When Nick Howson ends his nursing shift at western Sydney’s Cumberland hospital, it can sometimes be a gamble to make the one-hour drive home before his car runs out of fuel.
“You’re always doing that stupid thing where you stretch it – can I drive while the [fuel] lights are blinking for another day?” Howson says. “There’s always a bit of a joke at work when you’re coming up towards payday, and everybody checks their balance to see who’s got the lowest. I continuously win that one.”
The 36-year-old father of two toddlers earns about $39.65 an hour, or roughly the national median salary for permanent male employees. Despite serving in a healthcare industry that’s been stretched to breaking point, Howson’s wages aren’t keeping up with inflation, including petrol prices which shot up a third last year.
“There’s this entire sector that has kept the rest of the state functioning for two years,” he says. “We’ve literally given our blood, sweat and tears and we just get nothing – nothing except more angst and to be told to deal with it.”
The economy is supposedly heading towards its lowest unemployment rate since 1974 if the joblessness rate drops below 4% as expected by the Reserve Bank of Australia in the second half of 2022. But if the past decade is any guide, a tighter labour market is no guarantee of higher incomes for workers like Howson whose 2.5% wage rise fell short of inflation.
The disconnect is a problem the RBA governor, Philip Lowe, recognises as he mulls how long to wait for wage growth to quicken so it at least outpaces prices before he and the central bank’s board start to lift the official cash rate from its record low 0.1%.
“[T]he pickup in aggregate wages growth is likely to be only gradual, reflecting slow growth in public sector wages and the inertia resulting from multi-year enterprise agreements,” the RBA said in its quarter monetary policy statement released last Friday. “Most employers in the bank’s liaison program are not anticipating wages growth to move beyond the 2 to 3% range this year [while CPI is forecast at 3.25%].”
The December quarter wage price index is not due out until 23 February. In the September quarter, private wages were up 2.4% from a year earlier but those in the public sector “remained subdued at 1.7%, as public sector wages policies continued to weigh on outcomes”, the RBA said.
That a falling jobless rate isn’t automatically translating into higher wages is no surprise to Jim Stanford, the director of the Centre for Future Work, who says that hasn’t been the case since about 2013.
In a recent paper, Stanford argued the jobless rate itself is a poor guide to the tightness of the labour market. The ABS counted 574,400 as unemployed in December but if you count the 1 million people who want to work more hours than they did and those “marginally attached” workers who would like to work but are not actively seeking it, the actual tally swells to more like 2.5 million, he said.
That larger pool is one reason why the so-called Non-Accelerating Inflation Rate of Unemployment (NAIRU), below which wage growth is meant to accelerate, has been overestimated. Once it was thought to be 7%, then 6%, then 5% and now sub-4%.
“That magical point, when workers will finally get their share is always just around the corner,” he says, adding the idea wages are set by demand and supply and productivity is “absolutely bankrupt”.
“There is no reason to believe that there’s any magical unemployment rate at which workers will automatically be paid according to the productivity because wages are not determined by supply and demand,” Stanford says. “They’re determined by power.”
Evidence of that power imbalance abound. For instance, Stanford calculates that labour productivity has grown by about one-third since 2000 but wage rises have been only half as much.
One contributor to the weakening power of workers has been the drop in collective bargaining, particularly in the private sector, after 2013.
“The number of current enterprise agreements registered under the federal industrial relations system fell by more than half between end-2012 and 2021, from 23,500 agreements to 10,000,” Stanford says.
“And the number of workers covered by current agreements also plunged by one-third in the same period, from over 2.5 million to 1.6 million,” he says. “The decline was more severe in the private sector.”
Stanford blames the rise of insecure work – such as the gig economy – and policies that push for wage restraint for breaking the link between a low jobless rate and higher income for workers.
However, Andrew McKellar, the chief executive of the Australian Chamber of Commerce and Industry representing businesses, backs the existing arrangements.
“These policy settings reduce the volatility in the wages system and ensure sustainable wages growth that benefits all parties,” McKellar says.
“It is too early to tell if the relationship between wages growth and the jobless rate has been disrupted by the pandemic, or that we will see more significant wages pressure in the coming months.”
Nor are recovering businesses in a state to fork out for big pay rises.
“We cannot delude ourselves that if we have unrealistic wage demands not backed up by productivity, this will lead us into an unsustainable wage inflation price spiral,” McKellar says. “Then it’s straight back to the 1970s.”
Looming public sector industrial action, which often sets the wage pace for private firms, will soon test both the RBA’s models and state and federal budgets.
Howson’s union, the NSW Nurses and Midwives’ Association, has begun voting on whether to strike on 15 February.
Last year the union sought a 4.75% pay rise and got 2.5%, with about one-fifth of that from an increase in superannuation. Next year’s award increase is still to be set.
“Clearly, going backwards is where the wages policy is taking us, and there’s no recognition of what the extra efforts every single member in the public health system has made,” says Brett Holmes, the union’s general secretary.
Other unions are also lining up, such as teachers. In New South Wales, their wages agreement expired at the end of 2021 and the NSW Teachers Federation will decide on 19 February whether to ramp strike action.
The president of the teachers’ union, Angelo Gavrielatos, says the government’s proposed 2.04% a year increase is “well below current inflation rates”.
The Guardian approached the NSW government for comment.
The wages issue could feature prominently at the federal election.
The treasurer, Josh Frydenberg, said both Treasury and the RBA had upgraded their wages forecasts as economic activity rebounds faster than expected.
“We are already seeing the benefits of the tight labour market with a record number of people taking up new opportunities,” Frydenberg said. “Treasury analysis shows that on average, people switching jobs have seen pay increases of 8% to 10%, well above the rate of inflation.”
However, his Labor counterpart, Jim Chalmers said families were “finding it really tough at the moment” as the cost of essentials skyrockets.
“The usual relationship between lower unemployment and higher wages growth has been strained, if not broken, because we’ve got all this job insecurity,” Chalmers said.
