Australian wages now a ward of the state

In Friday’s testimony to the House of Representatives Standing Committee on Economics, RBA Governor Phil Lowe backed calls to lift public servant wages in order raise overall wage growth:

Dr Lowe: Most public sectors have wage caps to 2½—some have 1½… and I can understand why governments are doing that… On the other hand, the wage caps in the public sector are cementing low wage norms across the country, because the norm is now two to 2½ per cent, and partly that’s coming from the decisions that are taken by the state governments… The public sector, directly and indirectly, employs roughly one-third of the labour force, and they’re saying wage increases across the public sector may be averaging two per cent. That has as indirect effect on the private sector, because there’s competition for workers and it reinforces the wage-norming economy at two-point something.

Over time, I hope the whole system, including the public sector, could see wages rising at three point something… [If] wages in the public sector were rising at three per cent, then over time I think we’d see stronger aggregate demand growth in the economy…

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