The low wage rise low unemployment phenomenon has had experts head scratching, and the Reserve Bank of Australia has been at the forefront of trying to figure it out. Now the RBA’s Deputy Governor has postulated another possibility – that low job mobility may be partly the reason.
The theory goes that most people voluntarily change jobs on the promise of a better deal. But in Australia right now, this is not happening. More people are staying where they are, and staying longer. The reasons for this would be manifold and largely speculative. But one thing that could be at play, according to the Deputy Governor, is more employers offering non-monetary benefits, which don’t show up in statistics that are focused on traditional wage rises.
Data collection on this latter economic indicator focuses on things like minimum award wages, enterprise bargaining outcomes, direct surveys asking about pay rates. The data do not identify these ‘extras’ as salary or wages, so they are not counted.
The non-monetary benefits that may be acting as a brake on voluntary turnover in the labour market include things like education and training assistance (including time off), gym memberships, subsidised child-care, flexible working hours, more leave and so on.
Promotions and bonus payments which also help retain employees don’t show up as labour cost increases either because they don’t increase wage rates. That is, unlike an EBA with annual increases built-in, these payments are linked to productivity, are individually based and sporadic in nature.
This theory is not at odds with earlier commentary from the RBA about employees’ attitudes to job security in Australia right now. Two big threats identified are technology and foreign competition. And in areas like retail there is the double-whammy – cheap imports delivered on-line. Is it any wonder that in such directly affected industries, employees are nervous and less likely to leave a job or demand higher pay?
While the RBA is generally sanguine about the labour market, it points to a mismatch between a record high job vacancy level and the unemployment rate. The “negative relationship” between the two, where high vacancy rates should deliver low unemployment rates, isn’t quite working out, with the unemployment rate stubbornly over the 5% level.
The best explanation for this, again consistent with earlier RBA observations, is the skills misalignment between unemployed and what employers need. Ultimately, aggressive firms will start to offer higher wages and job mobility will start to increase. Firms that are lagging in training and development and offering incentives to retain employees will be the first to experience this. Now is a good time for a review of the approaches being taken to avoid losing good workers.