What’s the go with wage growth in Australia?
A lot of people have asked me about this and my brother-in-law Lahiru asked if we could have a talk about the stagnation in wage growth and pay increases in Australia over the last few years. So I thought this would be a good share for everyone.
Focusing on an article by the Guardian, which was done on Monday, the 18th of January 2021 and effectively it talks about the bleak outlook for pay rises, and that Australians may have to wait up to five years for the return of 2% – 4% wage growth.
These are figures that were done by Deloitte and a grim forecast for wage growth all round. Effectively, labor and liberal have said that the days of 2% – 4% wage growth or over are gone. They’re citing weaknesses in growth and the economy and more recently, the damage that COVID has caused to the economy. COVID is also going to keep inflation bumping along the bottom for some time and inflation may hit rock bottom mid-2022.
So effectively, we might be looking at six to seven months away from rock bottom inflation, and the Reserve Bank’s comfort zone of inflation is around 2 to 3 percent, but this may not be until 2024. So why, why are we suffering with the slow wage growth?
There are a few different reasons. The ones we will talk about today are low productivity growth and a Slack labor market. Obviously, an unclear economic outlook from COVID is creating a lot of uncertainty, in terms of the outlook for longer term. We’ve got a decline in Union bargaining power, so there’s less people joining unions and less unions able to back wage growth and bargain for increases in wages.
We’ve had an increase in the monopoly of corporations and we’ve had a massive change in the labor market. With more full-time and part-time changing to casual and employees changing their working contracts. Looking at the wage growth of the G-20 countries we see that emerging markets are increasing against the G-20 countries. Specifically, countries like China, Taiwan, Korea, etc are increasing substantially but are coming off with a lower amount of wage growth and a different type of currency.
In terms of real wage index for the G-20 currencies. We’ve got Australia and Germany quite high towards the top of wage growth, whereas Italy and the United Kingdom are down towards the bottom on the G-20 countries. Do we see an increase in wages coming anytime soon? I don’t think so.
This is this is my personal opinion and should not be taken as advice. This is general advice only. But based on the facts and figures produced by Deloitte and the articles that we’ve been reading with the current economic outlook; I don’t see us getting back to 2 to 3 percent wage increases. And I daresay we’re not going to be hitting 4 to 5 percent like we used to see for a very long time.
How does that impact the general population? Well, it’s not stopping inflation in terms of the price of goods and the cost of living. So, we’re getting to a point where the cost of living is actually outpacing wage increases and has been for quite some time.
Part of the reason I think Lahiru brought this article to my attention was after a webinar that we hosted around retirement, and how much we need for retirement. Here is where the question was posed around the fact that if we don’t have wage growth, and inflation keeps outpacing wage growth. How are people going to retire? How are they going to afford to live?
On the longer term, obviously we’re going to have to have some sort of countermeasures. Wage growth will have to increase, or inflation will need to decrease. And that’s something obviously that the government and the Treasury are going to be working on in terms of the monetary policy. But as I said, we don’t see wage growth increasing anytime soon, because of those particular factors.
Hope you enjoyed having a read of this short and sweet article. Thank you Lahiru for the suggestion. Hope you guys have a good day.
We have some more articles coming your way around COVID and the changes to income protection. We’ve also done a couple recently on Australia’s stance on climate change and my thoughts on cryptocurrency. Have a look for those on our blog and let me know if there’s any other articles that you’re interested in.
Thank you – Chris
Got something you want me to write about? Shoot me an email on email@example.com or complete the form below.
Want to know more about how we can help you grow? Give me a call on 1300 449 584
Have you got a topic?
CB Wealth Australian Pty Ltd T/As HH Wealth is a Corporate Authorised Representative (No. 1283595) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339 384. Chris Holme is an Authorised Representative (No. 1004793) of Axies Pty Ltd ABN 38 136 704 446 AFSL No 339384.
Our Financial Services Guide (FSG) and Adviser Profile contains important information about Insight Investment Services Pty. Ltd., any authorisations and the services we provide. The following link will take you to an electronic copy of the FSG, if you would prefer to receive it another way please contact our office. FSG HERE>