The destruction of real wages will take a long time to recover

by Greg Jericho

The Reserve Bank now predicts real wages will being to recover from the start of next year, but will take many years to recover

The latest Statement on Monetary Policy from the Reserve Bank has some good news for workers. It predicts faster wage growth and slower inflation growth than it did in the previous Statement last November.

The Reserve Bank predicts that wages by the middle of this year will be growing annually by 4.1% – up from the previous estimate of 3.9%.

This good news does suggest that there are already improved conditions given the government’s changes to workplace relations that seek to give workers a better ability to bargain for higher wages.

But the good news is tempered by the reality that even with these better forecasts, the RBA still expects real wages to fall until the end of this year. By December this year, the RBA predicts real wages will have fallen some 5.3% from where they were prior to the pandemic in March 2020. This will see real wages fall back to the level they were in March 2009. That is slightly better than was predicted in the November Statement on Monetary Policy which estimated real wages would fall back to December 2008 levels.

But it remains a truly unprecedented destruction of living standards for Australian workers.

Worse still, the recovery is set to take at least 7 years. If we extrapolate the trend growth from December this year, it will take till the end of 2031 until real wages are back at the level they were in March 2020.

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