Labor applauds wage rises, but if there is no rate cut will voters notice?

Jim Chalmers’ response to yesterday’s wage figures was a bit like the figures themselves: broadly in line with expectations.

“Real wages have increased for four straight quarters,” he trumpeted, only changing the number from what he said last time.

“Under the Liberals, real wages were falling…Under Labor, people earned more and kept more of what they earned.”

Not that there’s anything wrong with a little repetition.

It’s the “vomit principle of politics”: If you say something often enough that you vomit if you have to say it again, voters might finally start to hear you.

And if the government wants to send a message, it’s that whatever happens, your wages will increase.

Higher wages are an article of faith for true Labor supporters, who see it as their main point of difference from the Liberals, whose last finance minister called low wages a “deliberate design element”.

That’s why they pursued a broad industrial relations agenda, including new rights for casual workers, a “right to disconnect” and expanded multi-employer bargaining.

And that’s why they supported raising the wages of nurses and childcare workers and petitioned the Fair Work adjudicator every year not to let rewarded workers “go back”.

No surprise then. But behind the repeated celebrations, a nagging feeling: If we can’t get rates cut before the election, who will thank us?

Feelings don’t care about your facts

Labor will find little solace in the United States, where the Biden administration last week joined the conga of incumbent governments punished for high inflation.

It wasn’t enough that wages comfortably outperformed prices throughout Biden’s term in office. Voters did not feel better, nor did they vote the way they did.

The word “feel” is important. Stefanie Stantcheva, an economist at Harvard, observed in a recent article that higher wages do not quell worsening price increases.

“Individuals rarely attribute the raises they receive during periods of inflation to inflation adjustments. Instead, they attribute these raises to job performance or career advancement.”

Economist Paul Krugman put it more bluntly: Voters’ response to high wages was “I won this” and voters’ response to high prices was “Biden did this.”

This framework may seem critical, but it doesn’t have to be: it’s simply a reminder that the economic numbers that shape the political debate don’t always match how voters evaluate their well-being.

Peter Dutton seems to have recognized this, calling the US elections an expression of economic angst and not culture wars.

And there is reason to believe the anger could be worse in Australia, since household disposable income, adjusted for inflation, has lagged behind U.S. performance over the past two years.

As Stantcheva observes, the phenomenon applies to employment, not just wages – she cites survey results that most Americans do not recognize a link between high inflation and a “tight” labor market. » with more jobs.

This suggests that voters may not thank the government for the million jobs created under its leadership either.

The only rate that matters is the election day rate

All of this brings the focus back to a rate cut.

It may not be everything – it certainly wasn’t enough to save Kamala Harris – but it will make a difference because it represents a tangible, bankable drop in the “price” of a mortgage.

The government knows this and is now virtually protesting that Reserve Bank Governor Michele Bullock will grant a pre-election reprieve.

But she only has two or three board meetings left before that deadline, and last week she revisited her own “vomit principle” lines by once again keeping rates on hold:

“The outlook remains very uncertain…The Council remains resolute in its determination to return inflation to its target and will do what is necessary to achieve this outcome.”

Seen from Labor’s perspective, things don’t seem so uncertain: headline inflation is below three percent, and many in the government are perplexed, even agitated, that Bullock has yet to move.

But the latest Quarterly Monetary Policy Statement makes clear what is expected.

The Bank believes that interest rates – which have never been as high as in many countries – are only restricting economic activity, and to a lesser extent than in the United States, even after a decline.

And wage growth, to the extent that it is a sign of strong economic activity, is part of that story, as is continued job growth. Neither measure alarmed the RBA, but each did.

On both fronts, the public sector plays an outsized role, as seen this week when New South Wales police were offered pay rises of up to 39 percent over four years, as the state’s nurses, midwives and transport workers prepare to walk off the job. in their own wage disputes.

Job site SEEK says advertised salaries in the public sector rose 4 percent last year, compared to 3.6 percent overall.

And in the last quarter, the boom in public sector employment masked a decline in private sector employment.

And meanwhile, low productivity – that is, the struggle to increase what we can produce and maintain higher profits and wages – is not improving.

The government understands the RBA calculation, even if it does not always agree. That’s why Jim Chalmers made productivity boosters the centerpiece of his speech to business economists on Wednesday.

And it’s also why, despite celebrating real wage growth, the Treasurer could be forgiven for his slight relief that yesterday’s wage figures were a fraction below expectations, not a fraction above .