econ-dit Words by Jess Marnie
Have you ever asked for a pay rise? The answer is likely no, and neither have I. After all, what bargaining power might a student have to bring to the table in such a discussion? You may be interested to know that wage growth, the rate at which wages increase, has been extremely slow in Australia for several years. With inflation picking up around the globe, the cost of living is going up. Many are anticipating an increase in wages. So, should we expect to see our pay go up any time soon? As always, it depends. If low unemployment manifests as an increase in worker’s bargaining power, then perhaps, but while structural fixtures that dampen wage growth remain in place, it may be less than you were hoping. Why are wage increases important? We are beginning to see prices rise with inflation heading towards the Reserve Bank of Australia’s target rate of between 2 and 3 percent. Without wages growing with them, Australians will suffer a loss of purchasing power. This means for the same hours worked, the amount of goods (groceries, fuel, hydro flasks etc) that you can purchase, will decrease. This is particularly bad news for those with a mortgage, as it will become harder for them to pay off their loans. In aggregate terms, this leads to a slowdown of household consumption. This in turn has a dampening effect on economic growth and reduces our Gross Domestic Product (GDP). You 18
might choose to skip out on nice cocktails and new shoes to pay the bills, for others it might mean choosing between food and heating. With an election looming, you have likely heard politicians and journalists talk about Australia’s unemployment rate. Economists would probably tell you that this is a headline figure with limited use for understanding the state of the economy, and they would be right. Nevertheless, it drives much of the economic debate in the political sphere. A lower unemployment rate is of course preferable. It currently stands at 4%, the lowest levels in 13 years. Broadly speaking, we are seeing a tightening of the labour market. Put simply, there is a smaller pool of unemployed workers looking for jobs. First year principles of economics would tell us that as demand exceeds supply, prices are expected to rise. Using this logic, one might think lower unemployment may lead to increased wages (as the price of labour goes up). This is certainly the thought process of our nation’s leaders at present. However, the tale of wages is one of twists, turns and external forces of which simple demand and supply models are poorly abridged versions. Australia’s wage growth has been ‘stagnating’ since 2013. Granted, this period has been a lull for the economy as a whole, following the end of the mining boom and of course the pandemic. However, there are other
