Wage growth slows to lowest rate in decade: Why interest rates could stay low

The growth in Australian average wages has slowed, in some sectors to the lowest rate since 2000, as the mining boom tapers off and the new government puts the squeeze on public servants.

According to the RBA’s Statement on Monetary Policy released yesterday, wages in the June quarter rose 0.7%, bringing yearly wage growth to 2.9%.

This is 0.75% below the average annual growth over the past decade, and while it’s been led by declines in mining and the public service, the slowdown has been broad based.

“Over the year to the June quarter, wage growth was below its decade average in all industries and the dispersion in wage growth across industries was at its lowest level since at least 1998,” the RBA said in its report.

“Wage growth in the mining industry has slowed particularly sharply since the beginning of the year, consistent with the decline in the demand for labour in that industry.

“Wage growth in the business services sector (which accounts for around one-fifth of total employment) has also declined markedly, in part reflecting the decline in mining-related demand for business services, and has accounted for a large part of the slowing in aggregate wage growth over the past year.”

Wage growth slowed in all Australian states over the year. In New South Wales, Queensland and Tasmania, wage growth is the slowest it’s been since the early 2000s.

James Morley, a macroeconomist at the University of New South Wales, says slowing wage growth feeds into the RBA’s views about likely future inflation, and makes them less likely to raise interest rates.

But on its own, this isn’t necessarily good news for business, he tells SmartCompany.

“Over the past decade, wages have grown faster than inflation. You would expect that in a growing economy where workers are becoming more productive. 

“The basic economic theory is that wage growth is related to productivity growth. So when you see declining wages, you could worry that it would reflect declining productivity growth, which isn’t good for anyone.

“That means real wages going up isn’t always a bad thing,” he says.

“But if it reflects inflation rather than productivity growth, that is a bad thing.”


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