Hopes of sustained real wage growth for Australian workers has been boosted by a sharp increase in employers’ pay expectations against a backdrop of easing inflation, despite a fall in employment intentions and labour shortages, according to the latest survey from the Australian HR Institute (AHRI). 

AHRI’s March Quarterly Work Outlook report shows that employers expect the mean basic pay increase (excluding bonuses) to be 3.7% in the 12 months to January 2025, a sharp increase from the 2.6% previously predicted for the 12 months to October 2024.

This is the highest figure for wage intentions recorded in any of the four surveys published to date. With the RBA forecasting that CPI inflation will fall to 3.3% by June 2024, the survey data offers hope that workers will see a sustained increase in real wages in 2024.

The report also found the labour market is cooling, with the AHRI Net Employment Intentions Index falling to +33, the lowest figure for net employment since the survey began in the June quarter of 2023 and well below the December 2023 quarter (+41).

Making up the index, more than one-third (36%) of organisations are planning to increase employment levels in the March quarter compared with 3% of organisations that are planning to reduce their workforce size.

In line with the cooling labour market conditions, recruitment difficulties are also beginning to recede, with 38% of employers experiencing recruitment difficulties, down from 48% in the previous quarter.

AHRI CEO, Sarah McCann-Bartlett said softer labour market conditions would usually lead to more moderate wage increases but the situation facing organisations is more complex.

“Although recruitment difficulties have eased, many organisations are still having trouble both recruiting and retaining staff. A lack of quality in the labour supply and the high training and recruitment costs associated with replacing staff may therefore be putting upward pressure on wages in many Australian workplaces,” she said.

“Seven in 10 (70%) employers told us they are adopting tactics to avoid or reduce redundancies with the most popular options being raising prices (27%), exercising greater control over non-staff operation costs (23%) and reducing the use of non-permanent staff (21%).

“This concerted effort to reduce redundancies might be because they want to preserve the skills and knowledge of their current workforce or because they are waiting for further information about the economic outlook before deciding to cut jobs.”