More evidence of strong wages growth
The AWOTE and AWE measures of wages grew strongly at the end of last year.
Wages growth on the average weekly ordinary time earnings (AWOTE) and average weekly earnings (AWE) measures has reinforced the message of strong labour costs from yesterday’s wage price index.
These measures of wages are more volatile than the wage price index because they can be affected by changes in the composition of the workforce.
That said, they tell much the same story as the wage price index, posting strong annualised growth of about 5½% in AWOTE and 4¾% in AWE at the end of 2023.
Putting aside the short-lived spikes at the height of COVID, this means annual growth of about 4½% in AWOTE and 4% in AWE is the fastest in about a decade.
Wages growth should remain strong for some time, even though the government's annual review will probably raise award wages by less than the 5¾% increase delivered last year and with growth in independently-bargained wage agreements levelling off after driving the pick-up in overall wages over the past couple of years.
This is because wages growth for collectively-bargained agreements - i.e., enterprise bargaining agreements or EBAs - has started to pick up.
EBAs normally last about three years and should post faster growth as wages are renegotiated at higher rates, with newly-lodged agreements currently averaging annualised wages growth of about 4%.
While the RBA can tolerate strong growth in wages as long as it is offset by higher productivity, the challenge is that productivity growth has been dismal over recent years and a recovery could take time, raising risks around the RBA's forecast return of inflation to the 2½% midpoint by 2026.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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