Australian Real Wages Decline as Inflation Outpaces Pay Rises
New figures released by the Australian Bureau of Statistics (ABS) reveal a concerning trend for household finances across the nation. Over the year to December, wages grew by 3.4 per cent, which might initially appear positive. However, the crucial number for households is what happened to wages after accounting for inflation. Over that same period, the consumer price index (CPI) rose by 3.8 per cent, meaning real wages—wages after inflation—actually went backwards.
The Erosion of Wage Benchmarks
This is not merely today's story but part of a deeper narrative that has been unfolding for several years. There has been a significant erosion of Australians' sense of what constitutes a "good" wage and how society perceives wage inequality. Many individuals are feeling the intense pinch of inflation when paying for essentials such as rent, groceries, insurance, child care, and other daily costs. Consequently, even a decent pay rise can feel underwhelming because inflation does not just squeeze budgets; it quietly moves the goalposts.
Earning 'six figures'—A$100,000 a year or more—is far from what it used to represent. For many people, cracking six figures once signalled the ability to live very comfortably. Australians face a huge variety of circumstances, making it impossible to declare a particular wage level objectively 'good'. However, estimates suggest that only around one in ten full-time workers in Australia earned $100,000 or more in 2010. By 2025, this had risen dramatically to almost one in two, at 45 per cent.
The Illusion of Comfort
Despite this increase, many households at that income level do not feel overly comfortable, especially in major cities where housing costs have risen sharply in recent years. While wages have risen on average, they have not kept pace with inflation. To illustrate, if we adjust for CPI inflation, $100,000 today only has the purchasing power of about $67,000 in 2010. Therefore, when anyone today asserts that 'people earning six figures should be very comfortable', they may be using an outdated benchmark given the new cost-of-living reality. This explains why many people feel like they are running to stand still, even on incomes that previously signalled comfort.
Melbourne University academic Christopher Hoy emphasised that three months of wage growth cannot undo years of lost ground when inflation rose sharply after the pandemic. A six-figure salary is no longer sufficient for many people to feel comfortable as inflation continues to bite.
Public Perceptions and Wage Inequality
A significant portion of the cost-of-living debate often conflates two distinct issues. The first is whether typical living standards are rising, which relates to real-wage growth. The second is the issue of how wages are distributed across society, which ultimately concerns inequality. In recent research with co-authors, Christopher Hoy studied how people perceive wage inequality. The team asked a nationally representative sample of 1,500 Australians to estimate what share of full-time workers are actually on low, middle, and high wages. Then, they inquired what respondents believe a fair distribution would be.
A clear pattern emerged: Australians systematically underestimate wage inequality. Most respondents underestimated how 'top-heavy' the distribution of wages is—that is, how a small group of workers at the top earn substantially more than everyone else. This matters profoundly because public perceptions shape policies. If people think the wage distribution is more equal than it truly is, they may be less likely to support policies aimed at narrowing gaps. This is not due to a lack of care but because they do not realise the true size of the problem.
Shifting Attitudes with Information
Almost all respondents in the research expressed a strong preference for fewer full-time workers to earn low wages. This desire exists across political lines and income levels. The results demonstrate that when people are provided with accurate information about wage inequality, even far-right respondents become much more supportive of redistribution. This serves as a useful reality check, as public debate is often framed as 'envy versus aspiration' or 'us versus them'. The research suggests many everyday Australians are more focused on ensuring workers are paid enough to live comfortably.
Key Questions for Living Standards
Today's numbers indicate whether real wages are rising right now. For a clearer read on living standards than a single wage headline, here are three critical questions worth asking:
- Are wages consistently beating inflation? Even three months of wage growth cannot undo years of lost ground when inflation rose sharply after the pandemic.
- Where are the gains concentrated? Industry, sector, and gender differences significantly shape inequality.
- Have we updated our mental benchmarks for how much money it takes to live comfortably? The cost-of-living story is not just about today's number; it is about the benchmarks inflation has quietly rewritten.
In summary, the ongoing erosion of real wages and shifting perceptions of income adequacy highlight a pressing economic challenge for Australia. As inflation continues to outpace wage growth, the very definition of a comfortable salary is being redefined, urging a reevaluation of both personal finances and public policy.
