ONE of the more interesting puzzles in the Australian economy right now is the rate of growth in wages, as measured by the "wage price index”.
Over the year to March, this measure grew by just 1.9%, less than the rate of CPI inflation, and the slowest growth in the near 20-year history of the series.
Why have wages grown so slowly?
The amount of spare capacity in the labour market is a key driver of wages and there has been enough spare capacity to help limit wage increases.
A series of low inflation outcomes, and signs that workers' expectations for future inflation have come down, are also part of the story.
But according to the Reserve Bank (and others) there's more to it than that: wages are still weaker than justified by those factors alone.
Part of the story is underemployment - much of the jobs growth (more than 60% of it) in the past year has been part-time, and a significant pool of part-time workers want and are able to work additional hours. Greater job insecurity because of technological change and other factors is also likely to play a role.
But from here on, the Treasury expects us to be getting better wage gains: 2.5% for the year to June 2018 and 3% for the year to June 2019.
Beyond that, they don't make explicit forecasts. They make a medium-term projection that wages growth returns to a more normal pace: 3.5% for the year to June 2020 and 3.75% for the year to June 2021.
Faster wages growth boosts tax revenue and hence the budget bottom line.
Perhaps more importantly, wages are the ultimate fuel for consumer spending.
Faster wages growth is vital if you want households to be able to grow their spending faster without either lowering their saving rate further, or borrowing even more money.
However, in order for those budget forecasts and projections to be achievable, we really need to see stronger jobs growth and in particular, stronger full-time jobs growth.
Ironically, the fact that wages and by implication overall labour costs have been so subdued, actually makes that outcome more likely.