Back in the 1980s, we were obsessed with the current account deficit. Every quarter, the deficit would be the subject of national self-flagellation. We’ve long stopped worrying about it — various things like foreign debt and productivity have replaced as national sackcloth-and-ashes rationales, but for a while it was a big thing.
Paul Keating used to argue that the government’s reforms and budget discipline would turn around the deepening deficit graph, which would thus turn into a “J”. A cartoonist at one point had the current account deficit going off its wall chart, down the wall, and through a hole in the floor. Keating stood over the hole, with binoculars, peering down. “I swear it’s a J!” he was saying.
[Company profits boom while regular Aussies suffer record-low wage growth]
Policymakers have lately been talking optimistically of a J on wages growth, with long-stagnant wages thought to have turned the corner. A rise in wages in the June quarter in Tuesday’s business indicators data had some commentators spotting the long-awaited change in direction. Treasurer Scott Morrison has been saying wages will come good real soon. Reserve Bank governor Phil Lowe — having released a corporate plan recently that identified wages growth as a concern of the Bank’s, said in a speech on Tuesday night:
“My expectation is that this is going to continue for a while yet, given that the structural factors at work are likely to persist. But I am optimistic enough that I don’t see it as a permanent state of affairs. It is likely that, as our economy strengthens and the demand for labour picks up, growth in wages will pick up too. The laws of supply and demand still work. Even at the moment, we see some evidence through our liaison program that in those pockets where the demand for labour is strong, wages are increasing a bit more quickly than they have for some time.”
Translation: I swear it’s a J!
Well, let’s hope so. But yesterday’s national accounts numbers, however, suggested the upward curve is a way off. Average compensation of employees (a broad measure of wages) fell 0.1% in the quarter, and is just 0.1% higher over the year — weaker than growth in the wage price index of 1.9% in the year to June. National Australia Bank said yesterday this suggested compositional shifts towards lower paying jobs continues, even though the number of employees rose by 100,000 in the quarter and 240,000 in the year to June. The wages share of income rose a little to 51.9% after hitting an eight-year low of 51.4% last quarter.
[Aussie workers’ stagnant wages loom as a major threat to the Turnbull government]
Scott Morrison continued yesterday to say that wages growth would be restored when company profits rise — a line he’s been using since June. It didn’t make any sense then and it doesn’t make any more now: company profits have been strong in recent quarters, but workers haven’t seen any benefit.
In the US they are fretting (like we are) over low wage growth and low inflation — the latter is running at 1.4% on the Fed’s favoured measure, below its 2% target for close to five years now (ours is 1.5%, below the RBA’s target of 2% to 3% over time). US wage growth is averaging 2.5% (down from 2.8% at the start of the year, despite the creation of well over 1.5 million jobs so far this year.
If we had wages growth of 2.5% a year, there would be joy in the RBA and federal Treasury. It’s only a few years since, when Julia Gillard was prime minister and Wayne Swan was treasurer, workers enjoyed 4% wages growth. Even if it’s a J, it’s not to going to make life any easier for ordinary households.
Not if employer groups have their way. Pearson from the ACCI was on The Business tonight reciting why they can’t – “however much they’d love too”.
I’d like to know how much productivity can be cranked up each time such reviews come up? …. Eventually one person will be doing 10 people’s work – for one person’s pay?