Institute of Certified Bookkeepers

On a variety of measures, wage growth is low, but this is not unexpected given the wage increases observed during 2005–2010. Regional mining areas have experienced faster wage growth, but wage growth has now slowed in both mining and non-mining regions. Notably, wage growth has been fairly similar across capital cities and regional areas, although the level of wages is higher in the capital cities.

The key driver of wage growth over the long-term is productivity and inflation expectations. Generally, consumer and producer prices would be expected to grow together in the long-term, so the real producer wage and real consumer wage would also grow together. Consumer and producer prices diverged during the mining investment boom due to strong rises in commodity export prices. The unwinding of the mining investment boom and spare capacity in the labour market are important business cycle factors that are currently weighing on wage growth.

It is unclear whether these business cycle factors can explain all of the weakness in wage growth. Many advanced economies are also experiencing subdued wage growth. In particular, labour productivity growth has slowed in many economies. However, weaker labour productivity growth seems unlikely to be a cause of the current period of slow wage growth in Australia. Over the past five years, labour productivity in Australia has grown at around its 30-year average annual growth rate.

It is difficult to draw firm conclusions on the effect of structural factors on wage growth, given they have been occurring over a long timeframe and global low-wage growth is a more recent phenomenon. Three key trends are the increasing rates of part-time employment, growth in employment in the services industries, and a gradual decline in the share of routine jobs, both manual and cognitive, and a corresponding rise in non-routine jobs.

Both business cycle and structural factors can affect growth in real wages and labour productivity, so such factors can also affect the labour share of income. Changes in the labour share of income occur as a result of relative growth in the real producer wage and labour productivity. Since the early 1990s, the labour share of income has remained fairly stable. Nonetheless, different factors have placed both upward and downward pressure on the labour share of income.

  • 26th November, 2018
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