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Category: Economic Trends / Industrial Relations / Work

Haven't had a pay rise in a while? You're not alone

Wednesday, 16 Nov 2016 08:50:33 | Michael Janda

Private sector wages grew at 1.9 per cent, public sector pay at 2.3 per cent. (Giulio Saggin, file photo: ABC News)

Wage growth has hit a fresh record low below 2 per cent, with workers across all industries seeing pay increases that barely match the rising cost of living.

Key points:

  • Wages grow 1.9pc in private sector, 2.3pc in public sector over year to September 30
  • Mining the weakest (1pc), health care/social assistance strongest (2.4pc)
  • Economists hopeful wage growth will increase

The Bureau of Statistics Wage Price Index rose 0.4 per cent in the September quarter, seasonally adjusted, and was up just 1.9 per cent over the past year - a record low.

In fact, annual wages growth is exactly half of what it was around four years ago.

Public sector employees did a little better than their private sector counterparts, with a 2.3 per cent pay increase compared to 1.9 per cent.

However, the ABS said wage growth was weak across all sectors.

"Through the year wage growth is now below 2.5 per cent for all industries," they observed.

"In the September quarter 2016 wage growth ranged from 1 per cent for mining to 2.4 per cent for health care and social assistance."

The latest ABS Consumer Price Index put inflation at 1.3 per cent over the year to September.

The wage result was below the economist consensus forecast of 2 per cent, with UBS pointing out that growth was even weaker when bonuses were included.

Wage price index graph Photo: The wage price index is at its lowest since records began in the late 1990s. (Supplied: ABS, ANZ, Department of Employment, UBS)

"Notably, 'WPI including bonuses' also slumped more sharply than 'excluding bonuses', to a record low of just 1.7 per cent year-on-year (down from 2 per cent in the second quarter and 2.5 per cent in the first quarter)," the investment bank's economists pointed out.

"Overall, wage rates have been showing signs of stabilising – which led the RBA's SOMP [Statement on Monetary Policy] to highlight less concern about labour costs as a key factor for the (bottoming) inflation outlook.

"However, the broad-based downside surprise for third quarter WPI – especially the wage bill concept including bonuses – suggests a risk that there could still be some drag on the inflation outlook."

Wages 'one of the most important economic developments'

So concerned with slow wages growth are Australia's economic policymakers that the Reserve Bank and Bureau of Statistics have produced a special report explaining why wage increases have been so low.

There are two ways that employers can keep a lid on pay rates - delaying pay rises or giving smaller ones.

The ABS found they have used both methods.

"The average length of time between wage changes has risen from once every four quarters in 2012 to once every four-and-three-quarter quarters in 2016," the ABS noted.

"This fall in the average frequency could reflect more wage freezes or longer delays in renegotiating wage contracts.

"The average size of wage changes (conditional on a wage change) has fallen from 3.6 per cent in 2012 to 2.3 per cent in 2016 and is now well below its 2000s average."

Graph of frequency and size of wage increases Photo: Wage increases are rarer and smaller than ever recorded before. (Supplied: ABS, RBA)

The ABS said the declining size of pay rises has contributed more than two-thirds to the overall slowdown in wage growth.

The bureau also noted a steep decline in the proportion of large wage increases.

While annual pay rises above 4 per cent accounted for the biggest share of pay moves before the global financial crisis, wage increases of 2-3 per cent per annum are now most common place, with 0-2 per cent in second place.

Graph of wage changes by size Photo: The days of very large wage increases are over for now for most workers. (Supplied: ABS, RBA)

Not only that, but the ABS observed that many of the large wage increases used to be well above 4 per cent per annum.

"In addition to the declining share of wage changes that are larger than 4 per cent, the average size of those increases has fallen from 7.5 per cent in 2012 to 5.75 per cent in 2016, which has weighed on aggregate wage growth," the report noted.

"The declining share of 'large' rises has been apparent across all industries, though the shift has been largest in mining and the industries exposed to mining, such as construction and professional, scientific and technical services."

One positive result of this has been a much lower disparity between the wages growth of people employed across different professions.

However, rather than all boats being lifted by a rising tide, this is a case of most boats being left stuck on the mudflats as the resources boom tide recedes from Australia.

AustraliaPlus


 

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