If you look back over the past few years, total employment growth in the Australian economy has been advancing at a healthy clip.
But at the same time, so has the number of people looking for work, RBA deputy governor Guy Debelle said in a speech this morning.
And Debelle cited that increased participation rate as one reason why more jobs have failed to translate into higher wages for Australian workers.
Prior to 2012, Aussie workers could reasonably expect their annual percentage wage rise to be preceded by a three or four-handle.
But over the course of this decade, wage growth has declined steadily towards the 2 per cent range.
And for those hoping for a return to the glory days, Debelle reiterated the RBA’s recent (sobering) forecasts; the central bank expects wage growth to remain “largely unchanged at its current level over the next couple of years”.
Debelle said of the domestic firms which participated in the RBA’s liaison program, around 80 per cent of them expected wage growth to hold steady over the next 12 months.
That feedback served to help entrench the bank’s view the low wage growth is now “the new normal”.
Another reason is that the majority of collective bargaining agreements are now negotiated with annual wage increases between 2 and 3 per cent.
Breaking down the rise in participation levels, Debelle said it had been driven by two key groups — women aged 25 to 54, and older workers.
Over the past year, two thirds of employment growth has been driven by female workers, and female participation rates have continued their inter-generational climb to new all-time highs.
Meanwhile, the number of workers 55 and older is now 35 per cent, compared to 22 per cent 20 years ago.
Debelle cited various reasons for the increases in each cohort, although he did include a common thread: “Similar to females, the rise in the participation rate of persons aged 55 or older is also likely to have been related to developments in household debt”.
So, what does low wage growth mean for investors? In a roundabout way, Debelle said it’s probably also helped contribute to strong employment growth.
But more importantly, if low wage growth is now “the new normal” then it’s unlikely to filter through into higher inflation. In turn, inflation expectations have a material and direct effect on the outlook for interest rates.
Right now, inflation growth is tracking comfortably below the RBA’s 2-3 per cent target. So lower wages are a key contributing factor to the RBA’s current rates settings, which sit at all time record lows.
Ultimately, “a gradual lift in wages growth would be a welcome development for the workforce and the economy”, Debelle said.
For the RBA watchers, there’s another important speech tonight at 8:05pm Sydney time, when governor Philip Lowe will discuss the outlook for unconventional monetary policy.