Unions to push for bigger wage increases

The Australian Workers’ Union has indicated that it will seek higher wage increases in upcoming negotiations with employers after inflation rose to 5.1% in the year to March. Annual wages growth is just 2.3%, and ACTU president Michele O’Neil says this means that the average worker is set to be almost $2,000 worse off in the first half of 2022 and $4,000 worse off by the end of the year.

The United Workers Union will also push for a higher annual wage increase than the 3% rise it had previously flagged for most sectors.

However, Australian Industry Group CEO and chair of the Migration Council, Innes Willox, warns that larger pay rises will result in larger interest rate increases.

From The Australian:

Asked if the ACTU backed ­unions seeking higher wage rises in the wake of the inflation rate, Ms O’Neil said “the ACTU, along with the governor of the RBA (Philip Lowe) believe that Australian workers need a pay rise”…

“The risks of ongoing domestic inflation and a more rapid increase in interest rates depends in large part on whether future wage rises add more inflationary pressures,” [Innes Willox] said.

“While some sustainable adjustments in wages are clearly warranted, excessive wage adjustments will trigger a more decisive increase in interest rates and will constrain the further expansion of domestic activity before it has fully recovered the ground lost over the past two years.”

Unions’ wage claims are understandable given both headline inflation and inflation expectations have soared above 5%, on the back of soaring petrol prices:

Inflation expectations

Inflation expectations near record high.

Australian workers have also experienced a decade where wages lagged way behind labour productivity:

Australian workers' falling economic share

Australian workers fell badly behind last decade.

This drove wages’ share of national income to around its lowest level on record:

Wages share of national income

Wages share of national income has collapsed.

That said, in the absence of productivity growth, unions’ wage demands will also lift labour costs and aggregate wage growth, which would prompt the RBA to raise interest rates sooner.

Unconventional Economist
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