Simon Murray, Research Analyst at Westpac, notes that Australia’s total hourly wages ex bonuses rose by 0.5% in Q3, below Westpac''s and the market's expectations of 0.7% and is in line with the persistently low range of 0.4-0.6% despite an above normal increase in the minimum wage of 3.3% effective in Q3.
Key Quotes
“Annual wages growth is at 2.0%yr from 1.9%yr, still near historic lows. The soft result would come as a surprise to the market and the RBA, and portends a continuation of the subdued wages environment.”
“The 2017-18 Fair Work Commission’s annual wage review decision saw a 3.3% increase in the national minimum wage and minimum wages across all awards, effective July 1. This compares to the previous year’s 2.4% rise, when there was also a lower proportion of workers on award wages. The minimum wage rise would also have indirect effects with roughly a fifth of employees having their wage linked to the award through their individual or collective agreements. However, the timing of that effect is uncertain and may still show up in coming quarters. We estimate that the minimum wage rise has a net effect of around 0.2ppts.”
“Looking at the WPI breakdown, the private sector rose by 0.5%, taking the annual pace up to 1.9%yr from 1.8%yr, while the public sector also rose 0.5%, holding at 2.4%yr. Public sector wages growth has been tracking above the private sector for some time.”
“As has been the case for some time, subdued wage growth is reflecting slack in the labour market. However the solid job gains through Q2 and Q3 have seen the unemployment rate drop to 5.5%. That is still above estimates of full employment of around 5.0%, and there is also additional slack of those who are employed but would like more hours. Yet coming quarters will prove a test as to whether wages will respond to the tighter labour market.”
“Evidence from other developed economies that are at or close to full employment has showed a fairly muted wages response. This could be because of ongoing structural factors weighing on wages growth such as globalisation, technological change, and the behavioural effect that has on workers who are concerned about job security.”
“So, it would appear that the lift from the minimum wage was offset by softness in broader wages growth. We estimate that wage growth may have been 0.3-0.4% without the minimum wage effect. This indicates a weaker starting point for wages, with the debate centring on how it picks up from here. We see the risk that wages growth remains weak, while the RBA is more optimistic, looking for a gradual pick-up.”
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