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‘No definitive explanation’ for slow wage growth

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‘No definitive explanation’ for slow wage growth

Fair Work Commission offices

In a detailed look into the issue of low wage growth in Australia, the Fair Work Commission has admitted that while there are various factors at play, there is “no definitive explanation” for the current below-average rate.

In its research report titled Developments in wages growth, for February 2019, the commission (FWC) noted that, of late, there has been much interest in wage growth, both in the media and in research, given its broad impacts.

“It is an important issue because of its effect on the performance of the economy and the living standards of employees. The Governor of the Reserve Bank of Australia (RBA) remarked that ‘slow wages growth is diminishing our sense of shared prosperity’,” the report said.

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“The reasons for the recent period of low wages growth encompass both cyclical and structural factors and these are explored in this report. However, a review of the research suggests that there is no definitive explanation.”

It quoted ABS figures that put wage growth in Australia at 2.3 per cent in the year to the September 2018 quarter — up when compared with the low of 1.9 per cent recorded in 2017, but still “below its long-term average of 3.2 per cent”.

“This report finds that trends in wages growth across the various measures considered have been fairly similar over the last 20 years. However, growth across these measures has been below the long-term average over the last five or so years,” it said, noting a relatively steady fall in growth rates since the global financial crisis (GFC).

Among the various reasons investigated by the report as potential contributors to low wage growth were the rates of unemployment and inflation, productivity, as well as “structural factors” such as changes across different industries, technology — particularly automation and the gig economy — and changes in employee bargaining power.

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According to the report, yearly growth in AWOTE (average weekly ordinary time earnings) within the private sector over the last two decades peaked back in May 2003 at 6.7 per cent. Historically, the measure has had many ups and downs, but it has remained well below average since 2013. It hit a low of just 1.1 per cent in the year to November 2015.

Interestingly, the average growth in AWOTE over the last 20 years was slightly higher within the private sector than the public sector — 4.1 per cent compared with 4.0 per cent.

But nothing delivered a definitive result as the primary, or sole, cause for the current sluggishness in wages.

In reaching its inconclusive verdict, the FWC had investigated a range of government and private data, including from the ABS, enterprise agreements, business indicators and wage price indexes, and noted that the below-average wage growth is not simply isolated to one or two lone metrics.

“Overall, wages growth has been below average over recent years using any measure of wages, whether at the average or aggregate level,” it said.

Which method of pay produced the highest wage growth?

As part of its research, the FWC compared the various ways in which employees are paid: modern awards, collective agreements and individual agreements.

The FWC report did note, however, that comparing the results may be affected by changes in how the ABS collected this data over the period.

Nevertheless, it found that collective agreements had consistently delivered the highest rates of growth, slightly ahead of individual agreements, with both forms outperforming the overall average.

Awards, meanwhile, had consistently delivered below-average rates of wage growth.

The full report can be found via the FWC website.

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‘No definitive explanation’ for slow wage growth
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