Conventional economic wisdom expects wage growth to respond in a certain manner to changes in other economic indicators (Table 1). Recent data indicates that wage growth is slowing despite a reasonably robust economy. This phenomenon is being observed in a number of developed countries,1 and has left analysts vexed as to what exactly is causing this slowdown.
This e-brief outlines recent wage growth trends in NSW and Australia, and the potential contributing factors. While observers believe that this recent stagnation may be related to cyclical factors and does not justify panic, it nevertheless creates challenges for policymakers due to the increased risk of negative economic and social consequences if low wage growth continues: for example, lower incomes and government revenue, and rising inequality. The paper concludes with summaries of key policy proposals that stakeholders claim could stimulate wage growth.