Westpac's warning to corporate Australia highlights extent of households' financial stress (2024)

Are you tired?

Actually, don't answer that. Of course you are.

In the space of two years Australians have grappled with drought, bushfires, floods and a pandemic.

This year has also thrown up a war in Ukraine and an urgency to wean the nation off fossil fuel power generation and into renewables.

We're left with rising prices for food, gas and electricity, petrol and of course interest rates (as a way to control high inflation).

Federal and state governments are trying to ease the pressure on household budgets, but much of this relief is on the expenditure side.

Better put, federal and state governments want to lower the cost of living.

But what about the income side of household budgets? That is, our wages and salaries.

The evidence shows many Australians have given up on receiving a large pay increase and have, instead, opted for working extra jobs or longer hours.

But it's making many of us bloody tired and stressed, and that can't continue or we'll be dealing with bigger problems down the track.

Now Westpac has had enough! In an extraordinary move, its chief economist hasrebuked corporate Australia for capitalising on soaring inflation and price gouging customers -- adding to their household budget stress.

Full employment hasn'tled to wages growth

For years those pulling the economic levers reassured us that wages growth would lift as the jobs market tightened.

That didn't eventuate.

At 3.4 per cent, Australia now has close to what economists call "full employment".

It has produced wages growth of 3.1 per cent, and some of this related to intervention by the Fair Work Commission with increases to minimum and award wages.

The problem is many workers have felt uneasy about going to their boss cap in hand and asking for a pay rise.

That's because it's a hard thing to do, but it has historically proven fruitless too.

Earlier this year the Albanese government brought unions, business groups and politicians together to nut out a solution to the problem at the Jobs and Skills Summit.

Itled to the biggest overhaul of industrial relations legislation in decades.

More workers will now have access to multi-employer bargaining -- allowing employees to from within an industry to band together to bargain for higher pay.

The problem with thisis that firms with less than 20 staff are exempt, which rules out over 90 per cent of employing businesses.

There are many big companies that employ thousands of workers, though, so time will tell if the new legislation actually leads to a significant lift in the wage price index.

Workers burning the candle at both ends

In the meantime, workers are doin' it for themselves.

Analysts say workers, especially those on lower incomes, are taking on multiple jobs, or working longer hours, to help makes ends meet.

This is producing two outcomes.

Firstly, it's increasing what economists call the "total wage bill", that is, the total amount of wages being handed out to employees across the country, as opposed to wages growth.

"By industry, the largest rise in [the] wage bill in the three months to September was for accommodation and food services, up 7.7 per cent," Deutsche Bank chief economist Phil O'Donaghoe said.

"Accommodation and food service workers are the lowest paid industry in Australia.

"And on the annualised basis, accommodation and food service workers saw a whopping 40 per cent increase in average wages over the past six months.

"That 40 per cent annualised increase sounds crazy, I know,but six months ago, the total wages bill for accommodation and food services was still below pre-COVID average, and the level of employment in the industry is still today below average.

"So, the inference here is that accommodation and food workers are getting paid more in total, but it is also very likely they are also working a lot more hours than was the case pre-COVID.

"So 'hourly' pay rates won't have increased nearly as much.

"Think of it this way: data suggest a lot of people who were working part time in hospitality pre-COVID, are now working full-time, so obviously earning more [in aggregate]."

Secondly, it's hurting productivity -- because workers are exhausted when they turn up to do a night shift after a day's work.

This week's GDP figures showed worker productivity fell 0.7 per cent.

"Studies have repeatedly shown that our productivity per hour of work falls the more we work, and actually cutting back on hours (from five to four days per week) can lift total output," Impact Economics and Policy Lead Economist Angela Jackson says.

"Not only are people less tired, they are happier and happier people tend to produce more for every hour they work."

Westpac issues unprecedented slap on the wrist

What's been truly extraordinary this week is that more voices are emerging calling for those who have an influence over inflation to behave themselves.

The Reserve Bank warned workers this week not to ask for big pay rises lest they want to see an economy-crippling wage-price spiral.

"Given the importance of avoiding a prices-wages spiral, the board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead," it said.

And Westpac's now watching the price-setting behaviour of firms too.

Its chief economist, Bill Evans, actually told big corporate bosses to pull their heads in yesterday and stop pushing through excessive price increases.

"Through 2023 businesses need to embrace that difficult growth outlook and desist from excessive price increases or out-bidding competitors for scarce labour,"Evans wrote.

"In general, the prospect of flat growth should convince businesses that large wage increases and rising prices will be unsustainable by the second half of 2023."

It's truly bizarre.

A central bank asking workers to do without, and a bank making billions of dollars in profits asking other highly profitable public and private companies to take it easy on price gouging.

There are more straightforwardways to ease the pressure on household budgets.

The joy of higher pay

It's also so easy to get lost in all this economic talk.

The point is simple, though -- as humans we're designed to work and even work hard sometimes. That should lead to innovation and productivity growth which, in turn, leads to higher wages growth.

Everybody wins, firms make bigger profits and workers share in the spoils.

It means eating better food, wearing nicer clothes, driving a safer car, and maybe even living in a home with more space (and perhaps even owning that home).

Instead, right now these comforts are only going to the already wealthy households, while lower income households desperately trying to make ends meet are just running themselves into the ground.

It'd be better if the Reserve Bank and Westpac read the riot act to all firms on lifting their prices beyond a reasonable level, and joined the fight to help workers obtain bigger pay rises.

Those higher wages would then feed back into more consumer spending.

The argument against this is that it would in turn feed inflation, but wages growth remains miles away from fuelling inflation.

It's a fairness thing.

And in any case, the status quo is just too bloody exhausting.