I hope you enjoyed the recession because the recovery is here and it’s brutal.
You may not know it, but the Australian economy is growing rapidly and recovering from the deep pandemic recession. You probably don’t know, because during this recovery real wages have fallen and now we’ve added the prospect of much higher interest rates.
After more than a decade of only falling interest rates, Reserve Bank of Australia on Tuesday, interest rates shot up 50 basis points — something it hadn’t done since February 2000. Combined with the 25 basis points increase in May, it drove a two-month increase of 75 basis points – the largest since 1995.
Hey thanks.
And yet, unlike the rising interest rates encountered by the Rudd administration in 2008, these are the result not of massive mining investment and high-paying jobs, but at a time when real workers’ incomes are falling.
The last Labor account figures announced on Wednesday show that real hourly earnings per employee decreased by 3.2% in the 12 months to March of this year and are now back at the level of September 2014:
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In effect, the LNP government left us as it found us.
The labor bill figures once again argue that the current rise in inflation that has led the reserve bank to raise interest rates is not the fault of workers demanding large wage increases.
In reality, workers’ incomes are declining in real terms.
Of course we knew this.
Not only do we have a larger portion of the national income goes to profit but the last one business indicators published just before the GDP figures showed a strong increase in sales in most industries relative to wages.
In the lodging and food services industries, for example, the sales-to-wage ratio has increased from $4.2 in sales for every $1 in wages before the pandemic to now $4.6 for every $1 — the best sales-to-wage ratio ever. registered in the sector :
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The retail industry shows a similar story. A 20-year trend of declining sales relative to wages has now reversed:
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This does not mean that companies are now making huge profits – there are many costs other than labor that must be paid – but that the main drivers of inflation clearly do not come from labor costs.
This is important because not only are there strong pushbacks from employer groups against wage increases above inflation (or even at the same level), but because these pushbacks come even as labor demand hits record highs.
The labor account figures, unlike the monthly labor force data, allow us to see how many vacancies there are in each industry relative to the total number of jobs.
This gives us an idea of how desperate for workers each industry is.
Currently, 2.8% of all vacancies are vacant pending someone to fill them. That is by some margin the highest level recorded up to 1994:
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The reason is the combination of good job growth and a sharp decline in the number of people of working age in Australia.
As I noted last monththere are now about 354,000 fewer people aged 15-34 here than would have been expected before the pandemic.
Yes, the borders are opening, but it takes time to fill that gap.
And the need for employees is great in all sectors:
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One of the sectors that has seen the largest increase in job openings is the accommodation and hospitality sector.
One would expect that this great need for labor would see an equally large increase in payment to workers – the usual supply and demand ratio. That labor costs would rise may justify the need to keep the minimum wage increase low to protect companies, given the number of workers in the sector who earn that percentage.
But no:
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Real hourly labor costs in the hospitality industry are now back at 2012 levels – a period when the sector’s vacancy rate was less than half what it is today.
By raising interest rates, the reserve bank aims to keep inflation low – this includes wages as well as rising prices.
The problem is that while one is too high, the other is already too low.
The labor account shows that we have a historically strong increase in the demand for labour, but not the accompanying increase in the income of the workers.
The risk is that over the next 12 to 18 months, prices will rise as a result of foreign events and higher interest rates, but those same rate hikes will shatter hopes of stronger wages as the heat comes out of the economy.
The recovery has essentially been gain first; pay afterwards.
But should the reserve bank stifle the recovery with rapid rate hikes, those wage increases will remain distant and workers’ real incomes will continue to fall.
#recovery #put #profits #wages #leaving #workers #money #Greg #Jericho