There’s good news and bad news on the economy. The good news is that wages have increased faster than inflation. The bad news is wages have increased faster than inflation!
And yes, I know I have two views on the same facts but right now we don’t know all the economic facts. That means this news about real wages rising could be good or bad news. The year-on-year 4.2% jump in the wage price index to the December quarter being bigger than the annual inflation of 4.1%, is in isolation something we should cheer. However, we need to look at what happened to productivity to cheer unreservedly.
When wages outpace inflation, economists say real wages are rising. This hasn’t happened for three years and you can see why a Labor Treasurer in Jim Chalmers would welcome news but then say he wasn’t “getting carried away” about it.
He'd say that because beating inflation is his main goal (apart from being re-elected) and if rapidly rising wages keeps inflation sticky above the Reserve Bank’s 2-3% band, then the Reserve bank will delay rate cuts. Now that could be an election problem for PM Albanese and his team’s re-election plans!
Yesterday I attended the Business Sydney breakfast where the star guest was Opposition Leader Peter Dutton, who was surprisingly impressive. He seems to be showing that he’s growing into his job better than most of us would have expected.
Dutton made the point that the PM could opt for a November election if interest rates are on the slide, which on top of the tax cuts could be enough for voters to ‘forgive and forget’ about the smashing of voters’ lives, thanks to the spike in the cost of living under Labor’s regime.
Of course, there were multiple contributors to the rise in the cost of living but the government in power often cops the total blame, as there’s no way the ordinary Aussie can punish the RBA for mistaken monetary moves.
In achieving the annual real wage rise, we’ve seen three quarters of real wage rises and a Labor Treasurer understandably would cheer this. As this is what Albo and Dr Jim were promising for 2024 not 2023, they’d see this as something to crow about.
Clearly, Australians with wages that can buy more goods and services because their pay is rising faster than the lift in inflation is good. But if productivity isn’t rising, then higher wages push up costs and then inflation.
On productivity, the story hasn’t been great, as Treasury revealed in 2023 with this: “Labour productivity growth has slowed in Australia since the mid 2000s. In the decade to 2020, Australia's productivity growth was the slowest in 60 years. Average productivity growth over the past 20 years to 2021–22 is around 1.2 percent.”
However, pc.gov.au tells us that for “…the first quarter since March 2022, labour productivity rose in September 2023 by 0.9%, although labour productivity was still down 2.1% through the 12 months to September. The rise in the September quarter reflected a 0.2% rise in GDP coupled with a 0.7% fall in hours worked.”
And while it’s good to see productivity sneaking up in one quarter, as the old saying goes “one swallow doesn’t make a summer!”
If productivity keeps on rising, then a real wage rise is good economic and social news. But if the efforts of Labor’s Minister for Industrial Relations, Tony Burke and the unions mean wages rise faster than inflation and productivity rises don’t kick, then inflation will remain high and rate cuts will be delayed.
That would be bad news for interest rate sufferers and Labor’s re-election plans. And it could make the ‘new’ and improving Peter Dutton more sellable to a cheesed-off public.
While on the subject of the Government, The Guardian’s Greg Jericho has raised an issue that will spook employers who use non-compete clauses to stop employees switching jobs and stealing their clients.
The ABS has found that 21% of businesses use non-compete clauses, which Doc Chalmers sees as “concerning”. “The assistant minister for employment, Andrew Leigh, has long argued non-compete clauses help to suppress wages, as employers are disincentivised to offer pay rises, knowing an employee would be unable to leave for a similar role in another organisation,” Jericho reveals. “Leigh said non-compete clauses, which can also prevent someone from starting their own business in the industry they worked in, were becoming a growing concern internationally and “may be hampering business innovation and productivity”.
He says the big users of non-compete clauses were the financial services sector, rental, hiring and real estate services, but lately hairdressers, yoga instructors and early childcare educators, were adopting these measures to stop employees taking customers.
This is an issue that will only lose Labor votes with employers but given what they’ve endured since Albo won Canberra, there aren’t too many businesses left to lose! Imagine Andrew Leigh and Albo trying to run a business!