Why aren’t Australian wages rising?

However, while the labor market is undoubtedly booming, Australian wage growth remains lackluster, rising just 2.35% in the year to March 2022, essentially bringing it down to lows. sluggish levels before the pandemic:

This weak wage growth is unusual given the strength of the labor market. Historically, a labor underutilization rate of 10% would be associated with annual wage growth of around 4%, as shown in the following chart (last observation in red):

Jim Stanford of the Center for Future Work argues that the usual “supply and demand” forces in wage-setting outcomes are broken due to “de-unionization, precarious work and deregulation of the wage-setting process [which] have shifted the balance of power away from the workers”. Besides, “entirely new company agreements, which set predetermined pay rates for years”have built inertia into the wage-setting process, as changes in supply and demand take years to be reflected in new agreements.

Another factor contributing to the weak wage growth is the 0.5% rise in the Mandatory Retirement Guarantee (SG) last July, which according to RBA and Grattan modeling would have subtracted about 0.4% (or 80 % increase) to wage growth. Given that the SG is supposed to increase by 0.5% every July 1 for the next four years, it will necessarily act as a constant headwind to wage growth.

Based on the factors above, Australian wage growth should continue to rise if the labor market remains tight. But it will also be well behind historical experience.

Australia also risks losing its wage momentum if mass immigration is revived or the economy is pushed into an unnecessary recession by an overly restrictive monetary policy.

Leith van Onselen is Chief Economist at MB Fund and MB Super. He is also chief economist and co-founder of MacroBusiness.
Leith previously worked at Australian Treasury, Victorian Treasury and Goldman Sachs.

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