Improved wages remain central to any recovery from the pandemic, according to the Reserve Bank of Australia.
For years, the governor of the Reserve Bank of Australia, Philip Lowe, has said wages growth in Australia needs to “have a three in front of it” for our economy to prosper.
His was not a lone voice. The former head of the International Monetary Fund, Christine Lagarde, was similarly outspoken about stagnant wages acting as a drag on economic growth in developed countries like Australia.
The COVID pandemic has not changed this analysis from our central bank.
In an address to the Australian Financial Review Business Summit on 10 March in Sydney, Lowe mentioned wages more than a dozen times.
In the speech, titled ‘Recovery, Investment and Monetary Policy’, Lowe made it clear that wages are central to the RBA’s policy settings.
“Currently, wages growth is running at just 1.4 per cent, the lowest rate on record. Even before the pandemic, wages were increasing at a rate that was not consistent with the inflation target being achieved. Then the pandemic resulted in a further step-down,” Lowe told the AFR conference.
“This step-down means that we are a long way from a world in which wages growth is running at three per cent plus. The evidence from both Australia and overseas strongly suggests that the journey back to sustainably higher rates of wages growth will take time and will require a tight labour market for an extended period.”
At the same conference, Prime Minister Scott Morrison made a speech on the economy where he had “literally, nothing” to say about wages, Crikey’s political editor, Bernard Keane, pointed out.
“His only proffered ideas around the Australian workforce consist of threatening jobseekers with even more punishment to force them to take underpaid, exploitive jobs, and hankering for the end of the pandemic so he can let businesses get back to relying on temporary migrants,” he said.
“Both are recipes for pushing wages further down, not lifting them. But the government’s strategy is deliberate wage stagnation, and it leads by example with the imposition of real wage cuts on the public service and an industrial relations bill intended to make it easier to cut wages and conditions.
“Rarely has there been a more stark contrast between what the central bank sees as economically crucial, and the ideological frolics of a business donor-controlled government.”
Wages growth in Australia needs to have a three in front of it for our economy to prosper.— Phillip Lowe, Governor of the Reserve Bank of Australia