The government claims there’s a wage “explosion”: Is it correct?

The flat Australian wage growth figures have led unions and the Labor Party to argue that the federal government’s warning of a wages “explosion” should be retracted.

Yesterday the Australian Bureau of Statistics revealed December quarter figures that showed the Wage Price Index rose just 0.7% for the period, and was up seasonally adjusted 2.6% over the past year.

ABS director of the Wage Price Index, Robin Ashburn, said this growth in wages was the smallest full year rise since the series commenced in 1997.

The ACTU secretary, Dave Oliver, said the figures demonstrated that the federal government’s talk of a “wages blowout” should be cleared up.

“The truth is that we are seeing the slowest wages growth on record and it’s time for the Abbott government to be honest and upfront with workers,” he told The Australian.

In late January, Employment Minister Eric Abetz warned of a wages breakout if unions and employers failed to act responsibly in negotiating new agreements.

“As shadow minister it was also disappointing to see weak-kneed employers caving in to unreasonable union demands and then visiting me, advocating for change in the system,” he said, as reported by the ABC.

He said, “Why can’t employers just say no?”

“If this is not done, then we risk seeing something akin to the wages explosion of the pre-Accord era when unsustainable wage growth simply pushed thousands of Australians out of work.”

Yesterday’s figures showed wages growth for the private sector was up 0.6% for the quarter, and for the public sector it was up 0.9%.

In the information, media and telecommunications industry, the quarterly rise was 1.2%, while the services industry didn’t budge at 0% growth.

In the electricity, gas, water and waste services sectors, the year-on-year wage growth was largest at 3.3%. In the professional, scientific and technical services sectors, the wage growth was 1.6% for the year.

The previously thriving mining industry wages had a slower growth of 3.1% for the full year, compared to 5.1% in the previous year.

South Australia experienced the largest wage growth for the quarter at 0.8%, while Tasmania had the smallest wage rise for the three month period at 0.3%.

Yesterday, Abetz told media he never said that wages would blow out.

“What I said was that we ‘risk seeing something akin’ to a wage explosion, if employers and employees do not accept the mutual responsibility of ensuring that enterprise agreements are not bogged down with unproductive and outdated work practice,” The Australian reports.

The Australian Chamber of Commerce and Industry (acting) chief economist Burchell Wilson said the figures show the result of “policy drift” by the previous government and poor productivity.

“Wages are up 2.6% over the past year, but this has been insufficient to offset an increase in the cost of living of 2.7% during this period,” he said. “The result is that real wages have fallen over the past 12 months”.

He said a “succession of policy failures have damaged Australian living standards and need to be remedied”.

NAB group chief economist Alan Oster told SmartCompany this morning the lack of wage growth reflects the soft labour market, and the higher unemployment rates which are expected to rise for the remainder of the year.

“It is below CPI…the only good thing we can say is that the RBA will not have to worry about inflation kicking up,” he says.

He says recent NAB Consumer Anxiety Index reports have shown that the cost of living is always the number one concern for Australians, especially on non-discretionary items such as utilities, housing, education and transport.

“People will now be asking: how can we get the cost of utilities and the other basics down?

“They are not so worried about ‘keeping up with the Jones’s,” he says.

Economist Shane Oliver agreed with Oster, saying the reality is that the wages growth will remain weak for the rest of the year.

“With unemployment growing for the rest of the year, wage bargaining power is low,” he says.

“For businesses, on the face of it, it appears good as the cost of labour is weak. But as household income contracts it keeps wages down and could impact consumer spending.”