Reserve Bank Governor Philip Lowe expects Australians’ pay packets will only get a little heavier in the next two years, as slack remains in the jobs market.
The central bank believes the unemployment rate – which stood at 5.2 per cent in July – will dip to five per cent again in 2021.
Full employment is considered to be closer to 4.5 per cent.
“It is probable that we will still have spare capacity in the labour market for a while yet, especially taking into account underemployment,” Dr Lowe told a parliamentary committee in Canberra on Friday.
“This means that the upward pressure on wages growth over the next couple of years is likely to be only quite modest, and less than we were earlier expecting.”
Dr Lowe has also highlighted the influence of caps on pay increases in the public service on the national trend.
“Caps on wages growth in public sectors right across the country are another factor contributing to the subdued wage outcomes.”
The comment has spurred on the Community and Public Sector Union, which has taken issue with a two per cent wages cap in the sector.
“The message to the government is clear,” CPSU national secretary Nadine Flood said.
“If this government wants to claim the mantle of responsible economic managers, then it must reverse those polices that hurt jobs and ordinary Australians, because our economy is suffering.”
Roughly a third of the workforce is employed in the public sector, either directly or indirectly.
Labor’s Jim Chalmers said stagnant wage growth is just one bit of evidence of poor economic management by the coalition.
The bank downgrading its growth forecast for 2019 from 2.75 per cent 2.5 per cent is another, he said.
“The economy under the Liberals is defined by the slowest growth in a decade, stagnant wages, record household debt, high underemployment and declining living standards,” Dr Chalmers said.