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In the second half of 2021, Australian wage growth clawed its way back to the notoriously low pre-pandemic rate. As the country faces simultaneous reports of labour shortages, job shortages and mild inflationary pressure, what will wages look like in 2022? 

How the pandemic has effected wages

In the years before the pandemic, low wage growth was a heated issue. Years of strict economic policy resulted in stagnant wages, relatively high unemployment and a rising cost of living. 

While devastating for workers, businesses, and livelihoods across the country, the pandemic has given Australia a chance to change wage growth prospects radically. 

During the initial weeks and months of the COVID-19 pandemic, the Australian government moved quickly to provide unprecedented levels of emergency fiscal support to keep households and companies afloat, protect jobs and incomes and prevent the economy from collapsing.

Stimulus measures such as Job-keeper averted a massive initial surge in unemployment. Without these actions, a glut of unemployed workers would have driven down wages and caused an economic shock that would have taken years to recover from. 

Appropriately supportive monetary policy has accompanied government stimulus. By maintaining the cash rate at an all-time low and buying bonds, the RBA has given the economy a much-needed boost in cash. 

In response to the policy action, ABS data shows seasonally adjusted wages dipped to a record low in September of 2020, but quickly recovered.

However, the pandemic will have long-lasting effects on wages. Uncertainty, inflation and a changing world of work will no doubt impact wage growth for a long time to come. 

Wages in 2022

Wage growth is an essential element of overall economic growth; policymakers hope wages will lead Australia’s long-term economic recovery. 

In 2022 the RBAs central scenario outlines a gradual pick-up in wages growth is expected as the labour market tightens. By 2023 the unemployment rate is expected to trend downwards, resting around 4 per cent. 

At the end of 2021, job advertisements are at a record high, indicating a high demand for labour. Businesses participating in the RBAs liaison program have reported difficulties finding workers for certain roles, including in the construction, professional services, agricultural and hospitality sectors.

In theory, a falling unemployment rate and high demand for labour should drive wages higher. However, members of the Reserve Bank Board have expressed uncertainty about the behaviour of wages as the unemployment rate declines to historically low levels. 

To add a level of complexity, Australia’s highly regulated wage system adds inertia to wages. Award rates, collective bargaining, multi-year agreements and minimum wage adjustment are conducted in November annually. This means economy-wide wage growth is unlikely to occur until the second half of 2022. 

Speaking to growth in 2021, Michelle Marquardt, Head of Prices Statistics at the ABS, said, “Wage and salary reviews around the end of the financial year, scheduled enterprise agreements and annual award rises all contributed to growth.” 

“Pockets of wage pressure continued to build for skilled construction-related, technical and business services roles, leading to larger ad hoc rises as businesses looked to retain experienced staff and attract new staff.”

This trend is highly likely to continue into 2022. 

Two-speed economy 

As Australia moves out of the pandemic, some struggle to find work, while certain businesses struggle to find workers. 

This phenomenon can be seen in industry-specific wage growth. Third-quarter ABS data shows wages in professional, scientific and technical services out-paced economy-wide annual growth by more than 1 per cent. In contrast, wage growth in face-to-face services such as the arts and recreation sector lagged behind. 

The stark difference is growth directly reflects the demand for services in the post-pandemic world. As a result of the pandemic, technology and IT, talent is more sought than ever before.

David Jones, Senior Managing Director in Asia Pacific of Robert Half, a talent solutions agency, said, “Wage growth in the tech sector is being driven by a demand-supply imbalance. There is increased demand for tech talent as companies expand their IT teams and enhance their digital capabilities because of the pandemic.

“But as the tech sector remains buoyant compared to many others, elevated demand for tech skills is coinciding with a tightening supply of skilled talent, which is becoming increasingly insufficient to meet demand.”

While two-speed wage growth is great news for those in tech, science or professional fields, it has revealed existing economic vulnerabilities and threatens to entrench inequalities.

If not addressed, workers with limited protection, such as people in casual employment may be left behind in Australia’s economic recovery. The demand-supply imbalance has also revealed flaws in training systems for in-demand industries.

Read more:‘Businesses simply can’t afford it’: Minimum wages increase this week

Read more:Australia’s mid-year budget update notes strong economic recovery and a smaller budget deficit

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Heidi Heck

Heidi Heck

Heidi Heck is a Journalist at Dynamic Business. She is a student at the University of Queensland where she studies Journalism and Economics. Heidi has a passion for the stories of small business, as well as the bigger picture of economics.

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