Real wages in Australia fall by fastest rate on record ahead of Jobs Summit

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Australian households are suffering under the sharpest decline in purchasing power on record as “sluggish” wages growth continues to lag behind skyrocketing prices for everyday essentials.

Official figures published on Wednesday revealed real wages fell 3.5% when measured against headline inflation in the June quarter — even worse than the March quarter plunge.

That’s because the Wage Price Index (WPI) rose just 2.6% annually, far behind the 6.1% inflation rate measured by the Australian Bureau of Statistics over the same period.

And while some economists cautioned that the WPI is a narrow measure of worker earnings, they said broader evidence also confirms households are facing a huge cost-of-living squeeze.

“What we’re seeing is an unprecedented decline in inflation-adjusted wages,” APAC Indeed economist Callam Pickering said.

“These cost-of-living pressures are real and they’re hitting households pretty hard.”

The latest fall in real wages will fuel calls for action to halt declining household purchasing power at the Albanese government’s jobs and skills summit next month, with unions already asking for an overhaul of Australia’s enterprise bargaining system.

There were, however, promising signs that wages growth will pick up later this year, with the average pay rise handed to private sector workers over the quarter reaching 3.8 per cent.

Real wages plunge

Wages growth adjusted for headline inflation has now declined for five quarters in a row, meaning the purchasing power of many households has been sliding for well over a year.

Wages growth measured against underlying inflation (a less volatile measure) fell 2.3%.

In overall terms the June quarter WPI was the strongest in eight years, but economists were hoping it would be slightly higher (and closer to inflation) because the jobless rate is now so low that most businesses are struggling to attract and retain workers at their current rates of pay.

But the notoriously slow-moving series is still being weighed down by multi-year wage agreements and bosses opting to hand out bonuses over locking in higher pay rates, BIS Oxford senior economist Sean Langcake said.

“There’s nothing really in the Q2 data that makes you celebrate a big win for workers,” he said.

Though Mr Langcake cautioned that the WPI is quite a “narrow measure” of worker earnings as it excludes bonus payments and wage rises gained by people who switch to a new workplace.

“It’s really imperfect, but there’s no getting away from the fact that certain cost-of-living pressures are outstripping wages growth,” he said.

Commonwealth Bank chief economist Gareth Aird said real wages remain in “deeply negative” territory, with pay rises remaining “very modest considering the tightness in the labour market”.

“Whilst wages growth across the economy is moving higher and some people are receiving large pay rises, there has not been broad‑based wages pressures,” he said.

“Indeed real wages growth (as measures by headline inflation deflated by the wage price index) is deeply negative.”

The Australian Council of Trade Unions (ACTU), which is pushing for an overhaul of wage bargaining across the country at an upcoming federal government summit, said Wednesday’s data showed “urgent action” is needed.

“It is clear that we have a serious systemic problem,” ACTU secretary Sally McManus said.

“We have been promised wages would go up when productivity goes up — they have not.

“We were promised that when business does well, pay rises will come — they have not.

“And the RBA as well as old-style economists have insisted low unemployment will bring wages growth — it has not.

“For six months unemployment has been low, yet wages are continuing to flatline.”

Wages outlook strengthens

There were, however, positive signs around the outlook for wages growth — though real wages are expected to keep falling until early next year when the inflation rate starts subsiding.

Mr Pickering said the 14% of private sector workers who did get a pay rise over the June quarter achieved an average increase of 3.8%.

And while the proportion of workers who scored higher wages seems low, it’s actually normal for the June quarter before a typical jump in pay rises being awarded in the September quarter.

“If we see a 3.8 per cent average wage increase in the September quarter that will have an impact because almost 40 per cent of workers get a pay rise in the September quarter,” he said.

“I would be very surprised if we didn’t have a WPI of above 3%.”

Mr Langcake agreed, saying the 5.3% minimum wage increase passed by the Fair Work Commission earlier this year will flow through over the quarter, lifting the pay rates for more than a million low-paid workers.

“It will come through pretty strong,” he said.

This article was first published by The New Daily.

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