Business cost cutting partly to blame for Australia’s record low wage growth, RBA says

Reserve Bank governor Philip Lowe has revealed the growth in average hourly earnings in Australia is the lowest it has been in more than half a century, with several factors including business cost cutting and competition to blame.

In an address at the Australian Business Economists Annual Dinner in Sydney on Tuesday night, Governor Lowe said “a distinguishing feature of Australia’s recent economic performance has been the slow growth in wages.”

Dr Lowe said the Wage Price Index had increased by just 2 per cent over the past year, whereas in earlier years, Australians had got used to average wage increases of around the 3½–4 per cent mark.


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Growth in hourly earnings are running at the lowest rate since at least the 1960s.

“Not only are wage increases low, but some people had been moving out of high-paying jobs associated with the mining sector into lower-paying jobs,” he said.

“We have heard from our liaison program that there has been downward pressure on non-wage payments, including allowances, and an increase in the proportion of new employees hired on lower salaries than their predecessors.”

Governor Lowe continued by saying that many workers feel there is more competition, “sometimes from workers overseas and sometimes because of advances in technology.”

“In the past, the pressure of competition from globalisation and from technology was felt most acutely in the manufacturing industry. Now these same forces of competition are being felt in an increasingly wide range of services industries,” he said.

“But this is not the full story. It is likely that there is also something happening on the firms’ side as well. Businesses are not bidding up wages in the way they might once have. This is partly because business, too, feels the pressure of increased competition.

“One response to this competitive pressure is to have a laser-like focus on containing costs. Over recent times there has been a mindset in many businesses, including some here in Australia, that the key to higher profits is to reduce costs.”

Dr Lowe reiterated to businesses economists on Tuesday that “low growth in wages means low inflation, which means low interest rates, which means high asset valuations.”

“We still, though, remain short of full employment, and inflation is expected to pick up only gradually and remain below average for some time yet,” he said.

Overall, the RBA said that “it is more likely that the next move in interest rates will be up, rather than down.” However, it is not likely to happen anytime in the “near term”.

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