IT’S reasonable to expect wages to rise as unemployment in Australia trends down to 3.4%.
So when the most recent Wage Price Index printed below the 0.9% market consensus at 0.7%, newspaper headlines unsurprisingly bemoaned wage outcomes for Australians.
But the headlines don’t show the true picture.
Look closer and you’ll see signs that wages are lifting more than we realise.
Businesses have learned from past mistakes that issues caused by entrenched wage bills are hard to correct.
Employers are now using bonus payments as a stop-gap solution to maintain labour levels required to sustain production. The public sector is also joining the bonus party: NSW Health is handing out a $3000 bonus to workers.
The hope is migration will kick in, keeping these increases as a temporary measure — at least while businesses have the power to pass on price rises to consumers.
Will overseas workers arrive in time to help businesses?
July migration shows little sign of temporary or skilled workers returning — a trend that may continue for a while yet.
Why? Visa bottlenecks.
Before 2022 there was already a visa processing problem — the Department of Home Affairs was struggling to keep pace with a large volume of applications.
Fast-forward to the last federal government’s $875 million budget cut for the Department of Home Affairs and now we have an even bigger problem.
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That cut was equivalent to a third of the department’s migration expenses.
So regardless of the new Labor government’s desire for a Jobs Summit solution, there is little to suggest the current labour supply pain will be alleviated.
While companies continue to pay up in wages (albeit in variable rather than fixed payments), the Australian consumer will be able to sustain healthy levels of spending.
CBA’s household spending data last week showed a 1.1% month-on-month rise for July. That means the RBA will have to continue hiking on its path to a 2% to 3% inflation outcome.
Anna Hong is an assistant portfolio manager with Pendal’s Income and Fixed Interest team.
Pendal’s Income and Fixed Interest boutique is one of the most experienced and well-regarded fixed income teams in Australia. In 2020 the team won the Australian Fixed Interest category in the Zenith awards.
With the goal of building the most defensive line of funds in Australia, the team oversees A$22 billion invested across income, composite, pure alpha, global and Australian government strategies.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
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