The pace of Australian wages growth slowed to new record lows in the September quarter reflecting the full effects of the pandemic on the labour market. A further slowing in wages growth occurred in both the private and public sectors in response to wage freezes and deferrals of earlier agreed increases, as well as temporary cuts in some cases.
Wage Price Index — Q3 | By the numbers- The headline WPI (total hourly rates of pay ex-bonuses) slowed by more than expected to 0.07%q/q in Q3 (consensus was 0.2%) from a 0.22%q/q pace in the June quarter.
- Annual growth decelerated from 1.82% to 1.36%, again coming in weaker than the consensus estimate (1.5%).
Wage Price Index — Q3 | The details
Total wages growth stepped lower again in the September quarter to new record lows in the quarterly (0.07%) and annual paces (1.36%). In the June quarter, public sector wages only softened modestly (from 0.59% to 0.51%), but a more pronounced slowdown occurred in Q3 to 0.22%, reflecting the impact of deferrals and freezes by several governments. Annual growth in public sector wages slowed from 2.07% to a record low of 1.77%. Private sector wages were steady on the quarter at the very weak pace of 0.08% — this after the sharp slowdown in Q2 from 0.53%q/q to 0.08%q/q — as the pace over the year was dragged down from 1.68% to 1.21%, also a record low. The RBA has recently reported that its liaison program found that a rising share of firms had responded to the pandemic by implementing wage freezes with many more planning on doing so over the year ahead. This has had a significant impact on private sector wages growth in particular. On top of this is the significant level of spare capacity available after the upheaval that occurred in the labour market as the economy was placed into shutdown.
Wages growth was already very subdued before the pandemic emerged and it has since fallen sharply from there. The slowdown has been broadly based across the economy in a range of industries, but the deceleration has been most pronounced in services-related industries that have been hit hard by the restrictions on activity. To highlight the point, wages growth in the accommodation and food services industry was running a little above 2%Y/Y as of a year ago but is now currently just rising at 0.46%Y/Y. Meanwhile, wages growth in professional services has reduced to 0.76%Y/Y from 2.5% over the period, with this reflecting the impact of wage freezes and according to the RBA's liaison program temporary wage cuts in some cases. There are two industries which have seen wages growth pick up from its pace a year ago and this has occurred in education and training (2.41% from 2.09%) and finance and insurance (2.39% from 2.13%). Remarkably, wages growth is now sub 1% in annual terms in 7 of the 18 measured industries and emphasises the extent of the dislocation that has occurred in the labour market and the process of adjustment underway as displaced workers move between industries for new opportunities.
A summary of the state details is shown in the table, below. Private sector wages growth was better in the September quarter rebounding in New South Wales (0.6% from 0.0% in Q2), Queensland (0.6% from -0.2%) and Tasmania (0.5% from -0.1%) and lifting more modestly in the other states. But, almost everywhere you look, annual private sector wages growth in annual terms has slowed to record lows (see chart, below). It was a mixed picture across the states in the public sector in Q3 with the quarterly pace slowing in Victoria (0.2% from 0.6%), South Australia (0.5% from 0.9%) and Tasmania (0.5% from 1.2%), but rising in the others; New South Wales (0.4% from 0.1%), Queensland (0.6% from 0.4%) and Western Australia (0.4% from 0.1%).
Wage Price Index — Q3 | Insights
Today's report shows this is likely to be an economy where wages growth will be struggling to get to even pre-pandemic levels for some time. Indeed, that is the scenario the RBA's is expecting, with its current forecasts showing wages growth only improving to 1.75% by the end of 2022. Significant policy support from both the fiscal and monetary authorities will continue to be left in place until the labour market is able to cast aside the legacies of this pandemic.