Wages Report Issue 4, September 2012
Public sector budget cuts are making themselves felt in the pay packets of workers across the country, with public sector workers seeing the lowest rate of wages growth in around a decade. Overall wages growth remains solid and steady, around its long-run average. There are signs that the gap between the states with fast-growing wages and those with slow-growing wages is starting to widen again, after narrowing in the wake of the GFC.
This report is primarily about earnings at work, but wages aren’t the only thing that matters for the living standards of working people. Australian unions have long recognised that the social wage – the services and safety net provided by government – stands alongside fair conditions at work as a vital component of our social protection system. Newstart Allowance is a bedrock component of that system. The current Allowance is too low to ensure that workers aren’t exposed to the risk of poverty if they lose their jobs. The ACTU recently provided a submission to a Senate inquiry on this issue, which is summarised as a feature in this Wages Report.
This report also includes a feature on ‘real producer wages’, which are average wages adjusted for inflation using a measure of the prices that businesses receive for their output. In recent years the prices that Australian businesses receive for the goods and services they sell have risen more rapidly than the prices of the goods and services that workers buy with their wages. This is partly due to the dramatic rise in Australia’s terms of trade, which measures the price of exports relative to imports. As a result, workers’ purchasing power has increased at a greater rate than businesses’ labour costs, but this trend is likely to be coming to an end. The divergence between producer and consumer wages also further undermines the outrageous claims that Australia has experienced an inflationary ‘wages breakout’ in recent years.
Wages and prices at a glance Latest quarter
Level
Quarterly change
Year-ended change
Wage Price Index (WPI)
June
-
1.0%
3.7%
Full-time average weekly ordinary time earnings (AWOTE)
May
$1,351.20
0.4%
3.4%
Real full-time AWOTE
May
$1,351.20
-0.1%
2.2%
Total average weekly earnings (AWE)
May
$1,057.30
0.7%
3.7%
From 1 July
$606.40
2.9%
2.9%
March
-
-
4.5%
Headline CPI
June
-
0.5%
1.2%
Underlying CPI
June
-
0.6%
2.0%
Employees’ cost of living (LCI)
June
-
0.5%
0.7%
National Minimum Wage per 38 hour week Average wage increase in collective agreements
Source: ABS, FWA, DEEWR. Underlying CPI is the average of the trimmed mean and weighted median. All figures are seasonally adjusted other than the CPI, ALCI & NMW. The gender pay gap is calculated using full time adult AWOTE. Real AWOTE is deflated using the CPI. The ‘average wage increase in collective agreements’ is the AAWI from DEEWR’s Trends in Federal Enterprise Bargaining publication. ‘pps’=percentage points.
ACTU Wages Report | September 2012 | Page 1
Wage Price Index Wages have continued to grow at around their average pace,
Despite a slight increase in seasonally-adjusted growth in the
with the Wage Price Index (WPI) rising by 3.7% in the year to
June quarter, public sector wages are still growing at around
the June quarter. The pace of growth accelerated a little, up
their slowest pace in a decade.
from a quarterly rate of 0.9% in the March quarter to 1% in
Figure 3: Growth in the public sector WPI (year-ended) 5.0%
June. Figure 1: Growth in the WPI (year-ended) 4.5%
4.5% 4.0%
4.0%
Long-run average
3.5% 3.5%
Long-run average
3.0%
3.0%
2.5% Trend 2.0% Jun 02
2.5% Trend 2.0% Jun 02
Jun 04
Seasonally adjusted
Jun 06
Jun 08
Jun 10
Jun 12
Jun 04
Seasonally adjusted
Jun 06
Jun 08
Jun 10
Jun 12
Source: ABS 6345 and ACTU calculations.
There are few surprises in the State numbers, with WA wages
Source: ABS 6345 and ACTU calculations.
continuing to grow strongly while Tasmania and South
Both the public and private sectors saw the pace of wage
Australia lag the pack. Somewhat surprisingly, the ACT
growth increase slightly, but public sector wage growth
recorded solid wages growth over the year, despite the
(3.2%) remains well below its long-run average of 3.9% per
sluggish growth recorded in the public sector.
year. Private sector wages are growing slightly faster than
Figure 4: Growth in the WPI by State (year to June quarter) 0%
their long-run average, but slower than in the pre-GFC
1%
2%
3%
4%
WA
period.
4.8%
ACT
Figure 2: Growth in the private sector WPI (year-ended) 4.5%
4.0%
3.5%
Long-run average
5%
4.0%
Qld
3.8%
Australia
3.7%
Victoria
3.5%
NSW
3.5%
NT
3.5%
SA
3.4%
Tas
3.2%
Source: ABS 6345.
3.0%
In the early 2000s, the gap between the fastest State-level wages growth and the lowest growth was typically around 1
2.5% Trend 2.0% Jun 02
Jun 04
Jun 06
Source: ABS 6345 and ACTU calculations.
to 1.2 percentage points. In the mining boom period before
Seasonally adjusted Jun 08
Jun 10
Jun 12
the GFC, wage growth in the states ranged from 5.9% in WA to 3.5% in Tasmania – a gap of 2.3 percentage points. This gap between wages growth across the states dropped in the wake of the GFC, returning to more normal levels, but there ACTU Wages Report | September 2012 | Page 2
are signs that it is starting to rise again, with a gap of 1.6
Figure 6: Year-ended WPI growth by industry 0%
percentage points between WA and Tasmania in the June
1%
2%
3%
4%
Mining
quarter. Figure 5: Gap between highest wages growth and lowest wages growth by State
4.8%
Professional, scientific and…
4.5%
Construction
4.2%
Financial and insurance…
4.1%
Electricity, gas, water and…
3.8%
Manufacturing
2.0%
3.8%
Transport, postal and…
1.0% 0.5%
3.8%
Other services
3.7%
Australia
3.7%
Education and training
3.6%
1.5%
Administrative and support…
3.6%
Arts and recreation services
3.5%
Public administration and…
Jun 04
Jun 06
Jun 08
Jun 10
Jun 12
Source: ACTU calculations based on ABS 6345. The dotted line shows the percentage point gap in seasonally adjusted, year-ended WPI growth across the States/Territories for each quarter. The red line is a LOESS trend.
The upward trend in the gap between rates of wages growth
6% 5.2%
Wholesale trade
% points 2.5%
0.0% Jun 02
5%
3.5%
Information media and…
3.5%
Rental, hiring and real estate…
3.5%
Accommodation and food…
3.4%
Retail trade
2.7%
Health care and social…
2.6%
Source: ABS 6345, original.
across the states is mostly due to WA and the other fastgrowth states racing ahead, rather than the slow-growth
The WPI growth in the Wholesale Trade industry is
states falling further behind.
particularly notable. The growth over the past year is the largest ever recorded in that industry (these data go back to
Wages growth across industries ranged from 5.2% in mining
1997). The industry did see its wages growth plummet further
to just 2.6% over the year in Health care and social
than the national average during the GFC, so there could be
assistance, with the Retail trade industry recording only a
some ‘catch up’ wage growth in the industry, and the
2.7% increase in the WPI over the year. The wholesale trade
industry-level data aren’t seasonally adjusted.
and mining industries recorded 1.6% and 1.5% wages growth (respectively) in the June quarter alone.
Figure 7: WPI growth in Wholesale Trade (year-ended) 5%
Wages in Retail (0.2%) and Accommodation and food services (0.2%) barely rose in the June quarter – workers in these
4%
industries are more likely to rely on adjustments to minimum wages, which took effect after the June quarter finished
3%
(from 1 July, the beginning of the September quarter). 2% Wholesale industry 1% Jun 02
Jun 04
Jun 06
All industries Jun 08
Jun 10
Jun 12
Source: ABS 6345, original.
ACTU Wages Report | September 2012 | Page 3
Feature: The inadequacy of Newstart Allowance At the 2012 ACTU Congress, unions endorsed a policy that calls on the Government to increase Newstart Allowance. In line with this policy, the ACTU has provided a substantial submission to the current Senate inquiry into the adequacy of government allowances. The full submission can be found at: actu.org.au/Publications/WorkingAustraliaPapers/ .
The submission argues that income support should protect unemployed people from poverty and help them to find work. Allowing the ‘social wage’ to erode over time doesn’t just affect people who are currently out of work; it exposes all workers to greater risk of poverty if they lose their job. With a greater proportion of workers now in insecure work, it’s likely that more workers will need to rely on the income support system at some point in their working lives.
Newstart is now at its lowest level relative to average wages in over three decades, and its lowest level relative to minimum wages in two decades, as shown in Figure 8. Australian workers on average wages who lose their jobs experience a larger fall in their income than their counterparts in any other OECD country (see Figure 9).
Figure 9: Unemployment benefits as a % of wages in OECD countries (including housing benefits where applicable) Israel Luxembourg Portugal Netherlands Switzerland Slovenia Czech Republic France Belgium Iceland Slovak Republic Norway Germany Denmark Spain Canada Italy Ireland Hungary Japan Austria Estonia Finland Poland United States Sweden Turkey Greece Korea United Kingdom New Zealand Australia
75 74 73 73 70 66 66 65 64 64 62 61 60 60 58 57 56 55 55 54 53 51 48 47 46 46 44 38 35 29
86 84
0 20 40 60 80 100 Unemployment benefit as a % of average fulltime wage (net) Source: OECD Tax-Benefit Models 2012. Charts show the net replacement rates for the first year of unemployment.
There are two main poverty lines that are used in Australia – the Henderson line and the 50% of median income line. In
Figure 8: Single adult Newstart payment as a proportion of the National Minimum Wage and average full-time wages
the mid-1990s, Newstart was just enough to ensure that a
Ratio 50%
single adult wouldn’t be in poverty – the payment was Newstart as a proportion of the NMW
45%
roughly equal to the 50% of income line. Now, the payment is only around two-thirds of the poverty line, whichever line is used. In other words, Newstart would have to increase by
40%
around 50% just to ensure that single adult unemployed
35%
people wouldn’t be in poverty. 30% Newstart as a proportion of AWOTE
25%
Newstart Allowance is inadequate. The ACTU’s submission to
20% 15% Mar 82
Whichever measure is used, it’s clear that the single rate of
the inquiry demonstrates that Newstart isn’t sufficient to Mar 92
Mar 02
Mar 12
Source: AWOTE from ABS 6302 and ABS 6304, via Foster 1996. Minimum wage data are the NMW/FMW or the equivalent C14 rate. Newstart rates are from FaHCSIA.
allow people to purchase a ‘low cost’ basket of goods and services that are needed to get by, and that Newstart recipients experience very high levels of financial stress and deprivation. ACTU Wages Report | September 2012 | Page 4
Figure 10: Newstart as a proportion of two poverty lines Ratio 100%
Disability Support Pension, are already indexed to wages. Increasing
Newstart
and
improving
its
indexation
arrangements will reduce the gap between DSP and Newstart as a % of 50% median poverty line
90% Newstart as a % of Henderson poverty line
80%
Newstart. The large and growing gap between the two payments can mean that some DSP recipients are fearful of taking paid work when they’re able to, for fear that they’ll end up on the poverty-level Newstart Allowance. In the 90s, Newstart was over 90% of the DSP rate. It’s now about two-
70%
thirds of DSP. Unless the indexation arrangements are changed, it will be less than half of the DSP in less than 20
60% 1991
1996
2001
2006
2011
years.
Source: Newstart rates from FaHCSIA. Henderson PL is from the Melbourne Institute. 50% of median PL is an ACTU calculation based on ABS 6523.
The ACTU has called for the payment to be increased by $50 per week. Other organisations, including ACOSS, have made
Figure 11: Growing gap between DSP and Newstart 2011 $ per week 700 Projection
the same recommendation. Unusually, this issue has seen
600
common ground across not only unions and community
500
sector,
conservative
400
economists like Judith Sloan and Ian Harper, the OECD, and
300
but
also
the
Business
Council,
the panel of the Henry Review. The $50 per week increase that the ACTU and others have called for arises from the Henry Review’s recommendation that singles on Newstart should receive around two-thirds of the couples rate – the same relativity as for single pensioners.
DSP 200
Newstart
100 0 1991
2001
2011
2021
2031
2041
Source: ACTU calculations based on FaHCSIA, ABS 6401, Treasury.
The ACTU’s submission also includes valuable input from the The ACTU’s submission rejects the idea that an increase in Newstart will result in people choosing unemployment over work. For a start, a $50 per week increase in Newstart would still mean that unemployed people could roughly double their take-home incomes by getting a full-time job at the National Minimum Wage, so substantial financial incentives to work would remain. The submission also argues that paying very low, sub-poverty level income support results in people
suffering
a
‘downward
spiral’
of
CPSU, which surveyed its members at the Department of Human Services to get their perspective on the income support system. These workers are familiar with the day-today reality of the lives of income support recipients, and they told the CPSU of the effects of the low payment rate on unemployed people. Among other things, they also talked about the extra difficulties that people face as a result of staffing pressures in Centrelink and elsewhere.
financial
circumstances, unable to meet the costs of living, the costs of job search, and the costs of making themselves available for work. Forcing people into poverty doesn’t help them find work.
A range of other issues are identified in the ACTU’s submission, particularly relating to changes in the labour market and the rise of insecure work and the implications of this for the income support system. We called for a broader independent inquiry to examine a range of options for
The ACTU has also called for Newstart to be indexed to a
further reforms to income support payments.
measure of wages, rather than just the CPI. Pensions, like the ACTU Wages Report | September 2012 | Page 5
Other wages measures The WPI gives the most reliable sense of wages growth,
The average ordinary time earnings for full-time adults was
because it measures the change in wages for a fixed ‘basket’
$1306.60 in May 2012, equating to annual earnings of around
of jobs. This means it isn’t affected by compositional change,
$68 100. The average for men was $1399.60 (around $73 000
like if employment in high-wage industries (such as mining)
per annum) while the average for full-time women was
grows faster than overall employment. However, the WPI
$1152.50, or around $60 100 annualised. This means that the
doesn’t tell us the level of wages, ie. the amount, in dollar
gender pay gap in May was 17.5%, which was unchanged
terms, that Australian workers receive on average. The best
from February and down slightly from May 2011 (17.7%).
source for that information is the ABS’ Average Weekly
The gender pay gap has risen since the mid-2000s, after
Earnings publication. Unfortunately, the ABS will soon start
falling slowly but steadily for a couple of decades (see Figure
releasing AWE only twice a year, rather than quarterly as it
13).
has for the past several decades. AWE will therefore only be
Figure 13: Gender pay gap (AWOTE basis)
included in every second issue of the ACTU Wages Report in
19%
the future.
18%
Average wages for ordinary time work by full-time adults –
17%
known as AWOTE - rose by 3.4% over the year to May 2012
16%
and just 0.4% in the quarter. This sluggish wages growth is
15%
the lowest in over five years, and well below the long-run
14%
average of 4.5% yearly growth in AWOTE. Figure 12: Growth in AWOTE (year-ended) 7%
13%
Trend 12% Aug 1994
6%
Seasonally adjusted
Aug 1998
Aug 2002
Aug 2006
Aug 2010
Source: ACTU calculations based on ABS 6302.
5%
Average weekly earnings for all employees, including part-
4%
time workers, was $1031.31 in May, or around $53 800 on an 3%
annualised basis. This rose by 1.5% in the quarter and 3.7%
2% 1% 0% May 02
over the year, but this wage measure is strongly affected by
Overall AWOTE growth (year-ended) Long-run average May 04
May 06
May 08
compositional change in the labour market, like a changing share of the workforce who work part-time as opposed to May 10
May 12
full-time hours.
Source: ABS 6302 and ACTU calculations.
There’s a lot of difference in average wages for full-time Still, because inflation has fallen in recent quarters, this
workers across industries, as you’d expect. The best paid full-
modest wages growth still translated into solid growth in real
time workers are in Mining, earning an average $2272.30 per
(CPI-adjusted) average wages growth of 2.2% over the year to
week for their ordinary hours. Full-time workers in
May 2012.
Accommodation and Food Services earn an average of $955.90 per week.
ACTU Wages Report | September 2012 | Page 6
Figure 14: Full-time adult AWOTE by industry Mining
$2,272.30
Professional, Scientific and…
$1,622.80
Financial and Insurance…
$1,591.90
Information Media and…
$1,585.70
Similarly, the retail and wholesale industries used to see their average wages grow at around the same pace, with wholesale wages consistently around $200 per week higher than retail (in 2012 dollars). In recent years though, real
$1,509.20
average wages in retail have been flat, while real AWOTE in
Education and Training
$1,451.10
wholesale trade has increased by nearly $200 per week since
Public Administration and…
$1,426.00
Electricity, Gas, Water and…
Wholesale Trade
$1,382.90
Transport, Postal and…
the GFC. Figure 16: Real wages (AWOTE)
$1,363.80
Construction
$1,361.90
All Industries
$1,500
$1,349.20
Health Care and Social…
$1,239.70
Rental, Hiring and Real…
$1,231.60
Administrative and Support…
$1,182.40
Manufacturing
$1,174.50
Arts and Recreation Services
$1,400 $1,300 $1,200
$1,171.00
Other Services
$1,080.80
Retail Trade
$969.30
Accommodation and Food…
$1,100 $1,000
$955.90
$900
Source: ABS 6302.
Retail
Some of the typical relationships between wage rates in Australian industries have started to change in recent years. Until the GFC took hold, average wages in construction and manufacturing were around the same level for full-time adults. In inflation-adjusted terms, AWOTE in each industry was around $1180 in February 2008. Since then, real wages in manufacturing have tracked sideways (so average wage gains have been more or less equal to the inflation rate), whereas construction wages have increased solidly.
$800 May 02
May 04
May 06
May 08
Wholesale May 10
May 12
Source: ACTU calculations based on ABS 6302 and ABS 6401.
DEEWR also releases information on the average annualised wage increase for employees covered by collective agreements. The most recent Trends in Federal Enterprise Bargaining report shows that the average wage increase in collective agreements lodged in march was 4.5%, up strongly from 3.9% in the December quarter. DEEWR suggested that this rise is due to “the particular mix of enterprise
Figure 15: Real wages (AWOTE)
agreements approved in the quarter”, with no large
$1,400
agreements in some industries that typically record modest
$1,350
wages growth and large agreements registered in the
$1,300
Construction and Health Care industries.
$1,250
A final key wages source is the National Accounts. This shows
$1,200
the total compensation of employees across the economy, as
$1,150
well as the change in the level of total compensation per
$1,100 $1,050 $1,000 May 02
May 04
May 06
Manufacturing
worker. Information about these measures is included in the
Construction
ACTU Economic Report, the next edition of which will be
May 08
May 10
May 12
released following the June quarter National Accounts.
Source: ACTU calculations based on ABS 6302 and ABS 6401.
ACTU Wages Report | September 2012 | Page 7
Feature: Real producer wages If wages go up in dollar terms by 10%, but prices also go up
from $1389 per week to $2091. Adjusting these wages for
by 10%, then workers’ living standards remain unchanged.
using the CPI gives real consumer wage growth of 22%.
What matters for living standards are real wages – wages
However, real producer wages in mining have fallen around
adjusted for inflation. The CPI is usually used for this purpose.
45% over the same period! This means that mining companies now only need to sell around half as much output
However, the prices that workers pay for the goods they buy
to pay a typical worker’s wage as they did in 2003-04.
aren’t necessarily the same as the prices that producers receive for the items they sell. Usually the prices of
The difference, of course, is accounted for the fact that the
producers’ output and the price of goods and services bought
price of mining output (iron ore, coal, and so on) has
by consumers tend to rise at a similar pace, but recent years
skyrocketed over the last decade, while the price of the
have seen these price measures diverge. The primary cause
goods and services that workers buy with their wages has
of this is the terms of trade boom – the price that Australian
grown at a normal pace of between 2% and 3% per year.
firms receive for their exports has soared, while the price we
Figure 18: Real producer wages in mining and all industries Index
pay for imported goods has plummeted. Figure 17: Real consumer and producer wages in Australia (Index; June 2004=100)
All industries
100
Index Real consumer wage
110
80
100
90
80 Jun 96
60
Real producer wage
Mining 40 Jun 2003
Jun 2005
Jun 2007
Jun 2009
Jun 2011
Source: ACTU calculations based on ABS 6302, 6401, 5204.
Jun 01
Jun 06
Jun 11
Source: ACTU calculations based on ABS 6302, 6401, 5204.
Economists refer to wages that have been adjusted using the CPI (or some other measure of consumer inflation) as ‘real consumer wages’, while wages rate calculated in terms of
Some other industries that have seen real producer wages fall over the past decade include: accommodation and food services; transport, postal and warehousing; rental, hiring and real estate services, professional services, administrative and support services, and other services.
producer prices are ‘real producer wages’. These two measures are shown in Figure 17. Until the mining boom took off in the mid-2000s, real producer and consumer wages rose at around the same pace. Since the mining boom began, real producer wages have barely risen, while real consumer wages have grown by over 10%.
This has a few implications. First of all, some of the wage growth since 2004 has been a ‘free lunch’ – workers’ purchasing power has grown without a commensurate rise in the cost of labour relative to output costs for employers. This ‘free lunch’ period is likely to be over. Second, complaints about runaway wages growth in Australia don’t hold up. Real
The difference between the two measures is particularly
consumer wages have grown at a solid, but sustainable pace
noticeable in the mining industry. Between 2004 and 2011,
in recent years, while real producer wages have barely grown
average earnings for full-time workers in mining rose by 50%,
at all. Please
mcowgill@actu.org.au
for
more
information.
ACTU Wages Report | September 2012 | Page 8
Prices Inflation has fallen sharply in 2012 after a natural disasterinduced blip in early 2011. Both the headline and seasonally
Figure 20: CPI and workers' living costs Index 125
adjusted CPI each rose by only 1.2% over the year, rising by 0.5% and 0.6% respectively in the June quarter. Underlying
120
inflation (also known as core inflation) rose by 2% over the year to June, which is around the bottom of the RBA’s target
115
band. 110
Workers’ living costs rose by 0.7% over year, below the CPI.
105
Headline CPI
This is partly because of falling interest rates over the year to June – lending rates affect the ABS measure of workers’ living costs, but aren’t included in the CPI. In recent years, the cost of living for workers has tended to grow slightly faster than the CPI – the living cost index has risen by 24.3% since mid2005, while the CPI has only risen by 21.6%.
Employee LCI 100 Jun 02
Jun 04
Jun 06
Jun 08
Source: ACTU calculations based on ABS 6401 and ABS 6463.
At the time of writing this ACTU Wages Report, the CPI figures for the September quarter had not been released. However, an unofficial measure of inflation (the TD
Figure 19: CPI inflation and growth in workers' living costs Yearly growth 6%
Securities-Melbourne
Institute
Inflation
Gauge)
shows
inflation rising only slowly. Over the year to August, the TDMI Gauge rose by 2.2%; this measure tends to move closely in line with the CPI, so this suggests that inflation is around the
4%
bottom of the RBA’s target band. The ‘core’ or underlying measures of inflation in the TD-MI Gauge also point to low
2%
inflation.
0%
The TD-MI Gauge gives us the first reading on inflation after
Headline CPI
the introduction of the carbon price on 1 July. The TD-MI
Employee LCI -2% Jun 02
Jun 04
Jun 06
Source: ABS 6401 and ABS 6463.
Jun 08
Jun 10
Jun 12
measure of inflation rose by only 0.2% in July and 0.6% in August, with the underlying measure increasing by 0.4% and 0.2% respectively. This strongly suggests that the carbon price has not resulted in a surge in inflation. Treasury modelling suggested that the carbon price was likely to add around 0.7 percentage points to the CPI; there is no reason to think that this will not prove to be an accurate forecast.
Comments? If you have any comments or questions about this Wages Report, or suggestions for future reports, please contact ACTU
Economic
Policy
Officer,
Matt
Cowgill
at
mcowgill@actu.org.au. ACTU Wages Report | September 2012 | Page 9
ACTU Wages Report | September 2012 | Page 10