These are incredibly dynamic economic times. As anyone who’s picked up a newspaper or turned on the television this year would be aware, interest rates are being aggressively increased in an attempt to control rampant inflation. Meanwhile, Australia’s unemployment rate is at a remarkable 48 year low of 3.5 per cent. There is now almost one job for every jobseeker, which is quite an amazing statistic.
So the expectation would be that this kind of incredible employment demand would be rapidly pushing up wages right? Well, not really. Economics can often be counter-intuitive and there are so many factors at play right now.
So what’s happening with wage growth?
Wages are actually growing and have been for a while. The problem is that so is inflation, so people aren’t generally feeling a large difference in their pocket.
Real wage growth (wage growth that factors in inflation) is still not looking great. On Sunday night, Treasurer Jim Chalmers said “We’ve still got real wages falling quite substantially. We want to see those wages growing in a sustainable way. And that means by making the economy more productive, so that there are lots of win-wins for employers and employees and we get living standards up.”
So why are interest rates being rapidly increased?
According to a new article in The Guardian, a report from progressive thinktank the Australia Institute identified rising corporate profits as a key factor driving inflation growth. The report stated that wages had “no contribution” to inflation and contributed just 0.6% to inflation in this current financial year.
Meanwhile, overseas supply bottlenecks (caused by the pandemic) and an increase in oil and gas prices (driven by the war in Ukraine) have significantly driven up prices.
So to recap, we’ve got an environment of very low unemployment, high corporate profits, supply chain issues driving up cost of goods and low real wage growth.
The significant pace of inflation growth means that Australian workers will have to wait a little longer to see a genuine increase in wages, even despite the very low unemployment rate.
However, at an individual level (and depending on industry), employees can choose to use the leverage of the tight labour market to drive for a salary increase.