The Age asked me to do another 300 word piece for today’s production on the subject of wages and inflation. They haven’t rung today so it looks like there’ll be nothing from me tomorrow! In any event, below the fold, for the record, is my piece. It is a pleasant surprise that we’ve not run into inflationary pressure from wages yet, though clearly the beast will stir at some stage of reducing unemployment, as it already has in WA and Queensland to some extent. Why so tame? I wonder.
One thing that occurs to me is that the lack of wage rises for so many people at the bottom end of the labour market in America might be an even bigger puzzle. Perhaps it’s the level of (mainly illegal) immigration, but I also toy with the idea that there may be some ‘insecurity illusion’. Workers know they can be sacked, and this is costly and highly risky for them – will they get another job that good? Of course they can be ‘bid away’ from jobs they’re in, but at full employment, unless that happens workers are likely to be risk averse about the prospects of hanging around with the devil they know rather than seeking work for a devil they don’t.
So they moderate their pay claims to a level below what the true situation of full or over full employment would otherwise justify.
Just a theory. Anyway, the column is below and it’s already out of date in the sense that the beast does seem to be stirring, though not it seems from wages pressure.
Wages and inflation: When will the beast stir?
An employee recently told me shed been offered double her current pay by her old employer. Fortunately shes still with us, because, as a young mother she wants to work where she wants (at home) when she wants.
Thats how tight things have become. Still, the plural of anecdote is not statistics. At least not yet.
Unemployment is lower than wed dreamt possible a decade ago and still those wage growth stats are behaving themselves.
The comfort zone is around 4 percent annual growth 2.5 percent for inflation, the rest for productivity growth.
Wage growth in the North and West WA and Queensland is already nudging 5 percent with unemployment down to 3.5 percent.
But national wage growth is brought back to 4 percent by Victoria and NSWs slower wage growth of around 3.7 percent. Their unemployment rate is around 4.5 percent.
Why arent the boom states wages soaring higher? WorkChoices is playing its part and I cant see the harm in slowing the wage growth of those near the bottom while we continue to protect those at the bottom with one of the worlds highest minimum wages.
And as Access Economics recently pointed out, the million jobs weve created in the last four years have only reduced unemployment by 100,000. The North Western States have much higher participation than other states averaging around 68 percent where slower growth states average less than 64.
So most additional labour is supplied by migration, return from or delayed retirement, and yes, firms (and WorkChoices) making it easier for Mums to enter or remain in the workforce like us!
So far so good. Then again there is a limit to all this its just impossible to know quite where it is! I guess well find out if we get there!