Australian workers experience the largest fall in real wages on record

Australian real wages are at a new low, despite a small but smaller-than-expected increase in the hourly rate for December.

The Australian Bureau of Statistics published the seasonally adjusted wage price index on Wednesday, which showed an increase of 0.8 percent in the December quarter, or 3.3 percent on a yearly basis.

But the real value of wages has fallen as inflation of 7.8 percent is well above wage growth, meaning the gap between wages and prices is now 4.5 percent.

ABS’s chief price statistician, Michelle Marquardt, said private sector wage growth during the quarter (0.8 percent) was slightly higher than that of the public sector (0.7 percent).

“However, it was higher than any December quarterly increase in the last decade,” Ms Marquardt said.

BIS Oxford Economics’ head of macro forecasters Sean Langcake said the WPI was below expectations, showing wage growth was not as bad as the RBA feared.

“These came in a bit weaker than expected, certainly both the market and the RBA expected them to be stronger,” Langcake said.

‘It’s still a fairly fast pace of wage growth, but it’s not a sign of the breakdown in wage growth that the RBA has been fearing and worrying about.

“Unfortunately, we just have to wait and see how things play out.”

Australia Institute chief economist Matt Grudnoff said this was “the biggest drop in real wages in Australian history”.

“Blaming workers for current inflation while experiencing unprecedented real wage declines and companies posting rising profits is economic manipulation of the highest order,” Grudnoff said.

‘These data show that fears of a ‘wage-price spiral’ similar to that of the 1970s are a speculative fantasy.

‘That story is now itself a risk to the Australian economy. Australians are not living in the 70s. We are falling behind on the cost of living in 2023.”

ACTU secretary Sally McManus said the figures showed wage growth was not the problem.

“This is the largest drop in real wages for workers in recorded history,” he said.

‘Clearly, wage growth is not contributing to inflation. Any wage increases in 2022 and early 2023 have been eaten up by price hikes and interest rate hikes.”

Employment Minister Tony Burke agreed.

“Wage growth isn’t the problem when it comes to inflation, it’s part of the solution to cost-of-living pressures,” Burke said.

“We don’t have an inflation challenge in our economy because wages are too high, but because of a war in Ukraine, pressure on global supply chains and other challenges in our own economy ignored for too long.

‘We are looking for wage growth that is strong and sustainable, and an economy that is more productive, competitive and inclusive.’

He said the industries with the highest growth for WPI in the December quarter were accommodation and food services, arts and recreation services and manufacturing.

Sean Langcake of BIS Oxford Economics said he does not think the latest wage growth means the RBA believes “their job is done”, forecasting further increases in the inflation rate over the next three months.

“They’re going to be worried until inflation is relatively down,” he said.

ABS data showed that private sector wage growth during the quarter (0.8 percent) was slightly higher than that of the public sector (0.7 percent).

Langcake said it was not “surprising” that the country posted its biggest annual growth in hourly wages in more than a decade.

‘The unemployment rate is the lowest in 40 years and has been for about six months; those things should go hand in hand,’ she said.

‘When the unemployment rate is really low, labor is very scarce and the market has to pay for it.

‘I think the labor market is really working as expected.

“Policymakers will really want to hedge against a world where people can expect a four or five percent rise in inflation.”