Economic Update: Wage growth

In this week’s economic note Ai Group’s economics team steps through the latest official data released for Australia. For Australian businesses, the most interesting data out this past week was the quarterly Wage Price Index data from the Australian Bureau of Statistics.

Wage growth has slowed across the economy steadily over the past year, with wages growing by 2.6 per cent in June, the slowest growth since 1997.  The private sector, in particular, has experienced slower wage growth, rising by 2.4 per cent, while public sector wages grew by 2.8 per cent.

Most sectors have seen a deceleration in wages in recent quarters, though particularly construction, manufacturing, utilities, wholesale trade and rental & real estate services sectors. Most states experienced slower wage growth, though South Australia’s private sector experienced surprisingly strong growth of 3.1 per cent over the past year.

Slowing wage growth reflects the softer state of the labour market. We have also seen soft employment growth over the past year of 0.9 annual growth, which is not enough to absorb new entrants into the labour market. As a consequence the unemployment rate has risen, up to 6.4 per cent in July, its highest level since 2002.

The Reserve Bank has noted that the soft labour market poses a risk to the economic outlook. But they have also noted that slow wage growth is working to keep inflation pressures down, which means they can leave official interest rates at the historic low of 2.5 per cent for some time yet. In fact a period of slow wage growth, together with a pick-up in productivity, would help Australian businesses regain cost competitiveness after years of high input cost pressures and sustained high dollar.


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Pip Freebairn
Pip joined Ai Group as a Senior Policy Adviser in 2013. She has broad experience covering economics and public policy, having worked as an economist for the Reserve Bank and Macquarie Bank, as a journalist at the Australian Financial Review in the Canberra Press Gallery, as well as advising a Federal Treasurer. She has a first-class honours degree in Economics and an Arts degree from UNSW.
Pip Freebairn

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