Why wage rises are barely keeping up with increases to cost of living

BUSINESSES are doing better and Australia’s economy appears to be picking up, so why aren’t workers benefiting?

DEBATE about the rising cost of living is hotting up as workers struggle to get payrises and Australians begin to question why they are still doing it so tough.

Despite signs of an improving economy, many Australians don’t seem to be feeling the benefits.

And protests like the Sydney train strike planned for Monday — which has now been called off — may become more common as Aussies become more unhappy about their pay and conditions.

One of the figures that experts have been concerned about for a while now is the one for wages growth, which has remained around 2 per cent.

If you consider the CPI (consumer price index) was 1.8 per cent, it shows the rising prices of goods and services were barely covered by the increase in wages.

But the other thing to remember is that not everyone would have received a 2 per cent jump in their wages in the past year as this figure is an average.

And while CPI is 1.8 per cent, this figure does not fully reflect the increase in housing prices, which has skyrocketed in some areas. The cost of some goods and services included in the CPI figure can also impact people differently.

Australia Institute senior economist Matt Grudnoff told news.com.au that the cost of utilities like electricity or gas for example had increased dramatically, which impacts people on lower incomes more as this cost takes up a higher percentage of their incomes.

Other things like the cost of holidays or overseas travel have come down but this is unlikely to help people who couldn’t afford to go away in the first place.

“The reality is that the difference between how much wages are going up, and how much CPI is going up is almost identical, which means that for large parts of the population, their costs are going up faster than wages,” Mr Grudnoff said.

It’s a situation that has many economists stumped as many were expecting wages to grow more quickly.

Mr Grudnoff said there was no real reason why wages were so low and he believes the undermining of workers’ ability to demand a pay rise has contributed.

“The increase in casual, part-time work, what they call ‘precarious work’ has made it easier for workers to be fired and harder to negotiate a pay rise,” he said.

“So when the economy picks up it flows into profit and not wages.”

Mr Grudnoff said businesses had too much power now compared to workers and changes needed to be made.

“Certainly businesses are very profitable at the moment ... and this should flow to wages and it’s simply not,” he said.

This week it was revealed that thousands of workers in the retail, media, mining, transport and rental industries were locked into agreements for pay rises that would fall below inflation in the next two years.

According to Fairfax, Qantas flight attendants have signed a wage agreement for pay rises of just 1.8 per cent a year, and Ikea employees have agreed to rises of just 1 per cent.

Mr Grudnoff believes changes needed to be made to encourage more permanent full-time work and to give unions more power so they can get better agreements.

“Historically there has been times when unions have been too powerful and I’m not proposing radical change, but the pendulum needs to swing back,” he said.

It’s a problem that the Reserve Bank Governor Philip Lowe has even noted.

“More firms are reporting that economic conditions have improved and more are now prepared to take a risk and invest in new assets. This is good news for the economy,” Mr Lowe said during a speech in November.

“Businesses feel better than they have for some time, but consumers feel weighed down by weak income growth and high debt levels.”

Mr Lowe said unemployment was still a factor but increased competition from globalisation and technology was also contributing.

“This shift, together with changes in the nature of work and bargaining arrangements, mean that many workers feel like they have less bargaining power than they once did,” he said.

Increased competition may also be discouraging businesses from increasing wages because they have a “laser-like focus on containing costs”.

Many Aussies are doing it tough as costs keep rising but wages struggle to keep up.

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