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Real Wages Now Falling; Is this how it ends?
Topic Started: 19 Feb 2014, 05:48 PM (7,693 Views)
Veritas
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Dr Watson
20 Feb 2014, 02:02 PM
If one were a housing bull, it could be seen as good news in the sense that it puts downward pressure on the cash rate. if the RBA decides to resume cutting because of this (and other) bad news house prices will trend higher. People will borrow as much as the RBA allows them to.
Simplistic analysis.

Lower rates will be indicative of a weaker real economy, higher unemployment etc.

Housing markets are extraordinarily susceptible to consumer sentiment and in such conditions sentiment (and thus investor appetite will be dulled)

These factors will all from through to actual demand for housing.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Soft wage growth hints at a hard economic slog

Callam Pickering 19 Feb, 2:14 PM

Australian wages are growing at their slowest pace in at least 16 years. This, combined with full-time job losses and job cuts across a number of major Australian organisations, paints a pretty bleak picture for Australian workers and the broader economy.

Wages (excluding bonuses) rose by 0.7 per cent in the December quarter, exceeding market expectations, to be 2.6 per cent higher over the year. Private sector wages have increased by just 2.5 per cent over the past year, while public sector wages are up by 2.7 per cent.

Posted Image

Private sector wage growth has now slowed further than it did during the global financial crisis. Compounding matters, public sector wage growth has also slowed significantly which did not occur during the crisis.

The plight of private sector jobs and wages is well known but reports in The Australian today suggest that the federal government may look to reduce real wages as well. Public sector wages can often act as a stabilising factor during lean times but that appears unlikely at present given the Coalition’s desire to cut costs.

At the state level, wages have slowed significantly across every state except for South Australia. Annual wage growth is at 2.5 per cent in New South Wales, Victoria and Queensland, while wage growth in Western Australia has slowed to 3 per cent over the year (down from 4.8 per cent over the year to the June quarter 2012).

Wages in manufacturing have grown at faster than the national average, as have wages in the mining and retail sector. By comparison, wages for professional, scientific and technical services rose by just 1.6 per cent over the year.

The slowdown in wages has a number of implications.

First, it provides further evidence of rising spare capacity in the Australian economy. On the occasions when new jobs are available, there has been no shortage of available candidates and that is leading to soft wage growth.

Second, it indicates that the rise in inflation may not be as concerning as many believe. Yesterday, the Reserve Bank suggested that the recent pick-up in inflation may partially reflect that low wage growth has yet to flow through to consumer prices. These data suggest that the RBA’s view has some merit.

If wage growth remains at around this type of pace, non-tradable inflation will not persist at an elevated level. In that circumstance, the rise in tradables inflation, resulting from a weaker Australian dollar, will prove to not only be temporary but less problematic for the RBA.

Third, wages are a key driver for activity more broadly. Both household spending and house prices, for example, are tied with income growth. A lengthy period where wages grow at around the same pace as inflation will lead to a slowdown in both consumption and house price growth.

Fourth, weak wage growth and relatively high inflation imply that labour productivity growth has slowed further which, in the long-run, has implications for standards of living and economic growth.

With every passing day we seem to be getting more evidence that the labour market has deteriorated. Today is no exception. Wage growth is often a lagging indicator of the broader economy but we cannot deny that we are beginning to experience labour conditions that are much weaker than we have come accustomed to over the past couple of decades. If that doesn’t change, then much of the current momentum in the Australian economy – such as household spending and dwelling investment – may also begin to slow.

Read more: http://www.businessspectator.com.au/article/2014/2/19/economy/soft-wage-growth-hints-hard-economic-slog
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Incomes are driven by investment and productivity gains. We should understand that every single dollar of income we now receive flows from investments made in the past. Our failure to ensure that savings were allocated to their most productive uses over the last 15-20 years means – absolutely irrevocably – that our real incomes are lower than they otherwise would be.

Since we continue to under-create new physical, intellectual and social capital, our future incomes will also be lower than they otherwise could be. This is an inevitable outcome of low dynamism, lethargic productivity growth, weak competitive pressures and a tax system that favours the creation of debt rather than equity finance.

We need to re-think our understanding of real income creation and distribution, its allocation to consumption and the environment within which savings/investment decisions are made.
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Perthite
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Strindberg
20 Feb 2014, 01:40 PM
So, no surprise.
http://www.abs.gov.au/ausstats/abs@.nsf/Products/6302.0~Nov+2013~Main+Features~Key+Figures?OpenDocument

Average Weekly earnings growing faster than CPI.

AWE Nov 2012-Nov 2013 +3.2%.

REAL AWE continues growing.
No surprise earnings in WA are now falling in nominal terms as well.

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Veritas
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Worth putting the significance of the data in context too I reckon.

Basically, wages don't fall all that much when economies slow or go into recession.

Look at Ireland. (Clusterfuck) and yet average incomes have only decreased slightly.

Posted Image
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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SittingOnDeFence
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Veritas
20 Feb 2014, 04:08 PM
Worth putting the significance of the data in context too I reckon.

Basically, wages don't fall all that much when economies slow or go into recession.

Look at Ireland. (Clusterfuck) and yet average incomes have only decreased slightly.

Posted Image
Very true - the wages don't make much difference

It all depends on the banks - nothing else matters really - credit drives house prices

Having said that, all these alarm bells are going off (the subdued wage growth, the inflation "surprise" etc) and not one person has actually even been made unemployed yet - is that correct?

Ford has only just started to lay off a few
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Pig Iron
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Bogan scum

Perthite
20 Feb 2014, 03:29 PM
No surprise earnings in WA are now falling in nominal terms as well.
total average earnings rose from 1289 to 1301
I am the love child of Tony Abbott and Pauline Hanson
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Foxy
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Zero is coming...

Pig Iron
21 Feb 2014, 10:42 AM
total average earnings rose from 1289 to 1301
Mr. Pig Iron,
In that same period what was the inflation rate.
You then take the nominal wage rate and deduct the inflation adjustment and get the real wage movement.
Would you please do that calculation and report your data.
Thank you
Peter
:tu:
I simply do not care if wages are going up or down.
I would like the real picture or as real as possible.
In simple terms,
If you get paid B100,000 per year but the cost of your living goes up by ?%.
How many banana's do you need to live.
And how many bananas do you have left in your freezer at the end of the year???
So i need the figures in "Real" bananas.
Not inflated rubber bananas.
Unless i am being entertained by a pretty young thing that oils said rubber bananas up and shows me some magic tricks :bh:
Peter
Edited by Foxy, 21 Feb 2014, 11:09 AM.
http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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Australia's flexible labour market

Fri, 21 Feb 2014 | Stephen Koukoulas

Treasurer Joe Hockey and Employment Minister Eric Abetz must be delighted with the current structure of the industrial relations system and the degree of flexibility in the labour market.

Recent labour force data have confirmed a near text book degree of flexibility in wages. At a time when employment growth is softening and the unemployment rate has been edging up, there has been a slowing in the pace of wages growth.

Here are the facts.

Since the first half of 2011, the unemployment rate has edged up from a little below 5 per cent to the current rate of 6.0 per cent. This has been the direct result of the extended period of sub-trend economic growth as the terms of trade have fallen and as economic policy was kept too tight for too long.
The flexibility of the labour market is shown in the fact that the annual pace of wages growth has slowed from around 4 per cent three years ago to a record low 2.6 per cent in the most recent period.

If the labour market were rigid, inflexible or the industrial relations system was in need of a major overhaul, wages growth would not have slowed and certainly not to a record low in the wake of the upward trend in the unemployment rate.

All of which suggests any agenda to reform the labour market by the Coalition government is not so much about macroeconomic management, but more to do with some ideology.

There is no doubt that for a strong productivity and high income economy, like Australia, the labour market has to have some degree of flexibility embedded in it.
In its most extreme, a completely flexible labour market would be characterised by no minimum wage, no unemployment benefits, unregulated health and safety guidelines and workers agreeing to a wage according to the offer of employers on the day. Other rights and conditions could be negotiated away.

Generally very poor and impoverished countries are closest to this system of full flexibility. Of the rich countries, the US labour market is highly flexibile but the system there is riddled with poverty reinforcing minimum wages and a poor social welfare safety net. The recent history also shows how that the high degree of flexibility in the US did not prevent the unemployment rate from hitting 10 per cent during the recent recession and even now, 5 years later, it is still around 6.5 per cent.

Australia's allegedly inflexible labour market has not had an unemployment rate above 6.0 per cent since 2003 and we need to go all the way back to the early 1990s to see it at 10 per cent.

To be sure, the Australian industrial relations system and labour market regulations need to be refined and adjusted from time to time, according to structural and other changes within the economy. There of course needs to be an ongoing embrace of the structure that links pay rises to productivity, that sees high wages paid to high skilled workers and, importantly, for there to be a safety net for those who slip through the cracks as the economy evolves.

It is also important to emphasise that within labour market reform comes training, skilling and education. Reskilling a factory worker is all about flexibility as well as, obviously, having a decent social effect for the population. Bringing children through the education system with knowledge and a vibrant mind is not only good for the individual, but it is good for the economy as the breadth of job opportunities unfolds once that child enters the workforce in adulthood.

The end point is that the hard facts on the macroeconomy confirm a good degree of labour market flexibility and no urgent need for mass reform of the industrial relations system. A soft economy is being accompanied by slowing wages growth.

This is good news, and it is aided by the fact that productivity growth has been very strong over the past year.

The other good news is that as the pace of economic growth accelerates towards 3.5 per cent through 2014 and into 2015, the rate of job creation will inevitably lift and the unemployment rate will fall, just as any flexible labour market would dictate.

When this happens, the flexible labour market will react to the falling unemployment rate with some acceleration in wages growth. This will be a good thing as the profit share tilts a little towards labour and away from the corporate sector.

Read more: http://thekouk.com/blog/australia-s-flexible-labour-market.html
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Pig Iron
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Bogan scum

Mustapha Mond
21 Feb 2014, 10:49 AM
Mr. Pig Iron,
In that same period what was the inflation rate.
he said nominal wages have fallen.

as usual he cherry picked it and neglected to mention he was using full time wages only. which is stupid because it's household income that pays for housing, so if mum and dad both work and mum's wage went up (casual) and dad's went down (full time), but over all they are earning MORE. this means WA is still better off.
I am the love child of Tony Abbott and Pauline Hanson
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