What if wages growth never rises?

The primary interest in the coming Mid Year Economic and Fiscal Outlook is by how much the government downgrades its economic forecasts — particularly the now-traditional downgrade of its ludicrously optimistic wages growth forecasts.

Meantime, the Reserve Bank says wages growth will be stuck at 2.3% for the next couple of years — but economic growth will gradually return. As governor Philip Lowe recently said, “The central scenario for the Australian economy remains for economic growth to pick up from here, to reach around 3% in 2021. This pick-up in growth should see a reduction in the unemployment rate and a lift in inflation.”

Only problem is, what if workers wait until 2022 for the much-heralded fall in unemployment, only for it to not produce any wages growth? Because that’s what’s happened in the US.

The US has enjoyed strong jobs growth for several years now, in the last years of Obama’s presidency and now under Trump. For a long time, this didn’t produce any lift in wages growth — though every small uptick in growth has been seized on by commentators as evidence that it was finally starting to happen. Despite concerns about Trump’s trade war and a slowing global economy, last Friday saw a bumper jobs report push unemployment down to 3.5%, nearly two percentage points lower than Australia.

So did that also see wages growth rise? In fact, wages growth fell to an annualised rate of 3.1%. It seems US wages growth peaked briefly at 3.4% in February and has been trending downwards ever since.

Maybe it’s just the US economy? Over in New Zealand, the unemployment rate increased in the September quarter — but to a still-healthy 4.2%, more than a percentage point lower than here. So if Australian unemployment gets down to 4.2%, what wages growth can we look forward to? It was a mighty 2.4% in NZ, and 2.3% for private sector workers.

But don’t expect that to stop either the RBA or the government from pretending that, somehow, wages growth will eventually recover.