Growth in the Wage Price Index (WPI) slowed to 0.2 per cent in the June quarter, to be 1.8 per cent higher in year-ended terms (Graph 5.14). These quarterly and year-ended growth rates were the slowest in the history of the series. Private sector wages growth slowed to 0.1 per cent in the quarter as employers made significant adjustments to wages in response to the effects of COVID-19. In contrast, public sector wages growth was stable at 0.6 per cent in the quarter.
A small number of wage reductions weighed on growth in the June quarter. These were largest in professional, scientific & technical services, other services and construction; liaison evidence suggests that these cuts were largely temporary. Although wage increases are typically less common in the June quarter than in other quarters, the ABS noted that wage increases in the June quarter 2020 were even less common than usual.
Graph 5.14
Other measures of earnings have been boosted by JobKeeper, but this effect will fade over coming quarters
In contrast to the very low growth in the WPI in June, average earnings per hour were 8.2 per cent higher in the quarter (Graph 5.15). This spike was driven by the effects of the JobKeeper program on this measure of earnings, as well as compositional changes in the labour market in the quarter.
The JobKeeper program increased employees’ average hourly earnings above their ordinary payments in cases where employees would otherwise have earned less per fortnight than the minimum JobKeeper payment of $1,500.
The overall composition of jobs worked also shifted significantly in the June quarter; responses to the pandemic resulted in relatively more job losses in lower paid jobs. This compositional change lifted the average level of hourly earnings in the quarter. (In contrast, compositional change did not affect the WPI, which measures ordinary time rates of pay for a sample of jobs that is held fixed from quarter to quarter.)
The spike in measured average earnings per hour is expected to be reversed over coming quarters as the JobKeeper program tapers and as employment in lower paid occupations continues to recover.
Graph 5.15
The changes to the JobKeeper program effective from 28 September are likely to see business eligibility decrease and fewer employees benefit from the minimum payment. In addition, the minimum fortnightly payment was reduced from $1,500 to either $1,200, or $750 for workers who had worked fewer than 20 hours per week prior to the pandemic. The lower payment rates that apply over the December quarter would fully cover wages costs for around 10 per cent of employees if they are eligible (Graph 5.16). This coverage is lower than that provided by the initial JobKeeper program; the original – higher – payment was a larger amount than that earned by around one-fifth of employees prior to the effects of COVID-19 (for instance, including some part-time workers). Although the changes from late September will reduce the boost to average earnings received by employees, JobKeeper will continue to provide a substantial subsidy to labour costs until the program’s scheduled expiry in March 2021.[2]
Graph 5.16
Government decisions have affected the timing and size of some wage increases
The FWC awarded a 1.75 per cent increase to award wages this year. This was lower than in recent years, and the increase was delayed for most affected employees from July to November or February. The deferred increase has also affected many employees covered by enterprise bargaining agreements given a growing number of these agreements have pay increases linked to the award wage outcome.
Public sector wages growth was little changed in the June quarter, but wage freezes and deferrals will weigh on wages growth for the next few quarters. Some previously agreed wage increases have been deferred for up to 12 months, notably for Commonwealth and Queensland government employees. The NSW Industrial Relations Commission recently decided that pay rises in the current financial year for NSW government employees would be 0.3 per cent. The NSW Government has also announced plans to cap future wage increases to 1.5 per cent, lower than the 2.5 per cent increases applying in recent years.
Liaison suggests wage freezes became more widespread in the September quarter
Evidence from the Bank’s liaison program suggests that wage freezes have been a common response by firms to the impact of the pandemic on business conditions. In the September quarter, more than half of reporting firms in this program indicated they either had a wage freeze in place or expected to implement one in the year ahead (Graph 5.17). Many firms have delayed remuneration reviews, which will weigh on wages growth in the near term, but may provide some catch up if delayed increases subsequently occur. In addition, most reported wage cuts put in place earlier in the year remain in place, although most firms expect these to be temporary.
Graph 5.17
Wage freezes are falling wages in real terms.
The one bright spot for workers is the stunning outcome of temporary foreign workers crashing 420k year on year. The below table provides the major changes by sub-category:
When we do get a rebound in activity, which is no time soon owing to the Depressionberg Unstimulus, wages will be quicker to rise than last cycle.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
