Average Weekly Earnings
Introduction
The two most commonly used measures of labour costs in Australia are
average total earnings from the national accounts, and average
weekly earnings (AWE) based on an Australian Bureau of Statistics
(ABS) survey of employers. The first measures employee compensation per
non-farm wage and salary earner, and includes irregular bonuses, workers'
compensation, superannuation and redundancy payments. The AWE has a similar
coverage but excludes such costs as superannuation and redundancy payments.
This article looks mainly at AWE but also discusses a new measure of labour
costs known as the Wage Cost Index (WCI).
Measures of AWE
Each quarter the ABS collects information from approximately 5,000 employers
to determine estimates of average weekly earnings. Employers are asked
to provide details of the total gross weekly payments to employees (including
weekly overtime payments) split into full-time adults and all other employees.
This results in three different measures of AWE which are each available
by gender:
- full-time adult ordinary time earnings, or the weekly earnings
of full-time adult employees attributable to award, standard or agreed
hours of work, calculated before taxation and any other deductions (eg
superannuation) have been made;
- full-time adult total earnings, or the weekly ordinary time
earnings plus weekly overtime earnings of full-time adult employees;
and
- all employees total earnings, or the weekly total earnings
of all full-time and part-time adult employees plus full-time and part-time
junior employees.
AWE as a wage indicator
Average earnings figures are often used as a basis for interpreting wage
trends in Australia. The problem with this approach, however, is that
average earnings figures are subject to several distortions that make
it difficult to isolate the pure wage component of a change in earnings.
One major distortion is caused by compositional change in the workforce.
For example, average weekly total earnings data are subject to compositional
changes in overtime hours worked and in the proportion of full-time and
part-time employees, males and females, and adults and juniors. Of particular
significance has been the growth in the proportion of workers employed
part-time. Over the past 20 years part-time workers have increased their
representation from 15 to 26 per cent of all employed persons. Since part-time
workers typically have lower earnings than full-time workers, an increase
in their representation has the effect of reducing both the level and
the growth of average earnings per person. To minimise distortions such
as these, analysts have tended to focus on narrower measures such as average
weekly ordinary time earnings of full-time employed adult males.
Even a narrow measure of earnings such as the above is subject to various
forms of compositional change, in particular those resulting from a change
in the occupational mix of the workforce. In Australia, average skill
levels have been rising (mainly as a result of increases in education
and training with a consequent lowering of the proportion of workers in
lower paid jobs) creating an upward earnings bias.
It is in response to problems such as these that the ABS has developed
a Wage Cost Index (WCI) designed to measure changes in the underlying
price of labour.
Wage Cost Index
The WCI is similar in concept to the Consumer Price Index (CPI). Just
as the CPI measures movement in the prices charged for a fixed basket
of goods, so the WCI measures movement in the wage and salary cost of
a fixed basket of jobs over time. The WCI is thus unaffected by changes
in the quantity or quality of work performed. By following a basket of
jobs over time, and by maintaining a fixed weighting pattern, the WCI
is unaffected by such things as shifts in the distribution of employees
by occupation and industry, and between full-time and part-time jobs.
Information for the WCI is collected from approximately 3,500 employers.
The first quarter they participate in the survey, employers select a small
sample of jobs from their workplace (based on instructions from the ABS),
and provide information on these jobs. In subsequent quarters they are
asked to provide updated information about the same jobs, irrespective
of whether the individual employees occupying the designated jobs are
the same or not.
Four sets of indexes together comprise the WCI. These are:
- ordinary time hourly rates of pay-excluding bonuses;
- ordinary time hourly rates of pay-including bonuses;
- total hourly rates of pay-excluding bonuses; and
- total hourly rates of pay-including bonuses.
WCI indexes were compliled for the first time in December quarter 1997.
The WCI will be incorporated into MESI once a reasonable length time series
has been established.
MESI Table 2.1
This table provides two measures of AWE-full-time adult ordinary time
earnings of persons and total earnings of all males-plus annual percentage
movements in both. Australian Government pension payments are adjusted
twice yearly on the basis of movements in either male total AWE or (if
greater) the Consumer Price Index.
This feature was prepared by Tony Kryger.
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