Wages: A Tale of Two Countries – November 2017

Explaining subdued US and Australian wages growth.

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Overview:

  • Modelling shows that labour market slack, inflation and productivity help explain wage pressures in Australia and the United States. For Australia, changes in the terms of trade are also important.
  • Currently subdued US wage growth reflects weak productivity growth, but we expect to see some improvement in coming years. For Australia, the modelling suggests that wages growth should already be picking up due to a fading terms of trade headwind, but this is yet to be seen in the data.
  • Our expectations that Australia’s unemployment rate will decline further, and that there will be a gradual upwards move in inflation, also point to higher wages growth in the future.

For further details please see the attached document: