If Treasury boss John Fraser is right, Australian workers could be enjoying pay awards comfortably above the rate of inflation in the next few years.
He is confident that annual wages growth will be accelerating at 3.5 per cent in three years time, as forecast by his department in December.
Fraser is obviously aware of the risks of making such statements when forecasting is involved.
But he feels Treasury predictions have been on the mark in recent history including being ‘ahead of the pack’ in calling a turning point in the global economy.
Workers will need little reminding of the slim pickings they have had to endure over the past few of years.
Over the 2016/17 financial year, the wage price index – the Reserve Bank and Treasury’s preferred measure of wages growth – sank to 1.9 per cent, the lowest in at least two decades.
It has since crept up to 2.1 per cent but just keeping ahead of the rate of inflation, suggesting households have little spare cash to enjoy.
Wage growth has been the missing link in an economy that saw a record number of people newly employed last year at over 400,000, which has seen the jobless rate ease to 5.5 per cent and close to its lowest levels in five years.
There are several theories as to why wages haven’t responded to the glowing performance in employment.
The Reserve Bank has blamed the continuing spare capacity in the labour market after the unwinding of the mining investment boom.
It also sees heightened competition from globalisation and technological change as a further reason for subdued wages growth.
Fraser told a Senate hearing this week of another theory – the extended fallout from the global financial crisis.
A Treasury department survey last year found the scars of the 2008-2009 crisis were ‘far rawer and deeper’ than imagined and bosses were being very careful about investment spending.
‘Similarly on wages, people were being scared to add to the cost of their production because they were just worried we hadn’t really come out of the GFC,’ Fraser said.
But now he has become aware of a wage pick-up in the construction sector in Victoria, parts of Sydney, and in Brisbane.
Figures last week also suggest average wage growth varies considerably between industries and location.
The average weekly earnings data series produced by the Australian Bureau of Statistics does tend to be more volatile than its wage price index but helpfully expresses the outcome in dollar terms so people can easily see how well, or badly, they are doing.
For example, those working in NSW enjoyed an average 3.3 per cent pay rise to $82,467 a year, but salaries in South Australia actually went backwards by 0.3 per cent to $74,885, according to the survey.
Overall the average Australian worker received a pay rise of nearly $1900 or 2.4 per cent in 2017, lifting the annual wage to $81,619.
Among the industries it covers, miners on average were the top earners on a salary of $134,196, but received a pay rise of just 0.3 per cent last year compared with an inflation rate of 1.9 per cent.
However, those in ‘administration or support services’ received a whopping pay rise of 6.5 per cent although only earning an average salary of $72,228.
It would appear other workers will just have to hope Fraser and his Treasury team are right about when a decent pay rise might be in the offing.