Real wages are finally growing! But they have a long way to go

by Greg Jericho


Let us celebrate real wages rising, but not forget how far we have to go.

Today’s latest wage price index figures bring some very welcome news.

For the first time since March 2021, real wages are now higher than they were a year ago. This is because while inflation rose 4.1% in 2023, wages went up 4.2%. It says something about how greatly the purchasing power of workers has been destroyed over the past 3 years that this extremely small rise is worth noting and celebrating.

For two nearly two years now, as inflation has risen and interest rates along with it, the Reserve Bank and others continued to warn that wage rises could spur inflation and lead to the dreaded (and unsighted) wage-price spiral. What has happened in reality is that prices have risen so much faster than wages that the purchasing power of the average wage now is almost 5% lower than it was before the pandemic.

A good way to look at this is to start with a wage around average earnings of $52,000 in the middle of 2011. Had that wage increased in line with the wage price index it would have been worth the equivalent of June 2011 wage of $54,563. That is a nice increase in real wages and living standards – being able to buy essentially $2,563 more things.

But the pandemic and the rising inflation since then saw all that increase wiped away to the point where in March last year the average wage was only worth the equivalent in 2011 dollars of $51,761. That means that in June 2023 you had effectively $239 less to spend than you did 12 years earlier!

Now with wages finally rising faster than prices we are seeing real wages rise. But the fall was so steep that the recovery will be long. Right now that average wage of $52,000 in June 2011 is worth around $52,080. We are ahead, but not by much and we need to ensure wages keep rising faster than inflation in order just to get back to where we were in 2020.

We should celebrate wages growing, but one quarter does not end the fight to regain the loss of workers’ living standards.

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