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…

Yesterday’s labour price index for the June quarter, released by the ABS, confirmed that the public sector is in fact already driving wage growth across the Australian economy:

Public sector wages grew by 0.8% in the quarter to be up 2.5% over the year, versus growth of only 0.5% (quarter) and 2.2% (year) across the private sector.

This continued the long-running trend where public sector wage growth has easily outpaced private sector wage growth:

Since June 2002, public sector wages have lifted by 14.9% in real terms, versus only an 8.4% rise for private sector wages.

The lion’s share of recent wage growth has been driven by the Healthcare & Social Assistance sector, where wages surged by 3.3% in the year to March, dwarfing the wage growth experienced across all other industries:

Much of this increase can be attributed to the ongoing rollout of the $22 billion a year National Disability Insurance Scheme.

As we already know, the Healthcare & Social Assistance sector has already been by far the biggest jobs driver since the Global Financial Crisis in 2008:

And the Department of Employment projects this to remain the case over the next five years:

Clearly, Australia’s bedpan economy has become a ward of the state, heavily reliant on the Australian taxpayer to deliver both jobs and wage growth.

It’s the economy you have when you don’t have an economy.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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