The rise of inflation above wage growth in 2022 and 2023 delivered the sharpest decline in the value of real wages since the Reserve Bank began its inflation targeting regime in the early 1990s.

Now, three years after the peak of inflation, it seems that recovery may be unachievable unless real wages are allowed to grow, or there is a redistribution of national income from profits to wages.

Prior to the pandemic, governments drove the decline in nominal and real wage growth through public sector wages caps of no more than 2.5% annual growth.

Such caps demonstrated the strong role the public sector plays in setting the overall level of wage growth across the entire economy, including the private sector.

While in the decade before the pandemic and the inflation surge of 2022 and 2023, the public sector depressed wage growth, now the public sector can lead the way be providing a guide to stronger wages.