Slowest public sector wages growth on record
Wage Price Index; Skilled job vacancies
What happened? The main measure of wages – the Wage Price Index (WPI) – rose by 0.4 per cent in the June quarter to be up 1.7 per cent on a year ago (survey: +1.9 per cent). Private sector wages rose 0.5 per cent in the quarter to be 1.9 per cent higher when compared to a year ago. Public sector wages lifted 0.4 per cent in the June quarter to an annual growth rate of 1.3 per cent – the slowest pace since records began in September 1997. Including bonuses, private sector wages were up 2.0 per cent on a year ago – a third straight annual gain.
Other data: Skilled job vacancies fell by 3.0 per cent in July (-7,177 jobs ads) to 232,632 available positions. While it was the second monthly decline after reaching a 12-year high in May (241,764 ads), recruitment activity is still up 38.3 per cent (or around 64,400 ads) when compared to pre-Covid-19 levels. But the 10.3 per cent (or -8,081 ads) plunge in NSW job vacancies was the third biggest monthly decline since July 2009.
Implications: The Reserve Bank wants to see annual growth of wages closer to 3.0 per cent to stoke inflation before it considers lifting interest rates – a pre-condition that we don’t expect to be met until at least 2023.
The data on wages highlights the costs faced by businesses and gives insights into future interest rate decisions. Job vacancies are a key gauge of future employment.
What does it mean?
• Wage growth, as represented by the Wage Price Index, grew by a modest 0.4 per cent in the June quarter, below economists’ expectations for a 0.6 per cent gain. The annual growth rate of 1.7 per cent remains below pre-pandemic levels of 2.2 per cent in March 2020, despite a rapid recovery in the labour market through to the end of June. In fact, the unemployment rate fell to a 10½-year low of 4.9 per cent with measures of spare capacity – the underutilisation rate (12.5 per cent) and the underemployment rate (7.4 per cent) – at 7-8 year lows. Overall, there were 159,400 persons or 1.2 per cent more people employed in June 2021 than at pre-pandemic levels in March 2020.
• The faster-than-expected improvement in the job market, in-part driven by a reduced supply of skilled workers due to international border closures, has seen annual wages growth lift off record lows of 1.4 per cent in late 2020. But public servants – who account for around 15 per cent of Australia’s workforce – saw record low annual wage gains of just 1.3 per cent in the June quarter, restrained by pay freezes and budget concerns. Workers in the private sector fared a little better with wages, including bonuses, up 2.0 per cent on a year ago – a third straight annual gain.
• Shortages of workers and strong consumer demand in some occupation groups, such as construction (up 2.2 per cent), and the professional, scientific and technical services sector (up 2.5 per cent) have seen the strongest pay gains over the year to June. And rental, hiring and real estate wages lifted the most (up 0.6 per cent) in the June quarter amid strong housing market activity. But Covid-19 lockdowns and restrictions continued to weigh on the pay of workers in the hard-hit Arts & recreation services (+0.9 per cent) industry over the year to June.
• Of course, today’s WPI outcome pre-dates the delta outbreak ravaging Australia’s two largest cities by population and workforce. While Commonwealth Bank (CBA) Group economists expect the unemployment rate to remain broadly steady in July, lockdowns will likely see labour demand indicators reverse, with the biggest impact being a huge reduction in hours worked and a rise in underemployment. Already, the NAB measure of wages growth – labour costs – eased back from the 1.9 per cent quarterly rate in June (the strongest pace since mid-2010) to a 0.9 per cent pace in July, suggesting that the latest pandemic shock to the labour market is already hurting workers’ pay.
• Looking ahead, wage growth data is likely to become more volatile in the second half of 2021, incorporating some of the impact of the 2.5 per cent increase in the National Minimum Wage decision for award wages. But the award increase has been delayed for the aviation, tourism, retail and hospitality sectors until at least September. And the September quarter figures could also be impacted by the superannuation guarantee increase from 9.5 per cent to 10 per cent from July 1. Some employers may elect to net this off against worker base salaries, potentially dampening overall wages growth. That said, CBA Group economists expect the annual WPI growth rate to lift to 2.3 per cent in the quarter, before easing to 2.2 per cent by year-end.
• Encouragingly, job vacancies aren’t falling at the same rate yet as observed in last year’s nationwide lockdown. Today the National Skills Commission revealed that skilled job vacancies were down 3.0 per cent last month. In fact, there are still a massive 232,632 available positions across the country, despite shutdowns. Fearful of the future, prospective employers cut recruitment activity by 26.1 per cent in March and 41.3 per cent in April 2020, so the 3.0 per cent dip in July 2021 was relatively benign. And overall ads are 38.3 per cent (or around 64,400 ads) higher than pre-Covid levels.
• That said, some businesses have scaled-back their hiring plans from the 12-year high in national vacancies seen in May. Job ads fell across all states and territories in July apart from Victoria (+3.9 per cent or +2,379 ads). The 10.3 per cent (8,081 ads) plunge in NSW vacancies was the third biggest monthly decline since July 2009 with around 1,700 Hospitality Workers ads removed. And ads fell 2.4 per cent or by 1,313 positions in Sydney to 53,355 in July.
• Attention now turns to tomorrow’s all-important labour force report for July. CBA Group economists expect 10,000 jobs to be added with the unemployment rate remaining steady at a 10½-year low of 4.9 per cent. During the Bureau of Statistics survey period, Sydney was in ‘lockdown-lite’ and Melbourne was re-opening from the June ‘mini-lockdown.’ While there is a risk that employment could fall in July, we expect significant job losses in August, September and October.
What do you need to know?
Wage Price Index (WPI) – June quarter
• The Wage Price Index (WPI) rose by 0.4 per cent in the June quarter to be up 1.7 per cent on a year ago. Including bonuses (total hourly rates of pay), wages rose by 0.1 per cent in the quarter to be up by 1.9 per cent on a year ago.
• Private sector wages rose by 0.5 per cent in the June quarter to be 1.9 per cent higher when compared to a year ago. Including bonuses, private sector wages grew by 0.2 per cent in the quarter to be up 2.0 per cent on a year ago – the third successive gain.
• Public sector wages lifted by 0.4 per cent in the June quarter to an annual growth rate of 1.3 per cent – the slowest pace since records began in September 1997.
• Industries with fastest annual wage growth over the year to June: “Other services” (up 2.6 per cent); Professional, scientific & technical services (up 2.5 per cent); and Construction (up 2.2 per cent).
• Industries with slowest annual wage growth over the year to June: Arts & recreation services (up 0.9 per cent); Administrative & support services (up 1.0 per cent); and Rental, hiring & real estate services (up 1.1 per cent).
• By state and territories over the year to June: NSW (+1.8 per cent); Victoria (+1.8 per cent); Queensland (+1.7 per cent); South Australia (+1.6 per cent); Western Australia (+1.6 per cent); Tasmania (+2.2 per cent); Northern Territory (+1.9 per cent); and the ACT (+1.7 per cent).
Skilled job vacancies – July
• According to the National Skills Commission, job vacancies fell by 3.0 per cent (-7,177 job ads) to 232,632 available positions in July. While it was the second monthly decline after reaching a 12-year high in May (241,764 ads), recruitment activity is still up 38.3 per cent (or around 64,400 ads) when compared to pre-Covid-19 levels.
• Skilled vacancies fell in six state/territories in July: NSW (-10.3 per cent); Victoria (+3.9 per cent); Queensland (-1.8 per cent); South Australia (-4.5 per cent); Western Australia (-1.6 per cent); Tasmania (flat); Northern Territory (-5.2 per cent); and the ACT (-2.6 per cent).
• Job advertisements decreased in seven of the eight broad occupational groups in July and in 34 of the 48 detailed occupational groups. Hospitality Workers recorded the biggest fall over the month (down by 2,500 job ads or 32.4 per cent), followed by Food Trades Workers (down by 1,400 job ads or 20.4 per cent).
Published by Ryan Felsman, Senior Economist, CommSec