22 August 2018
Bob Cunneen, Senior Economist and Portfolio Specialist
Australia’s nominal wages growth has been weak over recent years. Wages are growing at only a 2.1% annual rate currently (blue line). This slow wages growth reflects a combination of factors. Australia has struggled with elevated unemployment and underemployment rates. There are also the long-term challenges of globalisation and technology. These local and global factors have combined to generate job insecurity which has curtailed Australian wages growth.
The US economy has also faced this slow train on wages (red line). After the calamitous collapse in the US housing market with unemployment surging to 10% in early 2009, US wages growth stagnated until 2014. However with stronger jobs growth and the US unemployment rate falling to 4%, US wages growth has started to accelerate in recent years.
There are similar promising signs for Australian wages. Recent strong employment growth has seen Australia’s unemployment rate grind lower to 5.3%. There is diminishing ‘spare capacity’ as the unemployment rate approaches the Reserve Bank of Australia’s estimate of full employment at circa 5%. So higher wages growth is becoming more likely for the Australian workforce as the labour market progressively give employees more bargaining power.
This communication is provided by MLC Investments Limited (ABN 30 002 641 661, AFSL 230705) (“MLC”), a member of the National Australia Bank Limited (ABN 12 004 044 937, AFSL 230686) group of companies (“NAB Group”), 105–153 Miller Street, North Sydney 2060. An investment with MLC does not represent a deposit or liability of, and is not guaranteed by, the NAB Group. The information in this communication may constitute general advice. It has been prepared without taking account of individual objectives, financial situation or needs and because of that you should, before acting on the advice, consider the appropriateness of the advice having regard to your personal objectives, financial situation and needs. MLC believes that the information contained in this communication is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of this information (which may change without notice). MLC relies on third parties to provide certain information and is not responsible for its accuracy, nor is MLC liable for any loss arising from a person relying on information provided by third parties. Past performance is not a reliable indicator of future performance. This information is directed to and prepared for Australian residents only. MLC may use the services of NAB Group companies where it makes good business sense to do so and will benefit customers. Amounts paid for these services are always negotiated on an arm’s length basis.