Why is Australia's wage growth so sluggish?

If pay day feels a little like Groundhog Day – with the same pay cheque repeating over and over, you’re not alone.

Australian workers have seen little growth in their take-home pay for several years, but even if your pay packet is stuck in neutral, there are ways to forge ahead financially.

It’s been a long time between drinks for workers looking for a significant pay rise. Wages rose by a mere 1.9% over the 12 months to June 20171, and with inflation also running at 1.9%2, our pay cheques are keeping pace with the rising cost of living – but only just.

So what’s happening?

A recent report by the Reserve Bank of Australia (RBA) found sluggish wage growth reflects a combination of factors3. Among them is “spare capacity” in the labour market, meaning many people who are working part-time would like to work more hours, and they will often accept a longer working week rather than push for a higher hourly rate.

Inflation is very low, which has also contained wage growth, and in addition, more Australians are negotiating their own employment contracts rather than relying on the backing of a trade union. Just 15% of workers are members of a trade union these days – the lowest level recorded by the Australian Bureau of Statistics.4

That means more of us are negotiating individually with employers. Given a preference for job security over higher wages, workers may be more likely to accept lower annual wage growth believing that this will strengthen their job security.5

But there are other factors at play.

The way we work is changing

The nature of work is shifting. More than one million Australians are independent contractors6, who must set a competitive rate of pay in order to stay in business.

Added to this is the growth of the 'gig’ economy. An estimated 4.1 million Australians, or 32% of the workforce, have freelanced7, negotiating their own rates of pay for one-off projects or casual work. If you think about the likes of AirTasker, Uber or Rideshare, it’s clear that any sort of freelance work can only be sustained when the worker charges a competitive rate. With access to an increasing number of people working as contractors, employers increasingly have the option of bringing in contractors to run projects that might have been permanent roles in the past, thus contributing to the ‘spare capacity’ in the labour market.

Navigating low wage growth

The important thing is, there are ways to cut through an environment of low wage growth and still kick some financial goals.

At times like this, having good control of your money is essential, and that makes a household budget an important tool to avoid relying on high interest debt to fund daily living.

Make a habit of shopping around too. In a competitive market, it may be possible to drive better deals on groceries, power bills, phone expenses, insurance premiums and a range of other expenses simply by asking for a better deal. It really is a case of “if you don’t ask, you don’t get”. But you could be pleasantly surprised at the possible savings enjoyed by pitting different service providers against each other.

Track your money

Having a complete picture of your spending and saving habits can help you identify areas where positive changes can be made.

Talk to me about Mortgage Choice’s new MoneyTrack software. It’s a great tool to help manage cash flow, capture the big picture on your financial situation, and help to keep you on track to achieving your financial goals.


Manage your money better

Chances are, at some stage you’ve wondered “Where does all my money go?”

If that sounds like you, you’re not alone. Around one in two Australians don’t know where their money is spent.

Watch this video for more.

Rethink your investments

It’s also worth looking at the other side of the ledger – your income. If you have considerable cash tucked away in a savings account, it’s a fair bet you’re earning a very slim (and fully taxable) return.

Part of my job is to help you build a portfolio of investments, whether that be shares, managed funds or property as an example, that provides the right level of capital growth and regular income for your situation. It can mean more money to live on today, and so reviewing how your money is invested may be a smart strategy to help you to minimise the impact of low wages growth.

You might also be interested in:

1 http://www.abs.gov.au/ausstats/abs@.nsf/mf/6345.0
2 https://www.rba.gov.au/
3 https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-2-insights-into-low-wage-growth-in-australia.pdf
4 http://www.abs.gov.au/ausstats/abs@.nsf/mf/6333.0
5 https://www.rba.gov.au/publications/bulletin/2017/mar/pdf/bu-0317-2-insights-into-low-wage-growth-in-australia.pdf
6 http://www.abs.gov.au/ausstats/abs@.nsf/mf/6333.0
7 http://cdn.aigroup.com.au/Reports/2016/Gig_Economy_August_2016.pdf

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