While Australia’s economy has enjoyed steady growth for over a decade, wage growth has not kept up. This wasn’t immediately a concern for the economy as a whole, but now the effects are beginning to show. Australia is in “per capita” recession for the first time since 2006. This means that the Australian economy is still growing, but the rate of growth is smaller than the growth of the population, so individual Australians are becoming poorer.
Businesses rely on consumer prosperity to make their businesses grow. After all, consumers with less disposable income will have that much less to spend on the goods and services that they provide. Since those middle class consumers also form the core of the skilled labour force, any negative impacts on their businesses will financially harm them even more. This forms the key feedback cycle that drives both recessions and economic growth.
Why wages aren’t rising
Wages normally fluctuate in accordance with labour demand. This means that as the unemployment rate increases, wages go down, because workers are forced to compete for a limited number of jobs. Currently, though, Australia has a respectably low unemployment rate of around 5 per cent, which would normally be expected to help drive wage growth. The problem is that a number of other factors are collectively holding wages down.
As the economy has grown, the prices of many regular consumer products have remained as stagnant as wages. This is because Australian businesses have increasingly been forced to compete internationally, against businesses with access to much cheaper labour and resources. Businesses who want to compete need to reduce costs to do so, often by outsourcing labour overseas, or keeping wages lower at home.
Low productivity growth
Australian worker productivity hasn’t seen a great deal of growth in recent years. Because of a relative lack of technological disruption with regard to worker productivity in major industries, workers aren’t producing more year over year. This makes it difficult for businesses to raise wages. After all, a business that doesn’t earn more revenue per employee doesn’t have any additional funds it can use to fund a pay rise.
Growing casual employment
Businesses increasingly lack the financial stability to commit to traditional employees. A growing portion of positions in Australian businesses are casual, giving businesses more control over how long to keep workers on. Due to the nature of their employment, these workers also have little or no leverage to demand pay rises, which is helpful in the short term for businesses facing ever tightening budgets. Unfortunately the overall effects on workers, and therefore consumers, is less than helpful.
Australian businesses face reduced sales and labour shortages
Businesses today are left with few actionable solutions. Many can’t afford to raise wages while also remaining competitive, but failing to raise wages is beginning to have serious knock-on effects in the economy. Australia’s per capita recession is just the first symptom that shows that consumers no longer have the disposable income to drive ongoing economic growth. As the cost of living continues to rise, driven in large part by high rent and utilities costs, consumer spending will fall, and debt levels will continue to increase.
Australian workers are being priced out of major cities
Because the cost of living in Australia’s major cities is already so high, skilled middle-income workers are increasingly leaving to buy homes and start families in more affordable areas. For lower paying jobs, even relatively competitive award rates are too low for workers to afford either local rent prices, or the cost of a long daily commute for those who hope to escape to more affordable suburban areas.
Businesses in these cities also face very high real estate costs in addition to the larger issues faced by businesses across the country. This makes it even more difficult for them to retain or attract new workers to help manage any attrition. Until conditions improve, businesses are left without many easy solutions.
Businesses need cash flow to move forward
As in any kind of economic downturn, businesses need to find ways to innovate and grow around these issues. The most effective way to do that is always to first secure stable cash flow, and to ensure that they have reliable access to financing. That means working together with a financial representative at your financial institution to smooth over any cash flow interruptions and inefficiencies.
Financing tools like invoice finance and supply chain finance enable businesses to get paid more quickly and reliably, and to keep suppliers paid even when revenues are less than regular. This allows businesses to maintain their working capital more reliably, freeing them to invest in growth and innovation. While competitors struggle to maintain the status quo, these forward thinking businesses can work proactively to adapt and find opportunities during a difficult time.