NAB senior economist Gareth Spence said the economic fallout caused by the highly transmissible variant could see pay rises delayed.
“I think [Omicron] is a clear risk,” he said. “If we saw disruptions to activity again – shutdowns, which is not really the base case at this point, we think about it the same way as Delta – we wouldn’t see wages fall, we wouldn’t see zero growth, we will just see that pick-up happen slightly later.”
Despite this, however, the major bank is maintaining what Mr Spence describes as an “optimistic” forecast of 2.8 per cent wages growth by the end of 2022, higher than both the RBA and Treasury’s predictions.
“The last time wage growth reached 2.8 per cent was 2013,” he said. “We’re starting from quite a soft starting point, but we do see it picking up.”
University of Melbourne Professor of economics Jeff Borland said the unemployment rate, currently at 4.6 per cent, would need to drop even further down to 4 per cent or below in order for wages to rise. The Reserve Bank sees this happening only “by the end of 2023”, while Treasury doesn’t believe the unemployment rate will dip below 4.5 per cent even as late as the 2024 financial year.
‘It seems inconceivable to me … that Omicron won’t cause some drag on economic activity.’
Jeff Borland, Professor of Economics, University of Melbourne
“That will only happen if we have across-the-board growth in economic activity and employment,” Professor Borland said. “It seems inconceivable to me … that Omicron won’t cause some drag on economic activity in Australia due to the same sort of causes we’ve seen before – the fear effect – people don’t want to engage in activities as much as they would if the virus wasn’t around.”
However, independent economist and former Gillard government economic adviser Stephen Koukoulas anticipates a surge in wages growth despite the Omicron variant posing a “big risk” to the economy and jobs.
“For the private sector, where there is a tendency for wages to be more market-driven, I think there is a coiled spring of wages growth about to be unleashed. There are skills shortages, firms are paying up to attract new talent and even to retain staff – this will show up in the private sector wages data through the next year,” he said.
“Omicron is clearly a big risk to the economy and jobs – but on the assumption it is reasonably well contained, the disruption to the labour market is unlikely to be long lasting.”
While most economists are generally in agreement that there will be a lift in wages of some sort this year, Australia Institute’s Centre for Future Work director and economist Jim Stanford pointed out that any rise would not necessarily benefit all workers. Analysis from the left-leaning think tank from late 2020 found that the majority of jobs lost during the pandemic were casual and part-time gigs – which also account for most new jobs created once the economy began to recover.
“In short, insecure work is coming back with a vengeance. That also makes it unlikely that Australians will feel confident enough to demand a big wage increase,” Mr Stanford said. Moreover, the structural forces that underpin wage growth pre-date COVID and are simply not in place, he said.
“To get higher wages, we need stronger minimum wages, more collective bargaining, and an end to wage freezes and caps in the public sector. We also need to create more stable, secure jobs, in which workers have more confidence to ask for a wage increase. That can’t happen in casual or temporary jobs, where workers have no stability and no bargaining power.”
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