Wages grow from a low base

ABS data shows Australian wages increased in the December quarter but don’t read too much into the figures

24 February 2021 | Staff Writers

Figures released today by the Australian Bureau of Statistics (ABS) show a rise in wages over the final three months of 2020. The consensus expectation of leading economists was a 0.3 percent rise in wages, while the seasonally adjusted Wage Price Index (WPI) rose 0.6 per cent.

The ABS reported the annual wage growth rate remained at an historic low of 1.4 percent.

Michelle Marquardt, Head of Prices Statistics at the ABS said “December quarter’s moderate growth was influenced by businesses rolling back short-term wage reductions, returning wages to pre-COVID levels. The phased implementation of the Fair Work Commission annual wage review also had a small positive impact on wages.

“In original terms, wages rose 0.5 per cent in December quarter 2020. Private sector wages rose 0.5 per cent, outpacing the public sector rise of 0.3 percent. Wage freezes have had an impact on the public sector which recorded its lowest annual increase (1.6 percent) since the commencement of the series.”

End of JobKeeper looming

One of the risks lurking in the background is the end of the JobKeeper wage subsidy at the end of next month. Treasurer Josh Frydenberg told an Australian Chamber of Commerce and Industry conference today, “Of the 1.1 million people expected to be on JobKeeper in the March quarter, we are expecting the overwhelming majority to remain in their existing jobs following the conclusion of the program.”

According to the Treasurer, RBA research estimates that overall job losses would have been at least twice as large over the first half of 2020 without JobKeeper, saving at least 700,000 jobs.

Analysis from AMP Capital estimates that around 100,000 people currently on JobKeeper will lose their jobs. AMP Capital Senior Economist, Diana Mousina says, “There are also some risks around employee lay-offs after JobKeeper ends which could weaken employment growth and keep the unemployment rate somewhere in a range between 6 and 6.5 percent over 2021.”

That figure is still higher than the pre-COVID unemployment rate of around 5 percent and most economists predict that will weigh on wages growth. AMP Capital expects wage growth to hover around 1.5 percent per annum for the next 18 months which is below the already weak pre-COVID levels of 2 percent.

Taking the annual inflation rate into account, which is currently running at 0.9 percent, the current wage growth translates to around $5.75 per week for an average Australian worker.

The latest data showed a large proportion of the private sector wage growth came from the continued restoration of hourly wages back to pre-pandemic levels, following reductions in the June or September quarters 2020. 

The largest quarterly rise was in the Professional, scientific and technical services industry (1.2 per cent), after wage reductions contributed to a significant fall in June (-0.5 per cent). 

Annual wage growth to the December quarter 2020 ranged from 0.3 per cent for the Accommodation and food services industry to 2.4 per cent for the Education and training industry.

Victoria recorded the highest quarterly rise (0.7 per cent) after wage reductions contributed to a 0.1 per cent fall in June and minimal wage growth in September (0.2 per cent). The Northern Territory also recorded a quarterly rise of 0.7 per cent based mainly on regular public sector wage growth.

Weak construction data

The Australian construction data released today didn’t offer as much good news as wages with total construction was down by 0.9 percent in the December quarter, which was below market expectations.

Says Ms. Mousina, “We thought there would have been some lift in non-residential building after building in the June-September quarters was impacted by COVID-19 restrictions.

“Non-residential building fell by 2.4 percent and has now been declining for three straight quarters.”

Engineering construction fell by 2.8% with the public sector falling by 4.6% while private construction declined by 1.6%.