Why Has Australian Wages Growth Been So Low? A Phillips Curve Perspective1. (14th May 2018)

• Record Type: Journal Article
• Authors: Chua, Chew Lian; Robinson, Tim
• Other Names: de Roos Nicolas guestEditor.; Singh Aarti guestEditor.
• Is Part Of: Economic record. Volume 94(2018)Supplement 1
• Page Start: 11
• Page End: 32
• Publication Date: 2018-05-14
• Subjects: Australia -- Economic conditions -- Periodicals; 330.99
• DOI: 10.1111/1475-4932.12401
• Languages: English
• ISSNs: 0013-0249

Abstract

Abstract : Wages growth in Australia has recently been the lowest in two decades. One possible explanation is a decline in the non‐accelerating inflation rate of unemployment (NAIRU). We examine this hypothesis by estimating a wage Phillips curve including a time‐varying NAIRU. Our findings are: (i) the NAIRU has recently been around 5.5 per cent; (ii) our approach increases the precision of the NAIRU estimates; (iii) low inflation expectations have been an important contributing factor; and (iv) the long‐run annual wages growth is nearly 3 per cent. We also find that the underutilisation rate suggests greater slack exists, but is less useful in explaining wage developments.