Feeling poorer? Wage shocker as workers cop big cut in real incomes

For all the talk of a near-miraculous rebound in the economy this year before the current COVID outbreak, with unemployment reaching 5% and high hopes for a swift fall to the low 4s, it turns out workers weren’t sharing the joy.

Yesterday’s wage price index figure for the June quarter — before the east coast was plunged into its current protracted Delta nightmare, back when we were patting ourselves on the back about how quickly we’d recovered — was truly awful. It showed a 1.7% annual rise in the 2020-21 financial year.

OK, so it wasn’t flash, you might think — but awful? Well, inflation for the year was 3.8%, driven by what is expected — and certainly hoped — to be a temporary spike in prices. With wages growing at 1.7%, it means Australian workers’ real wages fell 2.1%. It was the largest cut in the purchasing power of their wages since the GST was introduced.

Using one of the Reserve Bank’s preferred inflation measures, the weighted median, real wages were completely flat for the year. But households don’t get to pay the weighted median price at supermarkets and petrol stations.

This wasn’t just about the impact of the pandemic and last year’s recession in the past 12 months. Wages grew by just 0.4% in the June quarter despite strong jobs growth, which meant workers went backwards in real terms by a full 0.4% during the June quarter.

The worst offenders weren’t private employers, but governments. Public sector wages growth over the year was just 1.3%. The ABS pointed out it was the lowest public sector growth rate since it started the series in the 1990s. That means public servant wages were 2.5% below inflation.

Despite the RBA constantly urging higher wages growth and pointing out that governments had significant power to lift wages growth via public sector pay, governments have instead cracked down on public service wages.

The Morrison government went further and decided to link public sector pay to private sector pay. This has led to a reduction in overall wages growth across the country at a time when the goal of both monetary and fiscal policy is to lift it. The self-defeating stupidity of governments’ hostility to public service wages growth is truly staggering — particularly when you remember many people in the public sector, such as health professionals and police, are on the front line dealing with COVID.

And funnily enough, don’t expect the federal government to offer public servants a catch-up so that public sector wages growth rises to the same level as private sector wages growth, which was 1.9% across the year. Much of the “rise” in public service wages came from catch-up payments after previous wage freezes were ended.

The June quarter results are likely to be the peak of wages growth until well into 2022, given the Berejiklian-Morrison disaster that is the current outbreak infecting Victoria, the ACT and now New Zealand and forcing lockdowns wherever the virus goes, in what is emerging as the greatest public policy disaster since the Iraq and Afghan wars. The NZ outbreak forced the Reserve Bank of NZ yesterday to abandon its planned interest rate rise — which would have been the first by a reputable central bank since the pandemic. Nice work, Gladys and Scott.

At 1.7%, the wage price index result is only a fraction behind the RBA estimate for June of 1.75%, but the worsening COVID situation and prospects of another recession over the final six months of 2021 mean the central bank can kiss goodbye to a surge in wages in 2022 through 2024 that would enable it to lift rates.

And we can’t vaccinate our way to wages growth. Under the most optimistic scenarios, COVID infections at “low” levels (by the standards of the US and UK) will be with us into 2022 and will inflict continuing disruption on the economy — especially if Morrison retains his hostility to vaccine mandates out of deference to extremists in his own ranks. As with so many other issues, it’s been left to business to show some leadership, with Qantas yesterday joining SPC in requiring its staff to be vaccinated.

That’s on top of the systemic downward pressure on wages growth that the RBA has discussed several times. Governor Philip Lowe has listed them: “Enterprise agreements that run for a number of years; a business mindset that is very focused on cost control; inflation expectations that are low; relatively high ongoing rates of underemployment.”

It’s not like business can’t pay — the current June 30 full year and interim reporting season is seeing a cascade of higher dividends and share buybacks from large corporations, many of whom have enjoyed windfall profits via JobKeeper that the Morrison government has no interest in even finding out about, let alone recouping.

The longer-term question is whether Australian workers will get their real wages back up to pre-pandemic levels before the late 2020s. It doesn’t look likely, thanks to government bloodymindedness and stupidity.