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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

email

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


ACTU Wages Report September 2012