Wage Rise

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Australia's seasonally adjusted wage growth has increased 2.3 percent over the year, according to The Australian Wage Price Index (WPI) released by the ABS for the September quarter. 
Many were predicting a wage growth in the early two percent region, with a quarterly increase of around 0.6 percent.
ABS chief economist Bruce Hockman said seasonally adjusted, private sector wages rose 2.1 per cent and public sector wages grew 2.5 per cent, through the year to September quarter 2018.
"There was a higher rate of wage growth recorded across the majority of industries in comparison to this time last year, reflecting the influence of improved labour market conditions," Hockman said.
"Annual wage growth at the Australia level was 2.3%, the highest growth rate since September quarter 2015."
Economist Stephen Koukoulas tweeted his disappointment after the ABS release, suggesting there was no material pick up.
"Yet another really soggy wages result, unfortunately," he wrote.
"With no minimum wage increase in next three quarters it looks like annual wages growth will revert to the 2 to 2.25 percent range."
ABC business reporter David Taylor was quick to highlight the lack of real growth, suggesting that the ABS are talking up the latest annual wage rise.
He tweeted that at 2.3 percent, the growth rate is now clearly ahead of inflation at 1.9 percent, so "most Aussie's are not going backwards," but added it is "still damn hard to get a pay rise in the private sector."
Annual growth to the September quarter ranged from 1.8 percent for the mining and retail trade industries to 2.8 per cent for the health care and social assistance industry.
Western Australia recorded the lowest through the year wage growth of 1.8 per cent while Tasmania recorded the highest of 2.6 per cent. 
The Reserve Bank will have had all eyes on the announcement, with a wage growth rise a key driver in speeding up GDP growth, which they've ambitiously forecast to hit 3.5 percent by December.
RBA assistant governor Guy Debelle said the RBA are anticipating wage growth will continue to pick up gradually as the unemployment rate declines and the adjustment following the end of the mining boom is close to runnings its course.
"Around one-quarter of all employees will have received a 3.5 percent pay rise following the increase in national minimum and award wages on July 1," Debelle said.
"For some retail and public sector employees, we are also seeing some new enterprise bargaining agreements signed following a lengthy period where wages had been frozen."
Debelle suggested that the slow wage growth over recent years can be attributed somewhat to workers reluctance to leave their jobs and go after a better paying job.
"One of the factors contributing to this is the low level of voluntary job turnover. Workers tend to choose to leave their job for a better job – be it in conditions or pay," he said.
"The fact that little of this is occurring is likely to be contributing to the subdued wages growth."
"Some firms are attempting to retain staff by using non-wage incentives, including flexible work arrangements, shares, subsidised gym memberships, development opportunities and additional annual leave."
"Over the past few years, there has been a large increase in vacancies but only a small decline in the unemployment rate to date," he said.
IFM Investors chief economist Alex Joiner called the wage growth release "right on expectations."
"Notable from the ABS that all types of wages growth were better in these data, EBAs, awards and individual arrangements - seemingly a positive for at least solid outcomes to keep coming in the next few quarters - assuming the labour market holds up," he tweeted.
Westpac's David Goodman said that despite the growth being muted, in annual terms at least wages are heading in the right direction.
Paul Bloxham, chief economist at HSBC, told the Australian Financial Review that a positive swing in wage growth would be encouraging for the RBA. 
He said if wages improve, and continue to do so over the coming months, there’s no doubt that the RBA could consider raising rates as early as mid-2019.
 
 
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Muted wages growth leaves RBA on interest rate rise wait and see

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<img src="https://counter.theconversation.edu.au/content/75625/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
The Fair Work Commission is considering whether to increase Australia’s minimum wage.
The Australian Council of Trade Unions is arguing for a A$45-a-week rise. Industry, arguing that currently business has limited ability to afford wages increases, wants the increase capped at 1.5 percent (closer to $10 a week).
While I suspect most people immediately focus on wages as a cost of production for business, it’s worth clarifying precisely what economic roles wages play. There is more than one.
Indeed, wages are certainly a cost. More precisely, their significance for business as a cost is as one component of something economists call “real unit labour cost”.
This is the cost of employing a person in terms of the value of the goods and services a business would produce. Crudely put, this means the proportion of the value of a day’s production that would be needed to pay for a day’s labour. This depends on two things.
Two key influences: productivity and real wages
The first is the real wage – the purchasing power of the worker’s pay packet, which brings into play prices of goods and services. The second is the productivity of the worker – how much the worker produces over a given time.
The real cost of employing a person over time depends on how these two things change. If productivity is growing, then the real wage can grow without an increase in the real cost of labour for business.
But a couple of other economic considerations are relevant when assessing the economic impact of changes in the worker’s wage. The first is that productivity also depends on investment. Changes in technology that allow for greater productivity are often embodied in the new plant and equipment that firms invest in.
Yet what governs investment? This is an age-old question in economics, and perhaps one of the least agreed areas within the profession. But any stab at this question would conceivably point to the expected rate of return on the investment relative to the so-called cost of capital. An economist would typically measure the cost of capital by reference to interest rates, among other things.
However, the rate of return is critically dependent on how much demand there is for the goods and services produced by the new plant and equipment the business invests in.
There is also a competitive imperative which links demand growth and investment. Maintaining market share requires a business to be able to respond to growing demand. Optimally, this requires increasing capacity and thus undertaking investment.
Wages growth and investment
But demand growth varies with spending power and the income that flows to the population, a significant portion of which comes from wages. In other words, wages have a flipside. They’re not just a cost of production; they’re also a source of spending and thus of revenue and profit for business.
This is an important point in economics, specifically about how what we see at the micro level does not automatically replicate itself for the economy as a whole. Looked at from the perspective of a single business, wages appear as a cost. But to only look at things this way is inadequate if you are interested in the impact of changes in wages on the overall economy. For that you also have to consider wages as income and a source of demand.
Expectations about future demand growth are presumably as critical to the investment decision for firms as are expectations about factors such as taxes on business income.
A reduction in business taxation may well increase prospective after-tax rates of return on investment. But, as already mentioned, this assumes people with income to spend are ready to buy the output produced with newly installed plant and equipment.
Looked at from this angle, one could argue that growth in demand and in turn wages growth will be required to warrant producers undertaking investment and in turn the kind of changes to production that underpin productivity growth.
One can go a little further. Assuming a government’s intention is to wind back its contribution to demand in the economy (via government spending) through what is euphemistically termed “fiscal consolidation”, and assuming our trade is not significantly changing, a certain real wage growth is required to generate sufficient growth in demand to warrant sustained investment and productivity growth.
It’s the flipside to this scenario that is worrying. To the extent that increasing profitability through increased productivity is not shared in the form of increased real wages, the economy faces the danger of its productive capacity growing faster than demand. This kind of danger was highlighted long ago by the noted Italian economist Luigi Pasinetti.
In this scenario the profit of each unit of output may increase initially as productivity grows, but demand does not keep pace, in which case the increase in profitability is likely to be short-lived. More worrying in this case is that employment growth suffers and consequently the unemployment rate is likely to rise.
Some economists would counter that real wages would fall in order to absorb any increased unemployment, though this claim has always been contentious.
It supposes that unfettered markets will always provide demand for whatever amounts of goods and services are produced – in itself a controversial position in economics.
Of course, none of this deals with the moral or ethical imperative of a minimum wage which ensures a liveable real wage. Rather, the point here is that, quite aside from the moral or ethical case, there are economic arguments to be had for ensuring an appropriate rate of growth of real wages.
Graham White, associate professor, School of Economics, University of Sydney and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/graham-white-8139" target="_blank">here</a>.
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Wage Rise

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