A wager on job security best bet for future earnings
Conditions are, of course, different in every workplace, but official figures show wages are now growing at their slowest pace in several years. Economists think that as the labour market weakens further during the next year or so, this could be a taste of things to come.
According to the Bureau of Statistics, wage growth in the year to March was the slowest since the global financial crisis, at 2.9 per cent. Workers at the Holden plant in South Australia have even agreed to a wage freeze in order to keep their jobs, though this reflects specific challenges in the car-manufacturing industry.
It's a far cry from just a couple of years ago, when employers were complaining about skills shortages pushing up pay packets to unsustainable levels.
Why is the outlook for wages so bleak?
For one, many employers are looking to cut costs at a time of economic weakness. Wages are an obvious place to start.
In the public sector, government departments and big employers are under pressure to cut their budgets as tax revenue comes under pressure. A host of industries undergoing painful "structural change" - such as retail, the media and financial services - are also under pressure to be leaner.
At the other end of the spectrum, the source of the most extravagant wage growth in recent years, the resources boom, is slowing. This drags down average wage growth. But it's not just a question of employers being tight-fisted.
Workers themselves also appear less strident in their wage demands because they are less confident about their own employment situation.
Reflecting this pessimism, a Westpac index of unemployment expectations is at its highest level since 2009. When many of us are so gloomy about our own work prospects, hanging on to our existing job is often a higher priority than demanding a raise. Another factor is the low rate of inflation. For all the politicians' talk of cost-of-living pressures, many households' daily expenses are increasing quite slowly, or even falling.
The consumer price index rose by just 0.4 per cent in the June quarter, or 2.4 per cent in the preceding year. Surveys also show consumers, unionists and businesses are expecting inflation to remain tame.
Reserve Bank economists reckon such slow growth in prices has a two-pronged effect on wages. First, it tends to moderate workers' wage demands. Second, it makes businesses reluctant to make big pay rises because the prices they're receiving are rising so slowly.
So unless you've got an especially compelling case for a big pay rise, now might not be the best time to demand one.
Wage price index
Frequently Asked Questions about this Article…
Official figures show wage growth slowed to 2.9% in the year to March—the weakest pace since the global financial crisis. The article says this reflects employers cutting costs amid economic weakness, public-sector budget pressure, structural change in industries like retail, media and financial services, and a slowdown in the resources boom. Workers are also less confident about job prospects, which dampens wage demands.
The consumer price index rose just 0.4% in the June quarter (2.4% year‑on‑year). Reserve Bank economists note that tame inflation both moderates workers' wage demands and makes businesses reluctant to grant large pay rises because the prices they receive are rising slowly.
The Bureau of Statistics data showing the slowest wage growth in years suggests many workers should not expect big across‑the‑board pay increases at present. Individual outcomes will vary by workplace, but the overall trend points to modest pay growth unless there are strong, job‑specific reasons for higher pay.
Surveys and the Westpac unemployment expectations index—at its highest level since 2009—show workers are more pessimistic about job security. When people fear losing their jobs, they tend to prioritise keeping work over pushing hard for big raises, which dampens overall wage pressure.
Yes. The article highlights the car‑manufacturing sector (example: Holden workers accepting a wage freeze) and mentions industries undergoing structural change—retail, media and financial services—as being under pressure to become leaner. The slowing resources boom is also reducing the high wages that boosted averages in recent years.
With wages rising slowly and inflation relatively tame, many households' daily expenses are increasing only modestly or even falling. That combination can restrain growth in consumer spending, since income growth is limited for many households.
Based on the article, investors can monitor official wage growth data from the Bureau of Statistics, CPI inflation readings, commentary from the Reserve Bank, and sentiment indicators like the Westpac unemployment expectations index. These help signal whether wage pressure and consumer demand are likely to pick up or remain subdued.
The article suggests caution: unless you have an especially compelling case (strong performance, hard‑to‑replace skills, or market demand in your niche), now may not be the best time to demand a large pay rise because of weak wage growth, cautious employers and low inflation.
Call 1300 880 160
Start a chat
Schedule a call
