How goes that wage-price spiral that the Reserve Bank of Australia, its departing governor Philip Lowe, The Australian Financial Review’s journalists and innumerable op-ed contributors — not to mention most business groups — have been running around for a year or more shrieking about?
It doesn’t exist. It never existed. And we got still more confirmation of that from the wage price index (WPI) for the June quarter, released yesterday.
The WPI rose 0.8% in the June quarter (the third quarter in a row in which it rose 0.8%), and 3.6% over the 2022-23 financial year. This means that with the consumer price index running at 6% in the same period, workers’ wages fell by 2.4% in real terms through the year.
Wage-price spiral? We wish. Far from selfishly driving inflation with their demands for wage rises, workers are going backwards at a rate of knots. It helps explain the weak retail sales figures and the weakening sales and profit performances for June 30 reporting retailers such as JB Hi-Fi, Harvey Norman, Temple & Webster and others. When it comes to retailers whingeing about having to pay workers a decent wage, what goes around comes around.
The 3.6% annual rate in the June quarter — down a touch from the 3.7% in the year to March — was well below what workers were getting back when Wayne Swan was treasurer. That’s when unemployment was over 5% and the Aussie dollar was at parity with the greenback, strangling investment and exports. It adds to the growing belief that wage growth not merely isn’t spiralling upwards, but has peaked. Talk about five minutes of economic sunshine.
Private sector wages also grew 0.8% over the June quarter for annual growth of 3.8% — again in line with March quarter 2023. Public sector wages rose 0.7% over the quarter — the annual growth there of 3.1% was the highest recorded for the sector since March quarter 2013 and should bring a smile to the dial of Lowe, who for so long pleaded with governments to give public sector workers a decent pay rise.
Interestingly, the Australian Bureau of Statistics (ABS) said that award-driven rises (by unions) didn’t play a part in the June quarter increase — individual pay rises again dominated, followed by enterprise agreements. It was the second June quarter in a row that union-driven wage rises didn’t occur, another nail in the coffin of the wage-price spiral myth.
Construction, where a government stimulus-led boom is giving way to a much lower level of activity, saw the strongest quarterly and annual growth — 1.3% and 3.9% respectively. Manufacturing and transport also saw solid gains. But no major private industry sector reached higher than 4.2% annual growth, despite inflation.
You wouldn’t think the ABS had produced such low wage growth numbers if you believed Australian Industry Group (Ai Group). The result “appears likely to understate the ongoing build-up of wage pressures”, warned Ai Group head (and industrial relations “reform” advocate) Innes Willox.
Willox will always speak from the perspective of employers eager to slash wages, but presumably we would get more sensible observations from the RBA? Well, the minutes of this month’s board meeting were also out yesterday. The board’s thoughts on wages?
Turning to wages, members noted that timely indicators of wages growth were steady at around 3.5% to 4% in the June quarter. Wages growth — as measured by the wage price index — was expected to increase in the second half of 2023 because of ongoing tightness in the labour market, increases in award and minimum wages, and developments in public sector wages.
The RBA board is still desperately looking for that wage-price spiral — when the only spiral workers are on is the one reducing their purchasing power.
It’s interesting that there is weaker growth on discressionary spending (harvey norman et al). Presumably, as real wages decrease and essential services like groceries, fuel and travel continue to pursue maximum profits by gouging their customers, there is less in the consumer’s wallet to spend on non-essential items and this is driving profits lower for companies like harvey norman. I wonder if at some point the big end of town will turn against each other.
The track record of the big end of town would suggest that those who make it up are economically illiterate.
I never ceased to be amazed at the mental image I have of the blokes (yes blokes) sitting around the table at a meeting of the Business Council and not recognising that the employees of the bloke sitting next to them are their own customers.
I think the spiral comes from CEOs salaries because they sure have spiralled upwards so much 55 everyday workers could be paid for a year on their year’s salary.
Given the domination of individual pay rises in the figure – I think it would be interesting to have the figure broken down by wage bracket. Generally lower paid workers don’t have the bargaining power to secure larger pay rates – so wouldn’t be surprised to learn that the low wage growth that there is – is predominently at the ‘top end’ of town.
All agreed, that’s why we need to urgently reign in migration to stop adding to labour supply.
Yes- and further confirmation of the appalling failure, neglect and disregard by a key Australian Institution; The Reserve Bank of Australia. Further evidence of the damage done by following the Neo-liberal ideology that is still all powerful. There really needs to be a Royal Commission!
No, that’s an old myth or trope of the 19thC for the top people, but simply not true according to economic research
‘Immigration is not to blame for cuts to jobs and wages…. evidence from Australia and internationally shows that immigration actually creates jobs… William Foster’s surveys over 200 studies on immigration and wages. He found there was, “a marginally favourable effect on the aggregate unemployment rate, even in recession”. (Solidarity, 9 Aug ’12).
Ageing and demographic decline in permanent population have been constraining labour supply for over a decade, since passing the ‘demographic sweet spot’ when baby boomer cohort mid point was reached on transition to retirement; appears to be largely over estimated by inclusion of temporary residents with restricted work rights,in the estimated resident population?
No, that’s an old myth or trope of the 19thC for the top people, but simply not true according to economic research
‘Immigration is not to blame for cuts to jobs and wages…. evidence from Australia and internationally shows that immigration actually creates jobs… William Foster’s surveys over 200 studies on immigration and wages. He found there was, “a marginally favourable effect on the aggregate unemployment rate, even in recession”. (Solidarity, 9 Aug ’12).
Our working age passed ‘the demographic sweet spot’ over a decade ago….like all western economies.
Our working age has been ageing and in decline ….like all western economies
Nah, Labour, like housing, doesn’t follow the laws of supply and demand.
Yep, the wage-price spiral and the “we’ve got to keep wage growth within normal parameters” that Lucky Phil keeps trotting out has been shown to be the load of rubbish it usually is but watch the next head in line to the RBA Chairman throne to say similar. Really, the whole Board should be marched to Long Bay (and Long Tan for that matter). Lies is all they tell and that thing, Craig Chung, that some silly people on this forum thought had a chance of unseating Mins in Kogarah (which Chris held with a 16% swing in his favour as I predicted), was spouting the same similar lies and diatribe on the Drum yesterday on your ABC.
Wages have had nothing to do with inflation since at least the 1980s and probably not since the 1970s. The RBA Board and their mates in the AFR and the other odious business lobby groups won’t be satisfied until we have unemployment over 10%, standard variable mortgage rates also at 10% and wage level growth with a 2 or at best a 3 and a decimal point in front of it.