Let’s talk about pay. Been getting pretty good rises of late? Well, some people have. But if your pay increases have been small and far between, you’re in good company. And I have some good news. Well, not so much good news as not-as-bad-as-it-could-be news.
In recent times people in our financial markets – including the banks – have been predicting that the Reserve Bank will start raising its official interest rate within a few months and, once it starts, there’ll be more increases in quick succession.
The media have been reporting these predictions with great enthusiasm, almost implying they’re a certainty. The financial types are so confident because interest rates really are about to rise in America, and they save on research time by assuming anything the Americans do, we’ll do a few months later.
The Americans have had a lot of price rises lately and, thanks partly to their Great Resignation, also seen strong growth in wage rates. When prices rise a lot and this flows through to higher wages, that’s when you do have a problem with ongoing inflation – a “wage-price spiral”.
But here’s the thing. We’ve had a smaller rise in prices but, so far, little rise in wages. (We’ll see on Wednesday, with the publication of the Bureau of Statistics’ wage price index, how much that changed in the three months to December.)
And Reserve Bank governor Dr Philip Lowe has said repeatedly that he won’t be raising interest rates until he sees that the rise in prices is also reflected in wage rises. As he put it in his recent parliamentary testimony, “the higher interest rates will be occurring in an environment where people have stronger wages growth and jobs”.
So the banks’ predictions about rising interest rates imply that most workers will be getting a pay rise of 3 per cent or so this year. Find that hard to believe?
According to the wage price index, wage rises have averaged 2 per cent a year over the past six years. And, as you remember, businesses and governments were quick to impose wage freezes when the pandemic began in 2020.
A move to 3 per cent rises is always possible of course but, given recent history, I’ll believe it when I see it. And Lowe’s also waiting for the evidence. As he puts it, “is the stronger labour market going to translate to higher wages?”
The fad of assuming that whatever happens in America also happens here has led some to talk about our own Great Resignation. It’s not true.
In the US, many workers have simply given up working or looking for work. Some are staying home to care for family, some to avoid the plague, some because the upheaval has caused them to re-evaluate their lives.
“Especially if you were working in a low-wage job, you probably thought that the risk [of infection] was not worth the return,” Lowe says. Older Americans were “leaving the workforce in droves”.
But whereas the proportion of working-age people who are in the US labour force has fallen heavily – thus requiring employers to offer higher wages to attract the workers they need – this hasn’t happened here. Our rate of people “participating” in the labour force has returned to its record level pre-pandemic.
Which is just one sign of how much “tighter” our jobs market has become. We have 270,000 more people in jobs than we did before the pandemic, and both unemployment and underemployment are at 13-year lows, while the number of job vacancies is at a record high. (Our closed borders to skilled workers, backpackers and overseas students have helped in this, of course.)
This tight market is the main reason the econocrats are hoping it won’t be long before employers are obliged to start offering higher pay rates to get – poach – the workers they need.
When that happens, it will be a new experience for a lot of employers, many of whom have got into the habit of thinking their profitability comes from keeping wage costs as low as possible.
In the old days, the unions and the regulated wage-fixing system could be relied on to ensure that wages kept up with rising prices – plus a bit more to ensure living standards kept rising. Not any more.
These days, few workers belong to unions, and it’s not hard for employers to stop engaging in enterprise bargaining. And, as we’re seeing with the NSW government’s resistance to its transport workers’ wage claim, workers don’t get much sympathy from conservative governments.
These days, if you want a pay rise you have to get it yourself. Although we haven’t had a Great Resignation, the econocrats say we have had a significant increase in workers willing to change jobs for higher pay. We’ve also had employers agreeing to move workers to a higher pay grade.
The top econocrats hope that by keeping the job market tight they’ll finally crack the wages dam, getting the latest generation of employers used to the frightening idea than their workers are entitled to decent pay rises. Good luck, guys.
