A wager on job security best bet for future earnings

Hanging out for a big fat pay rise? If the economy-wide statistics are any guide, don't bank on a huge increase right now.

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