I hope you enjoyed the recession, because the recovery is here, and it is brutal.

You may not know it, but Australia’s economy is growing fast and recovering from the deep pandemic recession. You probably don’t know it because during this recovery real wages have fallen and now we have added to the mix the prospect of much higher interest rates.

After more than a decade of interest rates only going down, the Reserve Bank of Australia on Tuesday kicked up interest rates 50 basis points – something it hadn’t done since February 2000. Combined with the 25 basis rise in May, it made for a two-month hike of 75 basis points – the biggest since 1995.

Gee, thanks.

And yet, unlike the increasing interest rates that met the Rudd government in 2008, these come not off the back of huge mining investment and high paying jobs, but at a time when real employee incomes are falling.

The latest labour account figures released on Wednesday show that real hourly income per employee fell 3.2% in the 12 months to March this year and is now back at the level it was in September 2014:

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In effect, the LNP government left us as it found us.

The labour account figures put to the sword once again the argument that the current increase in inflation that has caused the reserve bank to increase interest rates is not the fault of workers asking for big wage rises.

In reality, worker incomes are going backwards in real terms.

Of course we knew this.

Not only have we seen a bigger slice of the national income going to profits but the latest business indicators released just before the GDP figures showed a strong increase across most industries of sales relative to wages.

In the accommodation and food services industry, for example, the ratio of sales to wages has gone from $4.2 of sales for every $1 of wages before the pandemic to now $4.6 for every $1 – the best ratio of sales to wages ever recorded in the industry:

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The retail trade industry shows a similar story. A 20-year trend of declining sales relative to wages has now been reversed:

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This does not mean businesses are now making huge profits – there are many costs other than labour that need to be paid – but that clearly the big drivers of inflation are not coming from labour costs.

This is important because not only are there strong pushbacks from employer groups against wage rises above inflation (or even level with it), but that these pushbacks are coming even as the need for labour is at record highs.

The labour account figures, unlike the monthly labour force data, enable us to see just how many vacancies there are in each industry relative to the total number of jobs.

This gives us a sense of how desperate for workers each industry is.

Right now 2.8% of all jobs are vacant waiting for someone to fill them. That is the highest level on record back to 1994 by some margin:

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The reason is the combination of good jobs growth and a sharp decline in the number of working-aged people in Australia.

As I noted last month, there are now about 354,000 fewer people aged 15-34 here than would have been expected prior to the pandemic.

Yes, the borders are opened, but it takes time to fill that gap.

And the need for workers is strong across all industries:

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One of the industries that has seen the biggest increases in job vacancies is the accommodation and food services industry.

You would expect this great need for labour would see a similarly large increase in the payment to workers – the usual supply and demand relationship. That labour costs would soar, perhaps justifying the need to keep the minimum wage rise down to protect businesses, given how many workers in the sector earn that rate.

But no:

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The real hourly cost of labour in the hospitality sector is now back where it was in 2012 – a period when the industry vacancy rate was less than half what it is now.

In raising rates, the reserve bank wants to keep inflation down – this includes wages as well as rising prices.

The problem is that while one is too high, the other is already too low.

The labour account shows we have a historically sharp increase in the demand for labour, but not the accompanying increase in workers’ incomes.

The risk is that the next 12 to 18 months will see increased prices due to overseas events, and increased interest rates, but those same rate rises will dash the hopes for stronger wages as the heat comes out of the economy.

The recovery has essentially been profits first; wages later.

But should the reserve bank stifle the recovery with fast rate rises, those wage rises will remain off in the distance, and workers’ real incomes will continue to fall.