Wages have been slow to rise… but that could be about to change.
There are two forces converging on the outlook for wages, both set to push Aussie earnings higher.
This has been one of the puzzles of recent years. The economy has been strong, unemployment has been low… so why haven’t wages been growing more quickly?
Actually, why haven’t they been growing at all? On the whole, wages have been flat for a few years now.
This is important for the property outlook. It’s income that determines serviceability, and it’s serviceability that determines house prices.
And personally, I’ve been waiting for this piston to fire for a while now.
Anyway, there’s two big trends forming that might finally put the spark in the chamber.
The first is that you can only keep pressure on a pressure cooker for so long. My guess is that workers have been made timid buy the increasing casualization of the workforce (record numbers of people are holding down two jobs), and high levels of immigration, which adds a lot of people to the labour pool, many of whom are coming from a relatively weak bargaining position.
These factors have made workers on the whole less aggressive than they might otherwise have been.
But there’s a sense that workers might be waking up to the economic reality.
That’s the RBA’s sense of it. They reckon the market is totally ignoring the risk of a break out of wage inflation. From the AFR:
Reserve Bank assistant governor Chris Kent says bond markets are underestimating the risk of wages growth stoking higher inflation, as long-term Australian bond rates fall towards historically low levels.
Dr Kent said low bond rates that did not compensate investors for the risk of inflation were not only an “Australian phenomenon”.
“What we have had here is a gradual pick-up in inflation while unemployment rates have moved to quite low levels in NSW and Victoria,” he said.
It may be true that the RBA is just ‘jawboning’ the market here – trying to talk up the prospect of inflation – but even if that is true, having such a prominent institution saying that workers should go harder is probably going to have some effect.
“Rise up Comrades!”
The other force here is the prospect of a Federal Labor Government.
Credit Suisse were warning last week that a Shorten government could result in ‘cascading’ wage increases. From The Canberra Times:
“We believe the ALP’s package of employment and industrial relations policy reform would represent a transformative shift in the bargaining power of labour in Australia with cascading implications across the whole of the listed market”…
“Our assessment of ALP’s policies indicates a potentially transformative shift in the bargaining power of labour, leading to a rise in the labour share of GDP over and above cyclical dynamics and cascading impacts across corporate Australia”…
The policy changes will lead to wages growth that will particularly impact on construction support services, hospitality, healthcare, agriculture and retail…
Federal Labor has pledged to restore penalty rates for some workers, crack down on sham contracting and labour hire regulation to ensure those workers are paid the same as directly employed staff doing the same job…
I mean, you could probably put that in the folder of “Well, duh” economic analysis, since Shorten and co. are being pretty explicitly about increasing the lot of workers. But still, it’s not to be ignored.
And put these two together, with workers being cheered on by both the RBA and by the Federal Government, then you’ve have something close to a perfect storm.
And that’s the thing about a wages break out – it can happen pretty quickly. Once one industry scores some big wage gains, neighbouring sectors in the economy will pretty quickly start to want their share too.
And as the wage pulse spreads through the economy, house prices will drive higher as a result.
Not now, and not this year given the lags on these things. But by 2020… maybe.