Why a salary bump is not a now-or-never scenario

By Cameron Micallef

July 28 2021
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After a decade of low inflation and low wage growth, the bargaining power workers have to negotiate better conditions are starting to grow, but whether or not it leads to stronger wages remains to be seen.

Why a salary bump is not a now-or-never scenario

In a conversation with nestegg, NAB’s senior economist, Gareth Spence, explained that changing economic conditions, through fiscal and monetary support, might finally lead to wage increases and inflation.

As former Prime Minister Paul Keating highlighted during the superannuation debates, Australian workers have seen an increase in output, but over the last decade, it has not been captured in wage growth.

“Since 2013, there’s been a 10 per cent increase in labour productivity … [none] of it went to wages,” he told 7.30.

“It’s all gone to the balance sheet of companies. It’s all gone to profits. So, working people have been robbed in terms of real wage adjustments.”

In fact, over the eight years to December 2020, real wages – that is, wages adjusted for the impact of inflation – grew by 3.1 per cent.

That represents an annual average growth rate of about 0.4 per cent.

However, the stars are aligning for workers, with surging vacancy rates, decade-low unemployment and a lack of overseas resources entering the Australian market.

This, combined with a lower for longer mentality, could see Australians get a decent pay rise as the RBA turns economic theory into sustained economic growth.

“What the RBA is trying to do now is to see unemployment return to a level of full employment, and then we will start seeing wage expectations build up and those inflation expectations translate to actual outcomes,” Mr Spence said.

While workers might see these changing economic conditions as a now-or-never to finally get a well-earned pay bump, Mr Spence highlighted the permanent shifts in employment targets by the RBA which theoretically would lead to pay increases.

“It’s not a now-or-never sort of thing, it just means we’ve been above full employment for some time,” Mr Spence said.

However, the economist said much of the pressures on wage increases could be offset for businesses when borders reopen, albeit predicting stronger bargaining power over the short term.

Despite this, workers are still tipped to suffer some immediate pain, as Sydney battles the latest lockdowns.

“We think unemployment will lift in the short term, but obviously the bigger hit will come through hours worked, which we saw evidence in Victoria of this earlier in the year,” he said.

Although Mr Spence highlighted the possibility that workers are retained, with the current labour shortages likely to make it harder for businesses to regain staff if they let them go during the lockdown.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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