World Economy
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Australia Scores Badly on Jobs, Wages

There is above-average unemployment in the past few years.There is above-average unemployment in the past few years.

On Wednesday, the Australian Bureau of Statistics will take a break from census-related damage control and release its quarterly estimate of wage rates. Then on Thursday it will publish the monthly jobs figures.

Both sets of numbers are showing the effects of a run on economic growth that’s struggled to sustain a pace above what economists refer to as “trend”, AAP reported.

That’s the growth rate that can be sustained over time without driving the unemployment rate through either the roof or the floor.

Unemployment did fall last year, reaching 5.8% in November, from 6.3% a year before, in response to a spurt of economic growth months earlier.

That fall is significant: the difference represents more than half a million extra jobs. But since then, the jobless rate has flattened out—at last measure in June it was still 5.8%.

And that fall has not been enough to ramp up the rate of wages growth.

At last count, growth in average wage rates, excluding bonuses, was just 2.1%, the slowest since the bureau’s wage price index was begun in 2001.

Other longer-running measures of wages, like the average hourly earnings measure from the national accounts, suggest this pace of wage inflation is highly unusual outside of a full-blown recession.

The Reserve Bank has been puzzled by the slowness of wages growth—slower than might normally be expected even given the current lackluster rate of economic growth.

Explanations include above-average unemployment in the past few years, a structural decline in union bargaining power exacerbated by slow wage rises in the public sector, and a degree of labor market slack not captured in headline unemployment numbers.

And there’s what RBA researchers have referred to as “pent-up” adjustment to the earlier bout slow economic growth around the time of the 2008-09 global crisis.

Whatever the reason, it’s likely that for wages growth to get back on a faster growth track will require a marked pick up in jobs growth driven by a sustained period of economic growth significantly stronger than what we’ve seen recently.

And the July employment figures will be a reminder of how far the pace of job-creation has fallen below the rate needed to lift wages growth.

Financialtribune.com