Strongest private sector wages growth in 6½ years

Wage Price Index; Skilled job vacancies

The main measure of wages – the Wage Price Index (WPI) – rose by 0.6 per cent in the September quarter to be up 2.2 per cent on a year ago – the strongest annual growth rate in 18 months.

Private sector wages (excluding bonuses) lifted by 0.6 per cent in the September quarter to be up 2.4 per cent on a year ago – the equal strongest annual pace in 6½ years. And public sector wages (excluding bonuses) rose by 0.5 per cent to be 1.7 per cent higher than a year ago – the strongest annual rate in 12 months.

National skilled job vacancies rose by 7.8 per cent in October to stand at a 13-year high of 250,882 positions.

What does it mean?

• Wage growth, as represented by the Wage Price Index (WPI), grew by 0.6 per cent in the September quarter to be up 2.2 per cent on a year ago, the strongest annual pace since March 2020. Workers in the private sector fared even better with wages growing by 2.4 per cent on a year ago – the equal strongest growth rate since December 2014.

• Including bonuses, private sector wages grew by 0.8 per cent in the September quarter (annual rate 2.2 per cent), suggesting that firms that are having difficulty sourcing labour are using other strategies to attract and retain workers. These strategies could include sign-on and retention bonuses, increased workplace flexibility, providing more internal training and increased hiring of less-experienced staff.

• The acceleration in wages occurred despite prolonged lockdowns in Australia’s south-east. There was some ‘catch-up’ in wage increases evident at the beginning of the financial year following the unwinding of pay freezes and cuts during the height of the pandemic. The 2.5 per cent increase in the National Minimum Wage from July 1 was also supportive of wage growth in the September quarter.

• But the result could have even been stronger with the award increase delayed to November 1 for big employers, such as the tourism and hospitality industries. And the increase in the compulsory superannuation guarantee from 9.5 per cent to 10 per cent from July 1 was not captured by the WPI, with some employers likely to net this increase off against base pay, dampening the overall result.

• Annual wages growth has lifted off record lows of 1.4 per cent in late 2020 with economic activity generally recovering following the twin initial and Delta Covid-19 labour market shocks. Public servants – accounting for around 16 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 cuts.

• But public service wages lifted by 0.5 per cent in the September quarter to be 1.7 per cent higher over the year. The majority of public sector workers are employed in Public administration and safety (up 1.9 per cent), Education and training (up 2.2 per cent), and Health care and social assistance (up 1.9 per cent) with annual pay gains in these sectors mostly lagging overall pay rises over the year to September.

• Reduced labour supply and the outflow of temporary migrant workers amid international border closures have supported wage growth over the past year. Shortages of workers in some occupation groups, such as Professional, scientific and technical services sector (up 3.4 per cent, an 8½-year high), Construction (up 2.6 per cent, a 7-year high), and Accommodation and food services (up 2.5 per cent, a 6½-year high) have seen the strongest pay gains over the year to September.

• But Covid-19 lockdowns and restrictions continued to weigh on the pay of workers in the hard-hit Arts & recreation services (up 1.5 per cent) industry over the year to September with the higher-paying Mining (up 1.5 per cent) and Financial and insurance services industries (up 1.6 per cent) both also lagging average annual pay gains.

• The National Skills Commission released its final reading of the Internet Vacancy Index (IVI) for October. As reported on November 8, the national IVI hit a 13-year high of 250,882 available positions. A hiring blitz is underway in Australia’s south-east following extended Delta lockdowns with NSW (87,187 available positions) and Victoria (67,828 available positions) skilled job vacancies both also reaching 13-year highs by the end of October. Sydney job vacancies jumped 11 per cent in October to a 3-year high of 56,338 available positions in three-month moving average terms. And job ads up 4.6 per cent in Melbourne to 51,497 available positions – just below 11-year highs.

• Commonwealth Bank (CBA) Group economists expect wage growth to gradually lift next year as the labour market tightens and the key measure of spare capacity – the underutilisation rate – decreases. Consumer inflation expectations over the next two years, as measured by ANZ and Roy Morgan, have hit 6½-year highs at 5 per cent due to ongoing supply chain disruptions, a demand recovery and surging energy prices. Rising price pressures could boost inflationary expectations further and in-turn lift worker pay demands.

• We expect the WPI to accelerate to a 2.6 per cent annual growth rate by the end of 2022, propelling underlying inflation sustainably into the mid-point of the Reserve Bank’s 2-3 per cent target range and facilitating a rate hike. That said, Reserve Bank Governor Philip Lowe yesterday said that wages will need to grow at “3 point something” and it is not the sole determinant for price pressures and monetary policy. Further, a rebound in workforce participation and reopening of Australia’s borders could yet boost labour supply, alleviating wage and broader consumer price pressures.

What do you need to know?

Wage Price Index (WPI) – September quarter

• The Wage Price Index (WPI) rose by 0.6 per cent in the September quarter to be up 2.2 per cent on a year ago – the strongest annual growth rate in 18 months. Including bonuses (total hourly rates of pay), wages rose by 0.8 per cent in the quarter to be up by 2.1 per cent on a year ago.

• Private sector wages rose by 0.6 per cent in the September quarter to be 2.4 per cent higher when compared to a year ago – the equal strongest equal annual pace in 6½ years. Including bonuses, private sector wages grew by 0.8 per cent in the quarter to be up 2.2 per cent on a year ago.

• Public sector wages lifted by 0.5 per cent in the September quarter to an annual growth rate of 1.7 per cent – the strongest pace in 12 months. Including bonuses, public sector wages grew by 0.7 per cent in the quarter to be up 1.6 per cent on a year ago.

• Industries with fastest annual wage growth over the year to September: Professional, scientific & technical services (up 3.4 per cent, an 8½-year high); Construction (up 2.6 per cent, a 7-year high); and Accommodation and food services (up 2.5 per cent, a 6½-year high).

• Industries with slowest annual wage growth over the year to September: Electricity, gas, water and waste services (up 1.2 per cent); Arts and recreation services (up 1.5 per cent); Mining (up 1.5 per cent); and Financial and insurance services (up 1.6 per cent).

• By state and territories over the year to September: NSW (up 2.1 per cent); Victoria (up 2.5 per cent); Queensland (up 2 per cent); South Australia (up 1.8 per cent); Western Australia (up 1.9 per cent, a 5½-year high); Tasmania (up 2.7 per cent, an 8-year high); Northern Territory (up 2.4 per cent); and the ACT (up 2.1 per cent).

Skilled job vacancies – October

• The final National Skills Commission’s Internet Vacancy Index (IVI) jumped by 7.8 per cent (or 18,082 available positions) in October – the biggest lift in seven months – to a 13-year high of 250,882 available positions. And recruitment activity is up by a massive 58.3 per cent (or 92,440 ads) in October on a year ago and is 49.2 per cent above pre-pandemic levels in February 2020.

• Skilled vacancies rose in four state/territories in October: NSW (up 16.9 per cent); Victoria (up 15.2 per cent); Queensland (up 0.2 per cent); South Australia (down 1.1 per cent); Western Australia (down 2.7 per cent); Tasmania (down 6.6 per cent); Northern Territory (down 1 per cent); and the ACT (up 12.5 per cent).

• Job advertisements increased across all eight broad occupational groups in October and in 44 of the 48 detailed occupational groups. Hospitality Workers recorded the largest increase over the month (up by 2,900 job advertisements or 45.1 per cent), followed by General-Inquiry Clerks, Call Centre Workers, and Receptionists (up by 1,700 job advertisements or 9.8 per cent) and Food Preparation Assistants (up by 1,300 job advertisements or 68.9 per cent).

• In three-month moving average terms, job advertisements in regional areas have lifted by an average of 74.7 per cent in October 2021 compared to pre-pandemic levels (in February 2020). Regional job vacancies are near record highs with Dubbo & Western NSW (up by 149.8 per cent or 1,100 job advertisements) the strongest performer, followed by South-West Western Australia (up 115 per cent or 760 job advertisements), Tamworth and North-West NSW (up 114.7 per cent or 620 job advertisements), North-West Tasmania (up 110.1 per cent or 300 job advertisements), and Riverina & Murray NSW (up 108.1 per cent or 1,200 job advertisements).

• In three-month moving average terms, job advertisements in capital cities have lifted by an average of 38.2 per cent in October 2021 compared to pre-pandemic levels (in February 2020). In October, job vacancies in Sydney jumped 11 per cent to a 3-year high of 56,338 available positions with ads up 4.6 per cent in Melbourne to 51,497 positions – just below 11-year highs.

Published by Ryan Felsman, Senior Economist, CommSec