest unemployment for nearly 50 years but the fastest wage growth for only 15 years does reinforce somewhat that wages are not growing out of control.
The quarterly growth figures show that the 1.2% jump in the September quarter last year, driven in part by the Fair Work Commission’s annual increase in the minimum wage, was an exception. Far from taking off, wage growth is moderating a bit.
The 0.8% growth in the March quarter was down on the 0.9% growth in the December quarter. As the deputy chief economist of AMP, Diana Mousina, noted: “Concerns about a wage breakout in Australia look overdone.”
We also see signs that the Reserve Bank did not need to be as concerned about rising service prices as they were when they increased rates this month.
In the latest minutes of the board meeting, members “noted the persistence in services price inflation in many other countries and discussed the possibility that Australia might have the same experience”.
But much of the increase in service prices has come from the public sector – education and health. While wages and service prices usually rise in sync, at the moment wages are not rising anywhere near as fast as you would expect given the past 15 years:
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For those economists who swear by the “Nairu” – the non-accelerating inflation rate of unemployment – there is some evidence that 3.5% is around the mark where wages start to increase (although the RBA wants unemployment to get back to 4.5%).
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This does also suggest, as I noted last week, that the latest budget forecasts for wage growth reaching 4% finally have some hope of actually coming true.
So that’s the good news. And remember, strong wage growth is good news – never let anyone tell you otherwise.
But the reality is that, despite these good wage figures, workers’ ability to buy things with their money is going backwards.
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In the past year, wages rose at just over half the speed of prices. And while inflation is slowing, wages only grew faster in the first three months of this year than the prices of “discretionary” items, and that was mostly because of the falling cost of holidays.
The prices of “non-discretionary” items (those items and services you can’t avoid) rose 1.9% in the first three months of this year – well beyond the 0.8% rise in wages.
It means that inflation has grown faster than wages for 11 straight quarters. The last time real wages went up was in June 2020 – and that was mostly due to the lockdown sending prices falling, rather than wages soaring:
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It doesn’t matter what industry you work in. Teachers got their regular wage rise in the March quarter but all wages in all other industries rose more slowly than prices. And since December 2020 no industry has had wages rise anywhere near the level of inflation:
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Real wages are now 5.4% below where they were before the pandemic, and the value of the average wage is back at the level it was 14 years ago in March 2009.
What does this mean?
Consider if, in March 2009, you were paid around the average wage of the time of $50,000. Since then, wages have risen 43%. So, if you kept that same job and got wage rises in line with the wage price index, you would now be paid $71,493.
Sweet.
But the problem is that, in that time, inflation has risen 43.3%.
In real terms your wage has fallen. Or, to put it another way, your current wage is equivalent to being paid $49,872 in March 2009:
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A person on this wage has lost about $2,700 in purchasing power since the start of the pandemic.
That is not nothing.
And so, while it is good that wages are now rising by closer to 4% than 3%, the reality is that wages are growing at the level they should be rising when inflation is less than 3%, not when it is 7%.
Inflation looks to be falling steadily and so perhaps by the start of next year real wages will begin to rise again. But the damage done over the past three years will take many years to repair.
• Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
