Wage growth appears to be picking up with banks, retail and fast-food giants promising pay increases for most workers in newly negotiated enterprise agreements.
The wage rises covering some of Australia’s biggest employers such as Westpac, ANZ, Officeworks, major fast food operators, and national retailers have seen increases of 3 per cent or more in enterprise agreements – above the current economy-wide average wage growth of 2.3 per cent.
The pay increases, many of which have not yet come for higher paid professionals, are reported in the latest NAB Business survey, which indicates an increase in business hiring intentions as well as the strongest monthly growth rate in labour costs in 11 years.
The Reserve Bank of Australia specifically pointed to employment growth as its guide for interest rate decisions and suggested further wage growth was on the way.
Westpac’s most recent agreement, covering 30,000 employees, granted 3.25 per cent increases this year and for the next two years, although only for those with salaries below $82,500.
Another big four, ANZ, also promised 10,000 front line and back office workers a 3 per cent increase when it rolled over its agreement last year.
Similarly, Officeworks, which employs almost 6,000 staff, recently agreed to 3 per cent increases in the third and fourth year of its agreement.
It’s a similar story across retail and fast-food agreements currently before the Fair Work Commission, including: McDonald’s, Hungry Jack’s, Big W, Kmart, BWS and Super Retail Group, are also generally fixing their annual wage increases to minimum wage decisions, which have trended at 3 per cent or more for the past three consecutive years.
The linking of wage rises to the annual wage review is a significant shift from past practice where enterprise agreements traditionally shielded retailers from minimum wage increases.
When the Fair Work Commission handed down its annual National Minimum Wage decision in May this year, it was small business claiming to be hardest hit. Many small business employers have since reconsidered their staffing needs. Founder and managing director of workplace relations firm Employsure, Ed Mallett said: “Our small business clients tell us that there’s a lot of pressure, and that is where we can help SMEs prepare and understand what they need to do.”
Mallett suggested SMEs may initially face an overall increase in the cost of doing business due to higher wage costs and competition for manpower from the larger firms. “Some of our small business clients are considering reducing costs, increasing prices, reducing staff or reducing operating hours…or a mixed approach to maintain current profitability,” he said, pointing out that the minimum wage decision, “Has a disproportionate impact on small business, because they have fewer variables that they can change to maintain profitability – can they really just add the extra staff cost to the price of your coffee, for example? Would customers accept that?”
Despite the impact on small business, economists say the enterprise agreements across banking, fast food and retail are a good sign of employment growth and wages.
JP Morgan’s Ben Jarman said if the data continued in this fashion then the unemployment rate would ease.
“If these results can hold, it would suggest tentative signs of stabilisation in the labour market owing to prospective policy support (and perhaps political factors post-election), arresting the upward impulse to the unemployment rate of recent months.”
Commsec’s chief economist Craig James said: “The improvement in private business employment hiring intentions would be welcomed by Reserve Bank policymakers whom are currently fixated on labour market developments.”
Reserve Bank governor Philip Lowe has been waiting to see further wage growth, usually a result of when the employment market reaches the full employment level now estimated to be around 4.5 per cent unemployment – well below the current 5.2 per cent.
“A further gradual lift in wages growth is still expected and this would be a welcome development,” Dr Lowe said after cutting interest rates earlier this month by 0.25 percentage points to 1 per cent.
“There has, however, been little inroad into the spare capacity in the labour market recently, with the unemployment rate having risen slightly to 5.2 per cent.”