Woke RBA will NEVER lift wages nor hit inflation target

Who can forget this absolute public policy shocker by the RBA:

Ready for round eight? In it’s most recent Statement, the RBA noted:

Wages growth was broadly as expected in the September quarter. The majority of firms in the liaison program continue to expect little change in wages growth over the next year, and only very few firms expect stronger wages growth outcomes in the year ahead. There is also no indication that there will be changes to the government wage caps that have kept public sector wages growth stable over recent years.

The superannuation guarantee is legislated to increase from 9.5 per cent of ordinary time earnings to 12 per cent between 2021 and 2025. The increase will be gradually phased in with 0.5 percentage point annual increases from July 2021. Based on evidence from previous increases in superannuation as well as the international literature on increases in mandated benefits, it is expected that increases in superannuation payments will be offset to a large extent by lower wages growth outcomes. It is expected that the adjustment to each increase will take a couple of years, although the timing and extent of the adjustment is very uncertain. If the increase in the superannuation guarantee is not fully offset by lower wages growth, overall labour costs would increase for employers.

In terms of the forecasts, the increase in the guarantee is expected to largely offset the boost to wages growth from the gradual decline in labour market spare capacity.

What expected boost? Wages growth is falling as the labour market loosens:

And it is going to get worse. via Credit Suisse:

This is before we factor in any COVID-19 impact. Include that, plus the super guarantee if it goes ahead, and wages growth is going straight back to where it was in 2017, before we even begin to discuss bearish virus scenarios.

As we all know, without wages growth, there will be no inflation.

Why has the RBA unilaterally absolved itself of its only reason for being? It appears to be ignorance, willful or otherwise, at Bloomie:

“The big shock, the big surprise, has been the rise in labor force participation,” Lowe said in parliamentary testimony Feb. 7. “There has been no shortage of jobs growth in Australia. In fact, it’s been very strong. But it’s been met with a lot of extra labor supply. That’s not the case, I think, in the United States.”

…Ian Harper, who sits on the RBA’s nine-member board, says the sluggish wages and hiring strength are part of the same story. “Jobs are growing because wages are not — or not much — and so the cost of labor is relatively cheap,” he says.

Why has participation risen? Because a permanent immigration shock has created a structural output gap in Australia. An output gap is a measure of idle economic capacity. Sadly for Aussie workers, the OECD forecast is for Australia’s output gap to yawn to its widest in forty years through 2021:

If it is are right, and I can’t see why not, then wages growth is going to plunge from here.

As a nation, we used to sensibly modulate the rate of immigration to the needs of the labour market. But now we throw open the borders no matter what and label all objection “racist”. Ironically led by the useful idiots of the left.

This means that, in the absence of some external sector boom, there is always too much labour. This has expressed itself as a structural decline in full time work and rise of part time, as well as the rise of wage theft.

In short, there’s heaps of work, you just can’t make any money. So participation rises as households put more people to work for less.

Sadly for Australian workers, a woke RBA will never reach its wage or inflation targets because it will never factor in immigration.

David Llewellyn-Smith

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