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Why Has Australian Wages Growth Been So Low? A Phillips Curve Perspective

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  • Chew Lian Chua
  • Tim Robinson

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.

Suggested Citation

  • Chew Lian Chua & Tim Robinson, 2018. "Why Has Australian Wages Growth Been So Low? A Phillips Curve Perspective," The Economic Record, The Economic Society of Australia, vol. 94(S1), pages 11-32, June.
    • Handle: RePEc:bla:ecorec:v:94:y:2018:i:s1:p:11-32
    DOI: 10.1111/1475-4932.12401
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    References listed on IDEAS

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    Cited by:

    1. Stephen Bell & Michael Keating, 2019. "Low Wage Growth: Why It Matters and How to Fix It," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 52(4), pages 377-392, December.
    2. Kirchner, Stephen, 2018. "Money too tight to mention: The Reserve Bank of Australia’s financial stability mandate and low inflation," Economic Analysis and Policy, Elsevier, vol. 60(C), pages 141-149.
    3. James Bishop & Emma Greenland, 2021. "Is the Phillips Curve Still a Curve? Evidence from the Regions," RBA Research Discussion Papers rdp2021-09, Reserve Bank of Australia.
    4. Malikane Christopher, 2023. "A Traditional Nominal Wage Phillips Curve: Theory and Evidence," The Economic Record, The Economic Society of Australia, vol. 99(324), pages 108-121, March.
    5. Chris Murphy, 2020. "Decisions in Designing an Australian Macroeconomic Model," The Economic Record, The Economic Society of Australia, vol. 96(314), pages 252-270, September.

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