Slow and steady: RBA tips 'gradual' wages growth

Slow and steady: RBA tips

17 October 2018 The Reserve Bank of Australia says the labour market is in 'pretty good shape' and wages growth will 'gradually' pick up.

RBA deputy governor Guy Debelle told an investment conference today that employment growth was above average, the participation rate was at a high level, the vacancy rate was at an all-time high and the unemployment rate was falling.

However, he said the long-term unemployment rate had been little changed of late and wages growth remained low.


Mr Debelle said employment had grown by 2½ per cent over the past year, with more than two thirds of the increase from full-time work. Despite this, part-time employment as a share of total employment remained close to historical highs at about one-third of employment.

Mr Debelle told the conference that "quite a lot is often made of the full- versus part-time distinction, often with the unstated presumption that full-time jobs are better than part-time jobs. But of the one-third of the workforce which works part-time, three-quarters of them do so because that's what they want. Some of them do want to work more hours, but generally more hours in a part-time job. They don't want a full-time job. The important issue is whether there are enough jobs generating enough hours that people want to work."

Where has the jobs growth been?

According to the Labour Force Survey, the industries that have contributed the most to employment growth over the past two years are health care and social assistance, construction and manufacturing.

Mr Debelle said:
  • The increase in health-related jobs reflects both longer-term trends, such as the ageing of the population, as well as the rollout of the National Disability Insurance scheme over the past couple of years.
  • Construction employment is close to 10 per cent of total employment, and this is around its highest share of employment since the 1920s. Construction employment has been supported by the large amount of activity in residential and infrastructure construction, particularly in the eastern states.
  • More recently, there has been a noteworthy increase in manufacturing employment. This is a result of export demand for high-quality food and beverage products, demand for manufactured goods from mining-related activity as well as the high levels of residential and infrastructure construction. This more recent pick-up in manufacturing employment takes it back to its level around 2011.
  • Professional, scientific and technical (PST) services employment has also grown strongly over the past year, driven by computer system design and management consulting.
The deputy governor said it was "difficult to get a good read on the prevalence of ‘gig economy’ jobs."

He said the share of people working as independent contractors had declined a little over the past decade, and the share of people working casual jobs was also little changed.

The labour account data reports information on workers with more than one job. Mr Debelle said it suggested that secondary jobs – i.e. filled by people who also have a primary job – accounted for about 6 per cent of total jobs, which hadn't changed much over the past five years.


Australia's unemployment rate stands at 5.3 per cent .

Mr Debell offered some 'useful facts to keep in mind'.

He said "around one-quarter of part-time workers are actively looking to work more hours than they currently do; on average they are seeking to work an extra two days a week. When combined with the number of hours of work that the unemployed are seeking, this gives a labour underutilisation rate of around 8½ per cent.

"While the underemployment rate has trended higher over time alongside the increasing prevalence of part-time work, movements in the unemployment rate remain the dominant driver of movements in the broader underutilisation rate."


Given the spare capacity in the labour market, Mr Debelle said wages growth had been subdued. 

He said one of the factors contributing to this was the low level of voluntary job turnover.

"Workers tend to choose to leave their job for a better job – be it in conditions or pay. The fact that little of this is occurring is likely to be contributing to the subdued wages growth," he said.

He pointed out that businesses were finding ways to retain some of their employees without raising wages for everyone.

"Many businesses in our liaison program report that they are linking wages growth outcomes to individual performance, which provides employers the flexibility to reward and retain strong performers and valued skill sets while keeping average wages growth contained," he said.

"The use of bonuses, especially to retain key staff, is also prevalent, which doesn't permanently raise labour costs. Some firms are attempting to retain staff by using non-wage incentives, including flexible work arrangements, shares, subsidised gym memberships, development opportunities and additional annual leave."

Mr Debelle said all of the wage measures indicated that a slight pick-up in growth had occurred recently. This increase had been broad based across most industries, although it had been modest in all cases.

"We are anticipating that wages growth will continue to pick up gradually as the unemployment rate declines and the adjustment following the end of the mining boom is close to running its course," he said.

"There are a few other factors that are likely to contribute to this. Around one-quarter of all employees will have received a 3.5 per cent pay rise following the increase in national minimum and award wages on July 1. For some retail and public sector employees, we are also seeing some new enterprise bargaining agreements signed following a lengthy period where wages had been frozen."



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