Real wages to take over a decade to recover

by Greg Jericho



The RBA now expects real wages to grow much slower than they were predicting in August, and it means it will take many more years to recover what has been lost in the past three.

The Reserve Bank’s November Statement on Monetary Policy released last week revealed that the bank now expects slightly higher inflation for a longer period and slightly lower wage growth out to the end of 2025. This is extremely bad news for workers. In August, the RBA estimated that from June this year to the end of 2025, real wages would rise by around 1.8%; now it predicts just 0.8% growth – the loss of a full 1% point.

The 0.8% growth over that period is also historically low, and does not bode well for the recovery of lost purchasing power.

It took 11 years for the level of real wages to rise from the point they were in 2009 to the pre-pandemic peak of March 2020. But that was all undone in 3 years, with the value of people’s wages now back where it was 14 years ago.

The slow recovery however suggests that it will take many years to recover. Because the pace the RBA currently estimates real wages will grow from December 2023 to December 2025 is slower than what occurred in the decade before the pandemic, it will take longer to get back to March 2020 levels.

At the current pace estimated by the RBA, real wages will not return to the pre-pandemic peak level until the end of 20238.

In effect that means not just 15 years, but 4 years longer than it took after the GFC to go from 2009 to 2020 levels.

Such a weak growth only serves to highlight the need for reform of Australia’s industrial relations framework. The government’s current proposal to close the loopholes that enable labour-hire firms to provide labour at lower wages for doing the same job as other workers needs to be passed to help strengthen the ability of workers to bargain for fairer and better wages.  The current low-wage growth environment hurts workers when inflation is high and they are warned they must keep wages down to return inflation to long-term levels, and when inflation is low workers are still told to keep wage growth down this time to prevent inflation rising.

The past three years have been horrific for workers, but unless wage growth above inflation is considered not just advisable but necessary, workers can expect a long and lean time ahead.

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