ABC finance commentator Alan Kohler has warned that Australian workers suffered a quiet disaster as soaring inflation wiped out pay gains and dragged down real wages.
Speaking on ABC TV, Kohler explained that average wage earners were hit starting in March 2021, as rising consumer prices swallowed up pay increases received over the following two years.
By March 2023, an average wage earner in Australia was left $5,000 a year behind, with little prospect of recovering the lost ground even as inflation eases.
Alan Kohler is a veteran Australian financial journalist and commentator for the Australian Broadcasting Corporation, Australia's national public broadcaster. His television analyses on ABC TV track national trends in economic policy, wage growth, inflation, and household living standards across Australia.
Kohler noted that the gradient of the Reserve Bank of Australia forecast for real wages demonstrates that workers are unlikely to make up their financial losses.
Real wages calculate the actual purchasing power of an employee's earnings after accounting for price inflation across the economy. When price inflation outpaces nominal pay increases, a worker's real wage drops despite receiving higher dollar amounts on pay slips.
Kohler described the decline as a permanent loss, noting that real wages stopped rising after 2022 and flatlined across the country.
As a result of that stagnation, real per person disposable income in Australia has recorded negative growth for three consecutive years.
Disposable income represents the total net funds available to households for spending, debt servicing, and saving after income taxes are deducted. The Reserve Bank of Australia, headquartered in Sydney, operates as the nation's central bank and sets monetary policy to manage inflation targets and track broader household financial conditions.
Inflation Erodes Average Wage Gains
On top of stagnant real earnings, Kohler pointed out that house prices had been rising faster than household incomes for 25 years up to a few months ago, locking an entire generation out of home ownership.
Australian households have also faced severe financial pressures from the Reserve Bank of Australia hiking interest rates 13 times, alongside a growing tax burden on workers.
Australia's residential real estate market has experienced long-term price surges over recent decades, particularly in capital cities such as Sydney and Melbourne. Elevated central bank cash rates increase borrowing costs for home buyers, raising monthly mortgage repayments for households across the country.
Kohler stated that Australians born in the 1990s are the first generation in national history to not do better than those who came before them.
He detailed historical generational progress, noting that people born in the 1950s were better off than those born in the 1940s, while those born in the 1960s outperformed the 1950s generation.
That pattern of rising living standards continued for Australians born in the 1970s, who were better off than those born in the 1960s, and for those born in the 1980s, who fared better than the 1970s cohort.
However, Kohler emphasized that individuals born in the 1990s are no better off than those who are ten years older than them, creating widespread discontent among younger workers.
Generational Shift in Living Standards
Greg Jericho, chief economist at the Australia Institute, supported Kohler's findings and noted that wages are supposed to rise faster than inflation to drive rising living standards.
Greg Jericho serves as chief economist at the Australia Institute, a public policy think tank based in Canberra that conducts economic, social, and policy research. Economists at the institute regularly analyze national employment figures, income inequality, and economic forecasting models.
Jericho warned that Australia has experienced the worst collapse in the value of people's wages in living memory over the last five years.
He illustrated how inflation neutralizes wage gains, explaining that if a wage increases by 3 per cent while inflation also rises by 3 per cent, the worker is no better off because their real wage has not increased.
Jericho added that under equal wage and inflation growth, a worker cannot buy more goods and services, and taking income taxes into account leaves them likely worse off overall.
Long Road to Real Wage Recovery
Forecasts by the Reserve Bank of Australia suggest it will take until 2037 for real wages in Australia to recover to the levels recorded before the collapse.
Estimates by the central bank show that by the end of 2028, an Australian wage worth $90,000 in 2021 will still carry an actual purchasing value of just $86,696.
Jericho stated that projections indicate Australian workers will have to wait until the end of 2036 to get all the way back to 2021 real wage levels.
To accelerate economic recovery, Jericho called on state and federal governments across Australia to take the lead in raising wages.
Role of Public Sector Employment
Jericho argued that public sector policies must reverse the role played before the pandemic, when government wage policies actively suppressed pay growth.
Because the public sector directly and indirectly employs roughly one-third of Australia's total labor force, government pay decisions exert a major influence over nationwide wage benchmarks.
The Australian public sector includes employees across federal, state, and territory government departments, public healthcare systems, government schools, emergency services, and statutory agencies. Pay structures in these public institutions help establish wage expectations across competing private sector industries.
Jericho pointed out that wage increases across the public sector may currently be averaging around two per cent.
He explained that low public sector wage caps create competition effects for workers, effectively reinforcing an economy-wide wage growth norm at around two-point something per cent.
Jericho urged governments to use public sector wage increases to lead the broader labor market and help Australian workers recover lost purchasing power more rapidly.
