• Australian wage growth looks to turn negative over the coming year or two, as the country enters an economic downturn.
• The latest ABS data shows wages were slowing of their own accord to just 2.1% before the government shutdown even began.
• Economists expect they’ll begin shrinking as unemployment now jumps to 10% and workers are put in no position to negotiate.
• Visit Business Insider Australia’s homepage for more stories.

Australians might soon pine for the good old days when wages were creeping up and unemployment was only rising gradually.

While annual wage growth had slowed before the government shutdown to 2.1% at the end of February, a two-year low according to the latest ABS data, at least it was growing.

“Wage growth has been one of Australia’s big economic challenges in recent years [but] it has understandably taken a backseat during the COVID-19 crisis, with more concern directed at health and jobs,” Indeed Asia-Pacific economist Callam Pickering said in a note issued to Business Insider Australia.

“High levels of unemployment and underemployment will create a poor environment for wages over the next few years. It is quite conceivable that we will soon yearn for those wonderful days when wage growth of 2% or more was the norm,” he said.

Looking ahead to 10% unemployment, a rapidly shrinking economy and property price falls north of 11%, the slowing pre-COVID-19 economy does have its charms. But with the data taking a snapshot of where the economy was at just prior to lockdowns and significant uncertainty, it was hardly without its problems also.

“Although the data does not shed much light on what is currently happening in the labour market, it does highlight that the economy did not enter the current crisis in a strong position,” Sarah Hunter, chief economist at BIS Oxford Economics, said.

“Wages growth eased slightly from the December quarter in year on year terms, indicating that despite three years of exceptionally strong growth in employment the economy was still not operating at full employment,” she said. “And with jobs growth cooling in late 2019/early 2020, this trend was likely to continue, suggesting that the economy was heading for another underwhelming year for consumer spending and GDP growth.”

Oh boy, those were the days.

According to the data, only healthcare workers were getting decent pay rises at 3%, while Victorians were in the best performing state, pocketing an additional 2.5% annually. The communications, construction and retail sectors were amongst the weakest, while Western Australia, New South Wales and Queensland made up the bottom three straggling states.

With an unemployment rate hovering around 5% keeping pay rises at bay, one stuck at 10% suggests plenty of workers will soon just be happy to have a job.

“Wages growth has been incredibly slow in recent years due to excess spare capacity in the labour market. This is only going to get worse,” CBA senior economist Belinda Allen said.

However, while wages look to have a rough year ahead, incomes are being buoyed by bolstered public programs like the JobSeeker Allowance.

“On that front we have seen in a large increase in government benefit payments flowing into CBA bank accounts. The large increase has dwarfed the slowdown in wages and salaries paid,” Allen said.

“The Federal Government continues to say that the new measures are temporary and will only last six‑months. There is likely to be a large negative income shock when these measures are unwound.”

It may be sooner rather than later as the Prime Minister reminds the public its $130 billion JobKeeper will be cut down as soon as its clear to do so.

With Allen also noting the government will be tempted to continue freezing public service wage increases to bolster state finances, wages could lose the public support it has long relied on.

Instead, Australian wages look set to go backwards.

“The wage price index will decline over 2020 from wage cuts and freezes as business cash flows have been hit and from higher labour spare capacity,” AMP economist Diana Mousina said, noting the danger of rising underemployment. “We expect annual wages growth to be negative by the end of 2020.”

“A turnaround in wages growth will require progress on reducing labour underutilisation – unemployment plus underemployment – which depends on how fast economic activity rebounds in a COVID-safe world,” she said.

A COVID-safe world, now that’s something to which we can look forward.

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