The prospect of escalating job losses in Australia’s mining industry looms as an increasing strain on the nation’s economy, with new jobs paying a fraction of those that are disappearing.
A survey of 50 mining executives found 80 percent plan to cut workers in the next 12 months, up from 50 percent a year ago, according to results released Wednesday by Newport Consulting. While services jobs -- helped by tourism -- are rising, the problem for consumption growth is that it takes five bartenders to make up the compensation for each lost miner.
Those jobs aren’t being created at a fast enough pace to make up the income gap, amid reluctance among employers worried about domestic demand that’s already lackluster due to high household debt levels. Companies have no plans to add net workers to payrolls in the next three months, National Australia Bank Ltd.’s quarterly business survey showed last week.
For policy makers, the chicken-and-egg quandary means the rebalancing in the economy away from mining will struggle to generate the growth that Australians have become accustomed to.
“Weak wage growth, which is likely to linger, means sluggish demand in the economy,” said Justin Fabo, senior economist at Australia & New Zealand Banking Group Ltd. “It gives the central bank scope to cut interest rates because it’s not signaling any break out in inflation. Indeed, the risks are tilted to further rate cuts.”
Australia is currently in its longest period of low wage growth since the early 1990s recession, Reserve Bank of Australia economists David Jacobs and Alexandra Rush wrote in a research paper published in the quarterly bulletin last month.
“As slack in the labor market rises, employees become more anxious about their job security and become willing to accept lower wage growth,” they wrote.
It’s not surprising, then, that consumer confidence is firmly in negative territory and the weakest since December.
Wages including bonuses in the private sector fell in the first quarter for the first time on record as the wall of Chinese money scooping up the nation’s commodities receded. Australia’s terms of trade, or export prices relative to import prices, have fallen about 30 percent since late 2011.
As China’s economy slowed, Australia lost 34,000 mining jobs in the 12 months through May while adding 53,000 accommodation and food services positions, according to data from the Bureau of Statistics. The problem is that annual wages in the hospitality industry -- including for those working part time -- average A$26,832 ($19,585). That’s a fraction of the A$134,000 in the mining industry.
Wage cuts are among the levers for the economy to adjust as the resources boom unwinds with another being depreciation of the Australian dollar.
“The currency is acting as a shock absorber, but that’s it, it’s not yet at levels that are stimulatory,” Fabo said, referring to the Aussie’s 20 percent drop in the past two years to the lowest since 2009.
The currency fell through 73 cents this month and traded at 72.98 U.S. cents at 2:38 p.m. in Sydney.
While RBA Governor Glenn Stevens hasn’t ruled out reducing borrowing costs further to put more cash into the hands of households, he has signaled concern about the longer-term risks of consumers taking on higher debt.
Household debt in Australia as a proportion of disposable income rose to a record 155.9 percent in the first quarter of this year, having more than doubled over the past two decades.
“It is households that probably have the least scope to expand their balance sheets to drive spending,” Stevens said June 10.
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