Chart of the week: A slow train is coming for Australian wages

22 August 2018

Bob Cunneen, Senior Economist and Portfolio Specialist

 

                                                   Source: Datastream 

Australia’s nominal wages growth has been weak over recent years. Wages are growing at only a 2.1% annual rate currently (blue line). This slow wages growth reflects a combination of factors. Australia has struggled with elevated unemployment and underemployment rates. There are also the long-term challenges of globalisation and technology. These local and global factors have combined to generate job insecurity which has curtailed Australian wages growth.

The US economy has also faced this slow train on wages (red line). After the calamitous collapse in the US housing market with unemployment surging to 10% in early 2009, US wages growth stagnated until 2014. However with stronger jobs growth and the US unemployment rate falling to 4%, US wages growth has started to accelerate in recent years.

There are similar promising signs for Australian wages. Recent strong employment growth has seen Australia’s unemployment rate grind lower to 5.3%. There is diminishing ‘spare capacity’ as the unemployment rate approaches the Reserve Bank of Australia’s estimate of full employment at circa 5%. So higher wages growth is becoming more likely for the Australian workforce as the labour market progressively give employees more bargaining power.

 Source : Nab assetmanagement August 2018 

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