UBS: Wage growth done as women, aged, migrants fight for jobs

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Via the marvelous George Theranou of UBS:

Since the start of the year we expected GDP to drop, gradually raising unemployment, vs consensus & RBA still expect a flat/falling UR. This is the key driver of our dovish view of a peak in wages growth (also reflecting public sector wage caps). Importantly, the RBA just changed its wages view to “likely to remain low & to increase more gradually than earlier expected. As a result, inflation is likely to take longer to rise to 2%”.

A second key driver of weak wages is the participation ratio surging to a record. This materially increased labour supply, more than offsetting strong jobs. We identify key drivers of higher participation are 1) mainly females, especially working age 25-54 (boosted by subsidies); 2) a smaller ~0.1%pt boost from migration booming 250k p.a., with recent arrivals participation of ~71% far above the 66% total; 3) older workers 55+ (reflecting the rising retirement age), muting the ~0.1% p.a drag from an ageing population; 4) stressed mortgagees switching from IO & P&I are seeking another job.

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About the author
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.