To boost wages, Australia’s jobless rate needs to fall

To achieve sustained wage increases, Australia’s jobless rate would need to fall lower than the old full employment estimate of 5%, said a Reserve Bank of Australia (RBA) official. 

Before the RBA raises interest rates, the unemployment rate will likely need to fall to between the “low 4s” and “high 3s”, said RBA deputy governor Guy Debelle as he addressed a Senate committee. 

RBA wants the labour market to tighten so that wage growth can rise above 3%, which can help sustain inflation within the 2 to 3% target band, reports the Australian Financial Review. 

Pre-COVID-19, and when unemployment was about 5%, there was only modest wage growth and international evidence suggested that the jobless rate would need to fall about one percentage point further before there was a noticeable increase in wages, Debelle noted. 

READ: Australia’s jobless rate dips to 5.8% to pre-pandemic levels

“At 5% unemployment rate we weren’t generating much upward pressure on wages,” he said, adding that “in all likelihood it’s a number lower than that. How much lower? We have an open mind on and we’ll just have to wait but it would be great if that number is in the low fours or even high threes.”

Australia’s jobs market has improved in recent months. Recent data showed that employment rose for its fifth consecutive month in February while the jobless rate fell faster than expected.