Australians suffering with no pay rises despite record unemployment

The conditions for wages growth are ideal – yet so many Australians aren’t seeing their salaries rise. And it looks set to get even worse.

So far, 2023 has seen the situation facing Australian households riddled with contradictions.

On one hand the nation’s unemployment rate is sitting near its lowest level in almost 50 years. On the other, households are going backwards in inflation adjusted terms at the fastest rate in decades.

In this, Australia’s wage growth pressures are no different, with many factors pointing to what should be absolutely rocketing wages growth, yet in reality wages growth is running at just 3.1 per cent – the same level it was when unemployment was 5.6 per cent way back in March, 2013.

Yet despite Aussie wages growth performing more poorly than a large number of its developed world counterparts, this may be as good as underlying conditions are going to get for workers looking for a pay rise.

To explore this issue in a bit more depth, we’ll be looking at a number of different indicators on how the labour market is fairing and also how it could change going into the future.

The immigration factor

According to the 2022-23 budget papers, the forecast for net overseas migration for 2022-23 was 180,000 people. In 2023-2024 it was expected that the figure would rise to 213,000 and then remain steady at 235,000 people per year until 2032-2033.

But according to immigration expert and former Immigration Department deputy secretary, Abul Rizvi, a figure of 300,000 was more likely for 2022-23. If this scenario is to be realised, it would mark the largest increase in Australian history.

In a speech on the nation’s labour market in July last year, RBA Governor Philip Lowe concluded that high immigration was partly responsible for years of low wages growth and allowed businesses to avoid properly training their staff.

“In my view, this is one of the factors that has contributed to wages being less sensitive to shifts in demand than was once the case,” Lowe said

With net overseas migration to rise far and above the levels Governor Lowe and the RBA concluded were “diluting” wages growth pressures, the window of ideal conditions for Aussie workers to ask for a larger pay rise is slowly closing.

Historical wages growth

Between the tail end of the effects of the mining boom in late 2013 and the start of the pandemic, wages growth bounced around between 1.9 per cent and 2.7 per cent, a relatively anaemic level given the gains seen during the mining boom and the decades prior.

Between March 2012 and March 2020, wages grew by just 3.1 per cent inflation adjusted terms. The weakest level of inflation adjusted wages growth over such an extensive period since freely comparable records began in the early 1970s.

To put this figure into perspective, between September 2006 and June 2008, inflation adjusted wages grew by 4.0 per cent.

This level of inflation adjusted wages growth was not an uncommon occurrence in decades passed. During the 1980s and 1990s, there were years where 3 per cent wages growth was achieved, which took the economy almost a decade to create prior to the pandemic.

If one casts their gaze back to the early 1970s inflation shock, there were points where wages growth was running in double digits, as illustrated by the graph from the RBA below.

The labour market

According to data from the ABS, there are over 444,000 job vacancies currently available in Australia, 94.9 per cent more than in February 2020, prior to the start of the pandemic.

While the number of job vacancies has fallen significantly since peaking in May 2022, an average of only a little over 6000 job vacancies are being shed each month.

If we were to extrapolate the current rate of job vacancies are falling into the future, it would be October 2025 before they reached a level consistent with a neutral labour market under pre-Covid conditions.

In terms of the proportion of businesses reporting a job opening, a post pandemic record high 27.7 per cent have a vacancy for a new employee.

Putting it all together

As things stand today, they are arguably as good as it’s going to get for the Aussie labour market, bar some sort of re-run of the mining boom. The unemployment rate is at its lowest level since comparable records began in the mid-1970s, job vacancies remain extremely high at almost double the level recorded prior to Covid and the hangover of closed borders remains a factor impacting the labour market.

However, as immigration ramps up, loosening labour market conditions and storm clouds brew on the horizon for the global economy, the time of ideal conditions for Aussie workers is slowly heading for its curtain call.

All that being said, it’s worth noting that despite the Aussie labour market having a long list of tail winds at its back, so far it has only managed to achieve a relatively weak 3.1 per cent rate of wages growth.

In the United States, the Atlanta branch of the Federal Reserve noted that wages growth peaked at 6.3 per cent. In Britain, earnings growth topped out at 7 per cent. While in Japan, a nation too often defined by its weak wages growth, annual wages growth recently hit 4.1 per cent.

Compared with Australia’s rivals in the rest of the developed world, it is hardly confidence inspiring.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator