Australia: Wages continue to underperform the labour market - Westpac

Justin Smirk, Research Analyst at Westpac, notes that wages continue to underperform the labour market and suggests that any minimum wage increase boost will be seen in Q3 and the following quarters but unlikely to threaten a broader wages breakout.

Key Quotes

“Total hourly wages ex bonuses increased 0.5% in Q3, in line with expectations. It continues to hold just above the record low of 0.4% in 2016 Q4 which overall, a surprisingly soft outcome given the relative positive state of the Australian labour market. The annual rate was flat at a historical low of 1.9%yr.”

“Private sector wages grew just 0.4% taking the annual pace down to 1.8%yr from 1.9%yr. At three decimal places the quarterly rise is only just above the record low of 0.395% in Q3 2009 while the annual pace of 1.784% is a record low. Public sector wages grew 0.6%qtr holding the annual pace of public sector wage inflation around 2.4%yr which is a small lift from the 2016 Q3 record low of 2.3%yr.”

“It is true that the labour market is softer than what the more narrow measures, such as the unemployment rate, suggest. If you consider the broader measures, such as underemployment where a worker is willing and able to work more hours than they do, these indictors do point to a softer labour market that has coincided with a record low pace of wage growth.”

“Wages continue to underperform expectations relative to the performance of the broader economy. We suspect that it goes further than just the underemployment story even if this is an important factor. We have found that the sectors that are growing the fastest are also there sectors where labour supply has been most responsive via rising female participation. The fact we are seeing such an underperformance in NSW suggests something more structural may be occurring that is holding back wages.”

“With low inflation expectations and on-going job insecurity there has been a meaningful shift in bargaining power to employers. As such, outside the boost from the lift in the minimum wage, we believe that wages will continue to underperform as we head into 2018.”