A closer look at these figures however shows the outlook for wages is not as encouraging as it first appears, especially in the context of soaring inflation, and in light of historical trends around wages growth in times of labour shortages. Let’s take a closer look at some of the data. 

Wages growth by industry 

As shared by Guardian Australia economics correspondent Peter Hannam, the biggest increase in the September 2022 quarter came in the retail sector at nearly 2.5 per cent. This took wages growth in retail to over 4 per cent, the highest of all industries. Administrative and support services also displayed strong growth for both the quarter and the year. 

In some sectors however, including mining, manufacturing and construction, wages growth had slowed significantly, despite above-average performances over the year. Wages in education and training saw the weakest growth, at a little over two per cent for the year and less than one per cent for the quarter. 

Growth is relative however, and these figures should be taken with a grain of salt. For starters, they are far outstripped by the inflation rate of 7.1 per cent, representing a contraction in real wages: from -2.7 per cent and -3 per cent in construction and manufacturing respectively, to -3.8 per cent in education and -3.9 per cent in mining. 

Wage growth “abnormally low” 

In fact, ABS data analysed by AFR reporter Michael Read last August suggests wage growth is actually abnormally low, considering how tight the labour market is. 

His chart compares wages growth against the "underutilisation rate"; the combined total of unemployed and underemployed persons as a share of the labour force. Historically, the data used by Read in his analysis shows that underutilisation rates comparable to the current levels usually bring wages increases of 4 per cent or more. 

Yet as of June 2022, the most recent figures at that time had wages growth at just 2.64 per cent, despite a very healthy underutilisation rate of less than 10 per cent. Even with wages growth having increased since then to 3.1 per cent, it is falling well short of where history says it should be. 

Research by the Mercer financial services company suggests employers expect 2023 to follow a similar trajectory as last year, as they budget for a median wages increase of 3 per cent. With inflation projected to continue however, this growth is not fast enough to provide employees with meaningful cost-of-living relief – at least in the short term. 

What can employers do? 

Mercer’s advice, based on feedback from HR professionals, is that employers who can’t accelerate wage increases instead focus on enhancing their total rewards package. More than a third of these respondents identified boosting the non-financial aspects of reward and recognition as a top priority, for companies vying to attract and retain talent amidst a labour-scarce market. 

Our recent people strategy resource The Good Workplace Guide also identified reward and recognition as a key consideration for businesses trying to attract, engage and retain talent. As we explored, such programs need to be robust, responsive to the needs and “languages of appreciation” of particular team members, and embedded into the culture of the organisation. 

During times when employees are feeling the pinch of increased cost of living, it is important for wage growth to keep pace as much as possible. But there are other factors that can help compensate and assist with employee retention and engagement, including things like having a well defined purpose, diverse and inclusive teams, good mental health and wellbeing practices, and flexible work arrangements. 

Employers of choice will invest energy and resources into these other aspects of their employee value proposition while also doing what they can to ease employees’ cost of living pressures. Wages growth is important, but with unemployment rates so low, it is not the whole picture. To learn more download our free Good Workplace Guide today.