Wage growth

• The unemployment rate does not necessarily indicate the conditions of wage growth as it does not demonstrate accurate availability of jobs opportunities in the labour market. For example, the United States achieved full employment while experiencing low wage growth.[10]
• High wage growth does not represent high living standards assuming that the cost of living is high.[4]
• Inflation might not be affected by a high wage growth if profits go to the compensation for wages where they should be used to increase labour productivity.[4]

This chart illustrates the wage growth of Australia in both public and private sectors comparing pre-GFC and post-GFC obtained data from the Australian Bureau of Statistics.[12] It demonstrates the significant decline in wage growth after the GFC in both sectors in Australia.

Despite the growing labour productivity in the recent five years, Australia has been experiencing stagnated wage growth in both the public and private sectors along with the global low-wage growth compared to the data in pre-GFC.[4] The Treasury Australia argues that the recent flexible work style has contributed to the recent stagnated wage growth.[4] As a result of increasing jobs in the service industries, more employment in part-time and non-routine jobs were created that affected the labour share of income. The Household Income and Labour Dynamics in Australian survey (HILDA) stated, "workers with a university education had higher wage growth than those with no post-school education over the period 2005-2010, but have since experienced lower wage growth than individuals with no post-school education."[4] This can be explained as the introduction of minimum wage law not only creates slow growth in creating low-skilled jobs but also reduces the wage growth for high-paid workers due to the compensation for paying increased the minimum wages for the low-paid workers.[13]

This graph demonstrates seasonally Adjusted Average Weekly Wage Growth in the UK, which data obtained data from the Office for National Statistics[14]

Like the other advanced countries, the United Kingdom had the record low wage growth of -2.60 per cent in 2009 from the GFC, yet the wage growth has been slowly improving in recent years and has recovered to 3.5 per cent in 2019.[15] However, Britain is one of the worst countries with weak wage growth over the past decade compared to other OECD countries since the unemployment rates do not meet with the appropriate wage growth, calculated based on Phillips curve. In fact, 4 per cent of unemployment rate reflected a 5 per cent rise of wage growth in the 1980s despite the 2.9 per cent in 2018 with the same unemployment rate.[16]

With the low unemployment rates, one of the factors for the recent rise in wage growth includes more employment of disabled people and people in high skilled occupations, constructing a strong labour market.[15] By bringing more people into the workforce in high-paid occupations, it produces more competitiveness in the workforce resulting in the creation of higher labour productivity hence a high wage growth. Since self-employment has increased its employment by 15% in 2017, more flexibility in employment, entrepreneurship and more labour participation became available to workers.[17] However, since the weakness of self-employment produces relatively less labour productivity compared to bigger businesses, it could also contribute to the weak wage growth so that fiscal policies to secure the growth need to be conducted for long-term growth.[18]

Additionally, an unequal wage growth exits in Britain since the wage growth of highest-earning of 10 per cent employee jobs has increased more than the average wage growth in 2018.[19] This is because more part-time jobs in high-paid occupations such as managers became available to workers. The employees in the fifth percentile (the bottom of the income distribution) have been experiencing the smallest growth by 0.8% due to the increased employment in 16 and 17-year-olds who get paid the national minimum wage of 4.20 pounds whereas people aged 25 years and older get 7.83 pounds.[19]

Due to the Global Financial Crisis (GFC), the United States also experienced a significant decline in wage growth like the other advanced countries. Despite the major recovery after the GFC, wage growth in the United States has failed to reach the growth achieved in pre-GFC and has been stagnated for a recent decade.[20] Like the weak wage growth in Australia, the United States is also experiencing a struggle because of the recent significant development in globalisation and automation where the competition with lower-paid workers overseas and robots was created.[21] The United States is one of the few countries that has been experiencing weak wage growth while achieving low unemployment rates as it has been significantly low for nearly two decades.[22] One of the factors is because of the limiting official definition of unemployment as it leaves out students and people that are not looking for work but willing to work if there are job opportunities. Studies found that 70% of the people who are getting employed had not been included in the unemployed category.[21] To achieve high wage growth in the United States, it depends on how the businesses creates competitiveness in labour market and encourage those people to work for the purpose of boosting high labour productivity to result in high wage growth.[21]

Although minimum wage law has been applied in many states to increase wage growth, this has not been an effective solution to improve the growth due to the increasing living costs.[23] Also, the unequal wage growth in the income distributions is identified as one of the major reasons of the weak wage growth in the United States.[24] Despite a slight rise in real wage amongst low-income earners due to the minimum wage law, the wage growth is mostly contributed to the high income-earners.[21] Since 2000, 3 per cent of wage growth identified in the lowest tenth of the income distribution compared to the 15.7 per cent in the top tenth.[25] Other factors that contribute to the current sluggish weak wage growth include the decline of labor unions, poor educational attainment and lack of competitiveness in the labour market.[25] The decline of labour unions and the emergence of big corporations made difficulties for workers to negotiate for a higher wage. This created a lower productivity growth causing the weak wage growth.

There is also an unequal wage growth in race and gender. Due to the emergence of educated women (on bachelor level or higher) in the labour force, the real wage growth in male have been decreasing since 1979.[26] As a result, the wage growth gap depending on the education levels has widened than years past.[26] The unequal wage growth gap is also identified in race since the real wage growth of Caucasian males are the highest compared to any races of men or women.[23] In contrast, African-American workers have been experiencing the smallest wage growth.[23]