Philip Lowe, the RBA’s President, warned that the cap on civil servants’ pay was contributing to low wage increases and wanted to raise it to at least 3%. Lowe told a congressional economic committee on Friday that federal and state pay caps of 2 to 2.5 percent are helping to hold down wages by regulating private businesses.
He said that with an inflation target of 2.5% and a 1% increase in Labour productivity, both government and private wages should rise by 3% or more. “I think it’s a reasonable medium-term vision,” he said.
“I hope we can do better, but I think we can do it,” he said. In his opening remarks, he said the upward pressure on wage growth, which has been falling since 2013, was lower than we had expected. In its latest monetary-policy statement, the RBA again lowered its wage forecasts to 2% from 2.4% (2019) and 2.5% (2020). Lowe makes a cursory reference to spare capacity in the Labour market, underemployment and the cap on civil servants’ pay rises, but his point is that wage rises are both affordable and desirable.