The heat is slowly coming out of the labour market with wage pressures remaining steady. In the June quarter, the Wage Price Index (WPI), the Reserve Bank’s preferred measure of wages, rose by 0.8%. This was the fifth consecutive quarter in which wages rose by 0.8%, leaving annual wages growth unchanged at 3.2%. We would have to turn the clock back nearly four years to see a faster pace of growth.
The Fair Work Commission’s recent decision to increase award wages by 4.75% presents an upside risk to wages growth. However, the slowing in economic activity and a cooling labour market should help contain broader spillover effects. Restrictive monetary-policy settings continue to weigh on demand, reducing the likelihood of a widespread acceleration in wage outcomes.
Wages growth is running softer than inflation, which means real wages are continuing to go backwards and adding to cost-of-living pressures for many households.
Private-sector wages
Beneath the headline figures, the wages story is becoming more nuanced. Private-sector wages rose by 0.7% in the June quarter, the slowest pace in 18 months, as softer economic conditions increasingly affect businesses. In annual terms, wages growth weakened to a 2-year low of 3.1%. The contribution to wage growth from employees on individual arrangements, which tend to be the most responsive to labour market conditions, also eased.
Public-sector wages
Public-sector wages increased by 0.9% in the June quarter, up from 0.7% growth in each of the previous two quarters. Annual growth remained unchanged at 3.4%, exceeding private-sector wage growth for the sixth consecutive quarter.
The outlook for wages growth, particularly in the public sector, has been complicated by the Fair Work Commission’s decision to deliver a 4.75% increase to award wages. The decision directly affects around one in five employees and could generate broader wage pressures through enterprise bargaining agreements and broader future wage negotiations.
The key issue is whether these wage gains remain concentrated among award-reliant workers or spread more broadly through the economy. We expect a softer labour market and slowing economic activity to help contain any spillover effects.
Forecasts
The Reserve Bank’s latest forecasts suggest wage pressures should remain contained, despite the recent Fair Work Commission decision. The Reserve Bank expects annual wages growth to be 3.3% by the end of 2026, before gradually easing over 2027. Real wages are also expected to return to growth next year, as inflation also moderates, providing some relief to household budgets.
Wage rises by share of jobs
Broader measures of wage outcomes also point to easing wage pressures. The share of jobs receiving annualised wage increases of more than 6% was unchanged in the June quarter, but remains well below the peak reached in mid-2022.
At the same time, the share of jobs receiving no pay rise increased. The only category to record an increase during the quarter was jobs receiving wage rises of between 0% and 2% with its share rising from 13.4% to 14.2%, pointing to increasingly modest wage outcomes. Meanwhile, the largest cohort of workers remained those receiving wage increases of between 3% and 4%, although this share fell to 39.5% of all jobs in the June quarter.
Taken together, the data suggest wage outcomes are becoming more modest with fewer workers receiving larger pay rises and more receiving relatively small increases.
Wages growth by industry
The industry with the fastest growing wages on an annual basis is health care and social assistance. Wages growth in this industry was 3.8% in the year to the June quarter and picked up from 3.6% in the March quarter, although is well down on the most recent peak of 5.4% in late 2023.
Health care and social assistance is one of only four industries that saw a pick up in annual growth for wages. The other three were construction, information, media & technology and manufacturing.
Wages growth by state and territory
South Australia continues to lead the nation on wages growth. It recorded the strongest increase in wages in the June quarter with the WPI rising by 1.2%, the fastest quarterly pace in almost three years.
On an annual basis, South Australia also topped the rankings with wages growth of 3.6%, followed by Queensland at 3.4%. While pockets of labour market tightness remain, the broader trend across the country continues to point to moderating wage pressures.
