Governor of the Reserve Bank of Australia, Philip Lowe.

While Reserve Bank governor Philip Lowe was verballed somewhat by The Australian on wages, the fact that anyone is talking about progress on wages growth reveals how extraordinarily out of touch they are with ordinary workers.

The narrative from both the government and the Reserve Bank, reflecting neoliberal orthodoxy, is that wages growth will return as strong jobs growth tightens the labour market. They’ve persistently rejected the notion that repeated and decades long industrial relations “reform” to reduce the bargaining power of workers and unions, and growing market concentration and the power that has delivered corporations at the expense of workers and consumers, has permanently undermined wages growth. It’s therefore crucial that the long period of wage stagnation endured by workers be declared over as soon as possible.

Given stubbornly low rates of wages growth, the latest response to this challenge is, seemingly, to define the problem away. “The latest data suggest that the rate of wages growth has now troughed, with a pick-up evident in the most recent quarter. A further lift is expected, but it is likely to be only gradual,” Lowe said in a speech yesterday. “The most recent data show slightly stronger growth in wages in all states. This is a positive development.”

This was beat up in The Australian to “the Reserve Bank governor has declared the wage rise drought over,” which is not at all accurate. But both the beat-up and Lowe’s actual remarks are misleadingly positive. Let’s look at how private sector wages have fared in recent years, since nearly all of the growth in the most recent wage price index data came in public sector wages and specifically healthcare and education, and in the Victorian public service. 

From financial years 2011 to 2013, the wage price index for private workers was well over 3% per annum. High inflation in 2011 (3.5%) undercut most of that, but inflation fell in 2012, handing workers a 2.5% real wage rise. The following year, inflation rose again, cutting real growth to 0.9%. Thereafter, wage growth began falling: 2.5% in 2014, 2.4% in 2015, 2% in 2016.

Luckily, CPI, which was high enough in 2014 to actually cut real wages by 0.5%, fell after that and was low enough that workers eked out a ~1% real wage rise in 2015 and 2016. But in financial year 2017, wage growth fell to 1.8%, below CPI of 1.9%. And in the two quarters since then for which we have data, real wage growth has evened out at exactly zero. Indeed, real wages have fallen for private sector workers in three of the last five quarters and since September 2016 have fallen by a net 0.1%.

That is, private sector wages have been getting worse, not better, in recent quarters.

It may be true that growth has “troughed”, as Lowe says. But even the low real wages growth of 2015 and 2016 now seems an ambitious goal — workers luxuriating in a massive 1% real growth! Sure, it’s better than going backwards, but it’s not going to do much for the impression the economy is still working in the interests of corporations and the wealthy, not ordinary people.

On the monetary policy front, Lowe was even more circumspect, and he re-used his description of wage growth: “gradual”.

“[F]urther progress in lowering unemployment and having inflation return to the midpoint of the target zone is expected to be only gradual,” he said. “And, given the structural forces also at work, we expect the pick-up in wages growth and inflation to be only gradual … (and), because the progress is expected to be only gradual.”

Just to make sure no one missed the point, he used “gradual” six times through the speech. On that basis, “the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.” That’s unlikely to stop the alarmists ramping up “rate rise looms” headlines, but it tells us we’ll probably be waiting until 2019 for the looming to turn into reality.

Lowe’s other comment was that it’s been so long since a rate rise (seven years, and probably eight before we reach the point where one is justified) that it “will come as a shock to some people.” We’re a society (and a media) that struggles to remember more than five minutes ago, so he has a fair point. But hopefully Lowe’s forecast “gradual” escape from the wages trough is significantly further advanced than a lousy 1% wages growth by then.