What’s Really Causing Low Wage Growth in Australia and is it Likely to Change Anytime Soon?

Woman sitting nervously across the desk from her boss

When was the last time you had a pay rise? According to a recent poll commissioned by the Australian Council of Trade Unions, only one in five Australian workers received a cost of living pay increase in the past year. Even worse, almost half (47.6%) said they had no pay rise at all. Despite companies recording rising profits, workers aren’t seeing the fruits of their companies’ success.

As someone who pores over labour market data daily as part of his job, Indeed’s APAC Economist Callam Pickering has a pretty good idea of the key factors contributing to the ongoing stagnation of wage growth in Australia. I sat down with Callam to discuss his new report Australian Low Wage Growth: Was it Inevitable? and to get to the bottom of how commodities, the Global Financial Crisis (GFC), and unions have all played a part in how we got to where we are now.

What are the main factors that have contributed to low wage growth in Australia?

There are three main factors driving what’s happened to wages over the past five to ten years. First is the commodity price boom that went from 2003-2013. The second is the GFC beginning in 2008 and the impact that it eventually had on corporate performance and the third is the declining influence of unions.

The major point that really stands out to me is that a more flexible market helped wages to adjust during the economic downturn and that actually saved jobs and helped to contain the unemployment rate. So tens, maybe even hundreds of thousands of employees stayed in work as the economy deteriorated because wages were able to freely adjust.

The important point though, is as the economy improves, this reduction in bargaining power and reduced influence of unions is actually stopping wages from being able to pick up at the sort of rate we might have expected in previous economic upswings.

So we haven’t really been the ‘lucky country’ when it comes to wages then?

For a long time we were. Wage growth here was much stronger compared to other economies across the world. Over the past decade however, our fortunes have changed and wage growth has been quite weak, particularly over the past five years. After adjusting for inflation, Australian wages have barely changed, up just 0.1% a year throughout that period.

Australian wages have grown modestly graph

Which has had a greater impact on wage growth — commodity prices or corporate performance?

It’s difficult to disentangle the two factors, because the commodity price boom distorted the Australian labour market, pushing wages much higher than was probably justified given our productivity performance. Over time that undermined Australia’s corporate performance and when commodity prices collapsed in 2013, that put a lot of pressure on Australian businesses.

How have unions influenced the situation?

Over the past couple of decades we have seen an ongoing decline in the influence of unions across the labour market. The rate of unionisation has declined to 14.5% from 25% back in 2001. It seems to have reduced the bargaining power of many employers across various sectors of the economy. And according to RBA research, it’s likely to weigh upon wage growth going forward.

Callam discussing his research on a panel in Sydney

Chris Kohler (stage left), joined Callam Pickering, Nicki Hutley and Stephen Koukoulas in Sydney to discuss the findings of Callam’s report Australian Low Wage Growth: Was it Inevitable?

What should we expect of wage growth if underutilisation rates continue to fall?

We continue to see a decline in the rate of underutilisation across the economy which is good for wages going forward. The problem is, when we put all of these pieces together, it appears that wage growth in the future will be a lot lower than what we were accustomed to before the GFC—even as the labour market tightens. Ten or fifteen years ago, we quite regularly had wage growth of 4%. Today we might find it difficult to push wages above 3%.

Are any industries exempt from these stagnating wage increases?

Wage growth across every industry in Australia is below its decade average. Healthcare and education are leading the way, retail and mining are bringing up the rear, but there’s no individual industry that could be categorised as strong. There’s just varying levels of disappointment.

Will AI and the growing adoption of automation contribute to low wage growth?

The Australian experience is quite interesting. Throughout the commodity price boom, wage gains actually exceeded productivity which is part of the problem that arose. Wages became so high compared to other advanced economies across the world that it was just very difficult for Australian companies to compete.

Over the past five years, wage growth has been highly anchored to productivity growth, which is one of the ways that Australian businesses have managed to become a little bit more competitive against their global peers. Going forward this seems likely to continue, partly because Australian businesses need to continue to improve their competitiveness and partly because of automation, new machines and technology, and AI which are all likely to put downward pressure on wages going forward.

Has the increase in part time jobs and more flexible working arrangements contributed to our current situation?

It’s likely. Around 45% of employment growth over the last five years has been in part time occupations and 43% of employment growth has been in jobs that have no leave entitlements. These workers are often poorly paid, working in insecure conditions so they’re poorly positioned to negotiate for higher wages. They’re often easy pickings for a hard-nosed employer.

What was your first job?

It was at a local pizza place when I was 15. I did a particularly poor job and I didn’t last very long. My first real job that I kept for a long time was a volunteer position. I worked with kids with disabilities, which I did all through university. Some of it was paid work which allowed me to pay my way through uni.

Do you remember what you were paid at the pizza place?

Around $10 an hour.

Were you in a position to negotiate a pay rate?

I can assure you I didn’t last long enough to negotiate wages!

Do you have any conversation starters for people wanting to broach the topic of a pay rise with their manager?

One thing that employees can do when they’re looking to negotiate higher wages is have a look at all the facts available. Understand how your productivity has changed over time, what you’re doing better. Try to justify the wage increase to your employers. That seems to be a sensible way of approaching it.

In the current Australian market though, another way of approaching it is to look at changing jobs. Employment growth has been strong over the past couple of years, businesses are employing and looking for new staff, so there is that opportunity to change jobs to get a higher wage if your current employer isn’t willing to play ball.

Keen to know more? Read Callam Pickering’s full report, Australian Low Wage Growth: Was it Inevitable?

Callam Pickering is an economist at the Indeed Hiring Lab with a focus on Australia.

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