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The Guardian - AU
The Guardian - AU
Business
Greg Jericho

Wages are finally on the way up, but there’s a long way to go before workers feel relief

office workers
‘A 1.3% quarterly increase should not be all the surprising or concerning for the RBA, given public-sector wages have lagged behind that of the private sector.’ Photograph: Bloomberg/Getty Images

The good news is real wages are finally going up – and not by so much that the Reserve Bank should be worried that it needs to once again raise interest rates.

Last September there was a big 1.3% jump in wages. If you had just looked at that period in isolation, you would have thought the mythical wage breakout was about to occur and the RBA would be off to the races raising rates higher and higher.

But in December overall wages grew by a much more moderate 0.95% and private-sector wages rose just 0.88%.

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The reason wage growth in December was even that large was due to the biggest jump in public-sector wages since 2008.

But even that 1.3% quarterly increase should not be all the surprising or concerning for the RBA, given over the past three years public-sector wages have lagged behind that of the private sector.

After years of enduring arbitrary wage caps, public-sector workers are seeking some redress.

But while there has been a jump, in a majority of states and territories, the wage growth in the public sector lags well behind – especially in South Australia and the ACT with its mostly commonwealth public servants:

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While the annual growth of all wages continues to rise – now up to 4.2% – private-sector wage growth looks like it has peaked:

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This accords with the most recent wage growth figures from the Fair Work Commission for enterprise agreements. After solid increases in the middle of last year, wage growth in agreements has stayed around 4.2% since October:

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It all suggests that concern wages are about to drive inflation and thus interest rates higher rather overblown.

Wages are actually growing quite sensibly and finally (finally!) they are growing faster than inflation.

It is often forgotten amid all the talk about “excess demand” and “wage-price inflation” that wages should grow faster than inflation. It’s a key to improved living standards.

And yet for the past few years that has not happened. However, in 2023 inflation rose 4.05% while the wage price index rose 4.2%. That means for the first time since March 2021 people’s wages are higher in real terms now than they were a year ago.

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While that is good news, it’s such small growth that it’s likely people’s real after-tax wage did not go up.

Similarly, while wages rose faster than total inflation, they rose by less than the prices of non-discretionary items. Because low- and middle-income earners spend more of their income on those essential items, it means they are also less likely to have seen an increase in their ability to buy more with their pay.

As it stands, we have a very long way to recover our lost real wages. This recent increase only puts the level of real wages back to where they were in September 2011:

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It also means that the average wage still buys about 5% less than it did in March 2020.

While the RBA has continued to talk up the stock of household savings that is helping bolster spending (and thus demand), for those households who rely overwhelmingly on their wages, the past three years have been historically brutal.

The good news is the recent stronger wage growth is pretty widespread. Last year the wage growth in around half of all industries was faster than inflation, but wage growth in all industries remain a long way behind the increase in prices since the start of the pandemic:

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And while the news of wages rising faster than inflation will be welcome to workers, businesses and employers will be less impressed given the many efforts they undertake to keep wages down.

One tactic they use involves forcing workers to sign “non-compete” clauses that prevents workers from leaving one job and going to work for a competitor. This keeps wages down because it means people can’t leave one place and go elsewhere for better pay.

New data from the ABS shows that more than one in five businesses have such non-compete clauses, and the bigger the business the more likely it has such a contract in place.

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While such contracts make sense for, say, CEOs of a grocery company, they make no sense for someone who just works in the store. And yet the ABS found that such restraints – including non-disclosure clauses – cover 68% of upper-level managers or executives, but applied to 75% of other employees.

Such clauses mean big businesses don’t need to worry about a competitor raising wages to poach their best workers.

It’s a good reminder that, just as recent inquiries have found, businesses don’t like to compete to keep prices down, they also don’t like competing with each other to send wages up.

  • Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work

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