MYEFO still too optimistic on wage growth

After years of overly optimistic wage growth forecasts:

Today’s Mid-Year Economic and Fiscal Outlook (MYEFO) has significantly downgraded wage growth from the 2019 Federal Budget:

The four year forecasts are shown below, which projects that wage growth will rebound to 3% by 2022-23:

MB does not support these forecasts. Unemployment is expected to rise materially in 2020 and 2021, driven in part by Australia’s dwelling construction bust (construction directly accounts for 9% of employment and more indirectly):

National income will also contract next year as commodity prices and the terms-of-trade fall.

Combined, rising unemployment and falling national income will dent wage growth. These dynamics are discussed in detail in our Christmas Members’ Special Report.

Callam Pickering, economist with jobs search website Indeed, has also forecast weaker wage growth in 2020:

A shift towards part-time work will likely continue to drag on wages growth, Mr Pickering added, as part-time workers not only earn less than their full-time peers, they typically have less bargaining power too.

More part-time employees, coupled with Mr Pickering’s prediction that unemployment will also tick up to 5.4 per cent, will likely push wages growth down.

“We’d go from being at about 2.2 per cent right now to down to about maybe 2.1 per cent,” he said.

“There’s really very little prospect of wages breaking out over the next 12 months. The economy just isn’t in a spot where that’s likely to eventuate.”

While the 2019-20 MYEFO has rightly revised wage growth down, its forecasts remain far too bullish.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments are hidden for Membership Subscribers only.