Analysis of Low Real Wage Growth in Australia

Running head: ECONOMICS
Economics
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ECONOMICS1
Table of Contents
Introduction......................................................................................................................................2
Analysis of low real wage growth in Australia...............................................................................2
Policy suggestion.............................................................................................................................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

ECONOMICS2
Introduction
Wages are the return to labors given for their efforts in production. As labor is an integral
part of production process, the trend in wage growth affects the economy significantly (Heijdra,
2017) The paper studies persistently slow real wage growth dynamics in Australia. Attention has
been given to evaluate the impact of low wage growth on macroeconomic equilibrium of the
nation. The discussion of impact of low wage growth is followed by suggestive policy
recommendation.
Analysis of low real wage growth in Australia
Australian economy today is facing a serious challenge because of a low real wage
growth for the last few years. The ABS figures suggests hourly wage grew only by 0.54 percent
in the last quarter of 2018. This is lower than the expected growth of 0.6 percent. Growth in
nominal wage is 2.27 percent. With the economy having an inflation rate of 1.8 percent, real
wage growth is only 0.5 percent (actu.org.au., 2019). Wage is public sector is relatively slower
than wage growth in private sector.
Low wage growth in Australia is number of different factors. Successful implementation
of inflation targeting policy of RBA keeps the inflation rate at a relatively low level. Inflation in
Australia varied around 2 percent since the adaption of inflation targeting policy. Low inflation
means lower profitability which discourages productive activity. As production declines, there is
fall in labor demand resulting in a slow growth in wage. The excess supply of labor is another
factor that leads to a low wage (Ross, 2018). The labor market of Australia has considerably
large excess capacity. The spare capacity in labor market has been indicated by large proportion