Australian wage growth: What can we expect?

It’s a hot topic: what’s happening with Australian wage growth?

In June 2022, Anthony Albanese delivered on his promise of a minimum wage increase. But is this the only increase we can expect?

What are the factors that affect Australian wage growth?

Here, we break it down, looking at what’s already happened and the factors that could affect further increases.

What’s happened this year to wage growth?

Anthony Albanese in his pre-election campaign promised a wage increase in line with the 5.1 per cent inflation rate. And he delivered.

In June 2022 the government made two welcome announcements:

• The National Minimum Wage is to increase by $40 per week.
• Award minimum wages are subject to a minimum increase of $40 per week for full-time workers, and an increase of 4.6 per cent across the board.

These changes are to come into effect on July 1, 2022, except for workers in the aviation, tourism, and hospitality industries. For these workers changes to wages will come into effect on October 1, 2022, allowing time for further economic recovery in these sectors.

So, with a minimum wage increase approved, can we expect any more growth before the year’s end?

Let’s first look at the definition of the term and what affects Australian wage growth.

What is wage growth?

Businesses and employees measure wage growth differently.

Employers consider the volume of output for the cost.

Employees, however, look at how their pay compares to the goods and services they must buy to live.

What affects Australian wage growth?

In theory, wage growth (relative to prices in the economy) should reflect productivity growth. However, as the Treasury puts it, “fluctuation across the business cycle can result in real wage growth diverging from productivity growth.”

Strong increases in export prices, like what happened during the mining boom, is one example of when labour productivity and wage growth did not match.

Other trends that exist in the current Australian market that also disrupt this balance include:

• Increasing rates of part-time employment.
• An increase in non-routine jobs (like home health aides, public relations, or computer programming).
• Intensifying inflation.
• Tight labour markets encouraging nominal wage growth.
• The Russia-Ukraine war is causing supply-chain issues.
• Risk of embedding inflation into wage rises causing a wage-price spiral.

Can we expect to see further wage growth?

As we continue to navigate the world of work post-lockdown and continue to see increases in the cost of living, we will also continue to see ebbs and flows in wage growth.

For some industries, there will be great spikes, including the construction, tech, and legal industries.

We anticipate slower growth for other industries with greater supply, such as administration or office support.