Wages growth in enterprise agreements provides no reasons for worry about inflation

by Greg Jericho


Wage growth in enterprise agreements is at a level completely compatible with long-term inflation targets

Ahead of this week’s latest inflation figures the most recent data from the Fair Work Commission shows wage growth is not driving inflation.

Over the past 2 years, conservative commentators and the RBA executive have warned about a wage-price spiral. All evidence however has consistently shown wages have either grown on average by less than inflation or have remained consistent with long-term inflationary goals. As a rule, enterprise bargaining agreements lead to stronger wage growth than other wage-setting methods. This has been behind the government’s moves to strengthen the bargaining process.

Wages from EBAs however over the past two years have grown slower than the overall Wage Price Index. More recently however new agreements have been lodged with the Fair Work Commission that reflected negotiations done in the period since inflation has risen and now peaked. As expected the wage growth of these agreements reflects the need for workers to recover some last real.

But once again fears that this would set off a series of wage-price spiral are unfounded.

Since October the rolling 3-month average of annual wage growth in lodged agreements has turned down from the peak of 4.2% to the current level of 3.9%.

The most recent agreements lodged with the FWC include agreements covering 84,577 commonwealth public servants. These 334 agreements cover an average of 3 years with an annual 3.8% annual growth. Such a level is perfectly consistent with long-term inflation of below 3%.

But while the wage growth achieved from enterprise agreements provides no basis for the Reserve Bank to increase interest rates, it does highlight that the fight to recovering the lost value of workers’ wages will take many years to win.

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