Wages growth turns negative for first time in 20 years

author-avatar By on June 12, 2020
Wages growth turns negative for first time in 20 years

Photo by Daniel Norris on Unsplash

Australia's annual pay growth has fallen into negative territory for the first time in two decades, according to new figures from the Melbourne Institute.

The figures show that total pay growth over the year to June 2020 was -0.7%, marking the lowest rate of growth in more than 20 years. 

MI senior research fellow Sam Tsiaplias said the negative number was "highly unusual".

"It is the biggest negative number we have recorded (over 20 years)," he told Savings.com.au.

In June, 25.8% of the 1,200 respondents to the monthly Melbourne Institute Survey of Consumer Inflationary and Wage Expectations reported a drop in wages, while 28.3% said their pay had increased.

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While wage growth was slowing even before COVID-19 hit, Dr Tsiaplias said it was unusual for there to be negative wage growth.

"Wage growth would have been weak even without COVID-19."

With Australia entering its first recession since the 1990s, Dr Tsiaplias said there was little hope of wage growth trending upwards in the near future. 

"The current economic downturn supports the case for even weaker wage growth prospects going forward, at least in the short to medium term," he said.

Last month's figures from the Australian Bureau of Statistics (ABS) showed wages were sluggish in the March quarter before lockdown restrictions hit the economy. The quarterly wage price index grew by 2.1% over the year to the March quarter. 

The ABS also revealed wages had fallen 8.2% in just one month from 14 March to 18 April. Employee jobs dropped by 7.5%, or around 975,000 positions in the same month. 

That month was when full COVID-19 lockdown measures were announced.

Despite Australia entering a recession, economists have been encouraged by signs the economic downturn hasn't been as severe as first thought. 

RBA governor Philip Lowe said stimulus packages, coupled with the RBA's bond buying, meant the economy was tracking slightly better than the baseline scenario outlined in the latest statement on monetary policy. 

"The shape and timing of that recovery depends not only on when restrictions are lifted, but also on the confidence that Australians have about their own health and their finances," Dr Lowe said.

"With the national health outcomes better than earlier feared, it is possible that the economic downturn will not be as severe as earlier thought.

"Much depends on how quickly confidence can be restored."

However, Australia is not out of the woods yet. 

Unemployment figures for May, due to be released next week, are expected to reach 8%, then 10% in the June quarter.

Economists warn the prospect of billions of dollars in financial stimulus ending almost simultaneously in September could be "catastrophic", while the OECD this week urged the government to extend the JobKeeper wage subsidy beyond the September expiration. 


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author-avatar
Emma joined Savings.com.au as a Finance Journalist in 2019. She is a journalist with more than five years experience across print, broadcast and digital media, with previous stints at Style Magazines, 4ZZZ radio, and as editor of The Real Estate Conversation. She's most passionate about improving the financial literacy of young women and millennials by writing about complex financial topics in a way that's easy for the average Joe (or Jill) to understand. When she's not writing about finance she's watching Greys Anatomy (again).

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