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Big problem - wage rises are too small!

Peter Switzer
14 August 2015

By Peter Switzer

As with most ‘big’ issues for stock markets the China double devaluation is over-hyped and the Dow Jones ending up a few points kind of proves my point. So, let’s spotlight the more important issue of how good are your wages.

In fact, wages have been growing too slowly and it is a big problem for our economy. Yep, most of us were brought up hearing Coalition politicians and business leaders whinging about trade unions pushing up wages, which fed into inflation and later to higher interest rates. This in turn hurt profits and then investment, which created unemployment.

Damn unions!

Well, lately our wages have been growing at 2% a year — that’s the reading for the year to May — and it partly explains why our economy is growing at under 3% and if that happens unemployment rises.

So, which is it? Are wages rises good or bad?

The economist’s answer is that you can have big wage rises if there is good productivity and vice versa. But at the moment, since the GFC, wage rises have really cooled down and are probably growing more slowly than productivity. We need wages to pick up to help demand and then growth and then this all will help demand for labour as well as the unemployment rate.

Here is the latest scoreboard from the labour market and it goes like this:

  • Average weekly earnings increased 0.4% in the six months to May 2015
  • The annual AWE rise was 2%
  • Male’s rise was 2% but females went up 2.6%
  • The average wage is now $77,121
  • The average worker gained $1,500 a year or $29 a week
  • The highest average wage is in mining at $131,888
  • Finance high flyers average $89,736
  • Professional, technical and scientific services people get $93,350 on average
  • Infomedia and telco types pocket $86,913
  • Accommodation and food services sector workers average $55,162  
  • Retail trade employees are on $57,273 
  • Other services average $58,594 
  • Rental, Hiring and Real Estate Services get around $63,768.

So, there you have it and clearly some people get too much — I won’t name names — and others get too little, but that’s life.

That said, there are some interesting points to be made.

First, as inflation is actually less than 2% then real wages are rising! Of course, the average inflation rate might be less than your personal inflation rate and it does depend on where you live, where you shop and how trendy you are.

Second, as CommSec’s Craig James pointed out. The average mortgage has fallen by $1,250 a year and the average petrol bill is $150 a year lower, so the average Aussie should be about $2,900 a year better off. 

This is the average Aussie but it does add to my general story that our economy and our potential for economic growth over the upcoming year is rising, not falling.

And it would not hurt if wages rose more quickly to help boost demand for goods and services, which would feed into higher economic growth.

All we need is the Federal Government and the media to regularly tell us all about how things are actually getting better, not worse.

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