Three years of stagnant wage growth. Don’t be surprised if people look for someone to blameThree years of stagnant wage growth. Don’t be surprised if people look for someone to blame
This week came the news that once again a record low has been set for wages growth. The wages price index in the past year rose by just 1.9% – a full percentage point below the level of growth that occurred when Australia was in the midst of the global financial crisis. It means that real wages have not grown at all for more than three years.
If you like records being broken, now is the most exciting time to look at economic data. The annual growth of wages in September of 1.9% was a new record low, breaking the old mark of 2.1% set only three months ago in June. It was the 16th consecutive fall in the growth of annual wages. The last time Australians wages grew faster than they had three months earlier was September 2012:
The new annual record low came off the back of another record low quarterly growth – just 0.4% in seasonally adjusted terms.
The private sector has now seen wages grow by less that 0.5% in seven consecutive quarters. Prior to this run, there had only been one quarter in the history of the wages price index below that level (during the GFC):
But while as a general rule public sector wages grow faster than the private sector, the public sector is also experiencing record low wages growth – just 2.3% in the past year:
The narrative around public sector wages is often rather skewed – as though we’re talking about bureaucrats getting fat off the taxpayers. At the moment there is a fair bit of dispute – literally so in some cases – over the federal government’s public sector bargaining policy. The drive to keep annual pay rises below 2% has seen some pay disputes last over three years.
The lack of pay rises for commonwealth public servants can be seen in the weak growth of public sector wages in the ACT. Unlike other states, the public sector of the ACT is dominated by those working for the Australian public service, rather than teachers, healthcare workers and other non-bureaucratic workers as is the case elsewhere.
The last time ACT public sector wages grew faster than that of private sector workers was March 2013. Over the past five years, wages for the private sector have risen by 13.6% compared to 12.4% for ACT public sector workers. Even going back 10 years, ACT public sector workers have had lower pay rises than that of private sector workers across the country – 34.9% compared to 36.2%:
The slowing growth of wages across the country is being driven by a couple of factors. Firstly, the mining industry is massively off the boil.
For just over 10 years from the middle of 2004, wages in the mining sector grew faster than everywhere else. But this situation reversed in the middle of last year:
And it wasn’t just that workers in the mining sector during the boom years were on average getting better pay raises than everyone else, they were also the source of the biggest pay rises.
A review of 18,000 different jobs by the RBA and the ABS found that in 2012, over 60% of mining sector pay rises were greater than 4% per annum; now it is less than 10%.
Such falls in the proportion of above average wage rises has occurred across all industries, and so too has the size of those large wage rises. In 2012 the average of wage rises above 4% was 7.5%, now it is 5.75%.
The biggest wage rises over the past year have come in the education and healthcare industries, and also rather surprisingly, the accommodation and food industry.
This is a surprise because, as a general rule, that industry usually sees the worst wages growth. Over the past 10 years, wages in that industry have increased just 31.6%, well below the national average of 37.1%.
A main driver of the increase in that industry is the 2.4% increase in the minimum wage handed down by the Fair Work Commission that came into effect on 1 July.
By contrast the mining sector is currently the worst performing industry for wage rises, and yet over the past 10 years it has been the best. But given in the past four years its workforce has shrunk by 20%, it is doubtful there are many workers who have been around for the full 10 years:
All up, the poor wages growth means that real wages continue to be flat.
When comparing wage growth to the RBA’s underlying inflation measure, real wages haven’t grown by any appreciable level for three years. They have done better when compared to the employee cost of living index, but this is mostly due to the impact of interest rate cuts, and as result can be a rather erratic measure:
Since 2002, real wages have gone through four stages – the mining-boom, the GFC-flatness, the post-GFC improvement, and then the now three year run of near stagnation:
As the US political system has shown, when real incomes stay flat, voters get angry. We’re now three years into a run of stagnant real wages, don’t be surprised if people start looking for someone to blame.
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