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.
ASJC Scopus subject areas
- Economics and Econometrics