Reserve Bank governor Philip Lowe has pointed the finger at employers for Australia's extraordinarily low growth in wages, saying they are not paying more despite the tightening jobs market.
Partly as a result, he said, the bank was unlikely to increase interest rates in the "near term".
Addressing business economists in Sydney Tuesday night, Dr Lowe said that as long as Australia remained short of full employment and wage growth and inflation remained low, the Reserve Bank's cash rate would remain "accommodative".
"If inflation stays at a lower level we will not put up interest rates," he said.
"It is more likely that the next move in interest rates will be up rather than down, but the continuing spare capacity in the economy and the subdued outlook for inflation mean that there is not a strong case for a near-term adjustment."
Before the governor's unusually clear comments about the direction of interest rates, the futures market was pricing in a flat cash rate of 1.5 per cent for most of next year. Not until November 2018 did pricing suggest a rate rise was more likely than not.
Dr Lowe said the wage price index had increased by just 2 per cent over the past year whereas in earlier years it had grown 3.5 to 4 per cent.
Growth in hourly earnings was the lowest in more than half a century.
"Not only are wage increases low, but some people have been moving out of high-paying jobs associated with the mining sector into lower-paying jobs," he said.
"We have heard from our liaison program that there has been downward pressure on non-wage payments, including allowances, and an increase in the proportion of new employees hired on lower salaries than their predecessors.
"In the past, the pressure of competition from globalisation and from technology was felt most acutely in the manufacturing industry. Now these same forces of competition are being felt in an increasingly wide range of services industries.
"But this is not the full story. It is likely that there is also something happening on the firms' side as well. Businesses are not bidding up wages in the way they might once have. This is partly because business, too, feels the pressure of increased competition.
"One response to this competitive pressure is to have a laser-like focus on containing costs. Over recent times there has been a mindset in many businesses, including some here in Australia, that the key to higher profits is to reduce costs."
Dr Lowe said he wasn't "calling on the workers of the world united to rise up against the evil capitalists" . He was trying to say that it was okay for wages to grow a bit more quickly.
There were signs in "some pockets" that employers were starting to respond to the need for good workers by offering higher wages.
"We need to have the economy run sufficiently fast with simulatory monetary policy to create more and more pockets."
"We are prepared to be patient. We are making progress, we are patient, and we will continue to be patient," he said.
Cutting income tax wouldn't help push wages higher, but could be worthwhile "for other reasons".
Peter Martin is economics editor of The Age.
