Concern About Wage Growth

Data from the US reveals that average weekly earnings over the past 2 years have increased from around US$895 (February 2017) to US$951 in February 2019.

This increase reflects an era of confidence and growth since the election of President Trump.   Current US average weekly earnings equate to A$1,359, which is below Australia’s most recently reported full time adult average weekly earnings of A$1,666 (November 2018).

The rate of improvement in the US is clearly significant, revealing an increase marginally above 3% in the past 12 months whereas in the last 2 years average weekly earnings have increased from $894 to their present level or an increase of 6.37%. (the increase in the 12 months from February 2016 was 2.16%).

On a currency exchange assuming an Australian dollar represents 70% of a US dollar, the US average weekly wage cost (A$1,359) presently stands at around 82% of Australia’s average weekly earnings (A$1,666).  With a view being expressed that a considerable amount of the employment and wages growth in the US was influenced by significant corporate tax cuts, Australia does not appear to have corporate tax on its radar as a stimulus to sponsor an improvement in the average worker’s living wage.

Notwithstanding the modest rate of wage growth in Australia over the last 2 to 3 years, there is evidence of strong employment growth and increasing female labour force participation.

Of concern to Australian business in the current climate, where unions are seeking an 11% increase in the minimum wage, is the fact that today Australia has the third highest minimum wage globally which does not support our economy’s international competitiveness.

A challenge for policy makers and for government in putting their case to the Fair Work Commission will be how they believe the interaction between employment growth, the cost of living (particularly in core areas affecting every wage earner), energy, education, health, housing and transport will align to improve our productivity, profits and hence prosperity.

While it is anticipated that with lower taxes corporate Australia will invest more and that capital and innovation will contribute to productivity improvement, labour productivity will clearly be influenced by management, communication, employee engagement and increasingly on the job training and input from the education sector.

The nation’s capacity to meet higher wage costs and to celebrate increasing wages will impact variably across sectors, a number of which operate on relatively low margins and are dependent on discretionary expenditure.

Data in relation to industry employment reveals that the lowest wages are in the sectors of accommodation and food services where the majority of employees are waiters, kitchen hands, bar attendants and baristas; in the arts and recreation services where the majority of employees are sports coaches and fitness instructors; and in retail where the majority of employees are sales assistants, checkout operators or cashiers or small store/category managers.

In these categories, median weekly earnings appear to stand below $700, or less than half the nation’s average weekly earnings.

Sectors where the median weekly earnings are at or above average weekly earnings appear to be entirely exclusive to the mining sector.

In the above observations it is acknowledged that median earnings are almost universally below average earnings and weekly employment is less than 38 hours.