BCEC Monthly Labour Market Update – October 2022

Jobs up, unemployment down, but real wages keep on falling

The Australian labour market remains defiant in the face of rising interest rates, adding 32,000 additional jobs in October. The unemployment rate fell back to 3.4 per cent, equalling the 50 year low achieved in July of this year. Total employment reached a new all-time high and the number of unemployed persons fell to 477,600, the lowest number of Australians out of work since August of 2008. Despite this resilience in job numbers, the outlook for real wages continues to deteriorate.

Data just released show the wage price index (WPI) jumped by 1 per cent in the September quarter but, even so, pay packets are still failing to keep up with rising prices. With inflation of 1.8 per cent for the same quarter, real wages effectively fell 0.8 per cent. Moreover, the September quarter increase in the WPI can largely be attributed to indexation of national and state awards taking effect in July, including the Fair Work Commission’s decision that increased wages by between 5.2 per cent for minimum wage workers and 4.6 per cent at higher award classifications.

Those factors won’t be pushing up wages in coming quarters, although the Fair Work Commission did delay implementation of indexation until October for sectors such as hospitality and tourism still struggling with the effects of COVID. So nominal wage growth is likely to weaken in the immediate future, but there is no sign yet of inflation
slowing down, suggesting real wages will fall even further.

And the downside of October’s surprise fall in the unemployment rate is the added pressure on interest rates. The Reserve Bank will be looking for the unemployment rate to start to rise as a sign that tightening monetary policy is working to curb inflation, providing another factor mitigating against the chances of real wages picking up.

WA’s real wage rise is an illusion, as employment stagnates

The total number of persons employed in Western Australia fell by 11,400 in October, and the state has seen no overall jobs growth since January of this year. Only a fall in the participation rate of 0.5 percentage points kept the unemployment rate from rising above 3.5 per cent.

Despite this, the wage price index shows wages in WA growing faster than the national rate in the September quarter, at 1.4 per cent compared to 1.0 per cent in nominal terms. With the CPI for Perth actually falling by 0.5 per cent in that quarter, these figures have real wages in WA growing by a healthy 1.9 per cent for the quarter. However, that rise is likely to be a temporary blip in the series for a couple of reasons.

First, nominal wage growth in WA will have been inflated by award indexation coming into effect in July, as has been the case nationally. Second, the fall in inflation in WA was primarily due to the state government’s $400 household electricity credit, and doesn’t reflect the underlying trend in prices. As the effect of that credit passes through, that fall will be reversed and WA’s inflation rate may well continue to increase in the coming quarters. Real wages in WA remain around 3 per cent below pre-pandemic levels, and any recovery looks to be some time off yet.