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Queensland wages remain stubbornly low despite labour market improvement

Latest data from the ABS confirms that wages growth remains stubbornly at the lower end.  The wage price index in Queensland (total hourly rates of pay excluding bonuses) over the past twelve months increased by 2.2% compared to a national increase of 2.1%.  The Queensland increase compares to the average growth rate over the past 12 years of 3.3%. 

Growth that has occurred is mainly being driven by the public sector with Queensland public sector wages growth over the past year at a healthy 2.8% compared to a private sector increase of 1.9%.  The fact that public sector wages is outgrowing private sector wages is an interesting side discussion.  In short it is good because the State's 261,224 public servants are earning more and hopefully spending that extra money in the economy and it is bad from the point of view that the private sector restraint is not being evidenced by the State Government and a question hangs over its sustainability.

In moving on I had expected private sector wages growth to start to gain momentum in the December quarter given the relative improvement in our State's labour market.  The following indicators offer some explanation as to why the pendulum should and will eventually swing towards wages growth starting to increase again.

  • 110,000 jobs created in Queensland over the past year with a 75,000 of these being full-time and 35,000 being part-time.
  • Employment growth (4.7%) in Queensland is the highest amongst states and since prior to the GFC.
  • Total monthly hours worked in the past year has surged by 17.3 million hours.
  • The unemployment rate whilst stubbornly half a per cent above the national average (5.5%) has fallen in the past year from 6.2% to 6.0%.
  • The participation rate over the last year has increased from 64.3% to 66.1% as people reenter the labour market looking for their next job.

All of these are indirect evidence of demand starting to increase.  The nexus between employment growth and wage growth should in theory be strong.  In short as the labour market grows skill and labour shortages start to emerge and in turn employees can start to ask for higher wages and employers need to pay more to keep good staff from looking elsewhere.  However given that there are currently 230,000 Queenslanders saying they still want significantly more hours of work, employers are no doubt increasing 'hours' instead of 'wages'. Additionally, increased wages growth will take some time to be fully realised as enterprise agreements typically last three years before they need to be renegotiated so there will be a pipeline that has to be cleared.  

The final point to make is that over the past 12 years Queensland wages growth has been on average 3.26% each year and inflation 2.64%. The average difference between wages growth and inflation over that period has been 0.6% and at present that difference is just 0.3%.There is one final thing to also remember ....... it is economic activity that is generating employment growth and inevitably wages growth, but that same economic activity will also start to see inflation rise.  

In summary, I am confident that the low point of wages growth is now behind us but in real terms employees are still some way away from being significantly ahead unless you happen to be in the public sector.

Other graphs that help tell the story.

 

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