Fact check: Have wages outstripped inflation over the past decade and grown steadily? – Fact Check


Posted

November 01, 2018 06:55:26

The claim

The Federal Government is keen to make economic management a central issue in the election campaign, highlighting solid growth and falling unemployment.

Labor and the union movement counter that the gains are failing to flow through to workers in the form of higher wages.

Jobs and Industrial Relations Minister Kelly O’Dwyer told Channel Ten’s The Project on October 23 that, although wages growth had not been as strong as people might like, it had been steady over the past decade.

“Over the last 10 years, we’ve actually seen wages increase by around 30 per cent and inflation increase by around 20 per cent. Certainly, wages haven’t grown as fast as people might like, but wages have grown steadily over that period of time.”

Have wages grown by about 30 per cent over the past decade, outstripping inflation?

And is it correct that wages have been growing “steadily”? RMIT ABC Fact Check investigates.

The verdict

Ms O’Dwyer’s claim is not the full story.

She is entitled to claim that wages have grown, in nominal terms, by about 30 per cent over a decade, outstripping inflation of about 20 per cent over the same period.

However, whether growth has been “steady” is less clear.

Wages have generally (although not always) grown more quickly than inflation on an annual basis, and with less volatility than other economic variables such as company profits.

However, the gains of the past 10 years have been heavily skewed towards the first five years of the decade.

This is particularly the case after using inflation to convert the figures into “real” terms to reflect the rising cost of living.

For example, real wages grew by 5.5 per cent between June 2008 and June 2013, but by just 1.5 per cent between June 2013 and June 2018.

In other words, more than three-quarters of the gains of the past decade occurred the first half, with real wages barely growing during the second half.

Testing the claim

Fact Check has tested several claims relating to wages growth in recent months, including this one, in which former Labor treasurer Wayne Swan said it had taken five years for the Coalition to deliver the same wage growth that Labor had delivered in just one year of government.

As previously noted, a closely scrutinised measure of wage movements is the wage price index, produced by the Australian Bureau of Statistics.

The index measures changes in hourly wage and salary costs for a given job, and is unaffected by changes in the quality or quantity of work performed, or changes to the structure of the jobs market.

As a result, it’s commonly seen as a stable and reliable series for examining changes in wages over time.

The ABS also publishes average weekly earnings figures, providing a quarterly snapshot of average pay packets.

This is useful for examining average earnings at a particular point in time.

However, as the bureau notes, average weekly earnings can be affected by changes to the composition of the labour force, including the mix of full and part-time work, and casual and permanent work.

They can also be affected by structural changes; for example, a long-term increase in the share of service sector jobs.

For this reason, Fact Check will rely on the wage price index as the key measure of wages growth over time, bearing in mind this not the only measure, and that there are different ways to dissect the figures.

What the figures show

Over the decade to the June quarter of 2018 (the latest figure available) the wage price index increased by 32 per cent.

Over the same period, inflation, as measured by the bureau’s consumer price index, amounted to 23.4 per cent.

These figures accord with Ms O’Dwyer’s claim that wages increased by around 30 per cent and inflation by around 20 per cent.

Steady as she goes?

In making her claim, Ms O’Dwyer said wages hadn’t grown “as fast as people might like”, but they had grown “steadily” over the past decade.

It is somewhat unclear what Ms O’Dwyer might have meant by “steadily”.

One interpretation is that the annual gains for workers have been relatively constant, from year to year.

Another is that pay has consistently grown, in real terms.

Have real wages grown at a constant pace over the past decade?

To better illustrate how wages have changed, Fact Check converted the figures in “real” terms, factoring in inflation to provide a measure of the “buying power” of pay packets over time. This is the same methodology used to assess Mr Swan’s previously mentioned claim.

Real wages increased by 7 per cent over the decade to June 2018.

As the graph indicates, wages grew more rapidly during the first half of the decade.

In fact, real wages grew by 5.5 per cent between June 2008 and June 2013, but just 1.5 per cent between June 2013 and June 2018.

Or using financial years, real wages grew by an average of 1 per cent a year during the first half of the decade, but by just 0.3 per cent during the second half.

In other words, more than three-quarters of the increase of the last 10 years occurred during the first half of the decade.

Have real wages grown consistently every year over the past decade?

Real wages have not always increased on an annual basis.

As previously noted, there are many way to dissect the numbers. Fact Check used financial year averages.

As the following table demonstrates, some years, growth in wages growth has been all but flat.

For example, in 2013-14 real wages fell by 0.1 per cent compared to the previous financial year.

In 2016-17, growth was just 0.2 per cent, followed by growth of 0.1 per cent in 2017-18.

What the experts say

University of Queensland economics professor John Quiggin said Ms O’Dwyer’s use of the term “steady” was misleading given “wage growth has slowed to virtually zero”.

Professor Quiggin said the consistent trend of public policy over the longer-term “has been to weaken the relative position of unions and to treat low wage growth as a desirable outcome”.

“The only (limited) reversal of this trend was the replacement of WorkChoices by the Fair Work Act under the Rudd government,” Professor Quiggin said.

“Finally, it’s worth noting that the entire period of moderate wage growth in the last 10 years was almost entirely under the previous government. That’s not to assert cause and effect, but the current government has, until recently, opposed wage increases of all kinds and stressed the danger of a wage explosion.”

CommSec chief economist Craig James said he agreed that wages growth had been “steady”, pointing out wages had not “swung around” like company profits had.

“The point is that wage growth is outpacing prices,” Mr James said.

“But both wage and price growth have slowed over time.

“A key reason is technology/globalisation — people can buy goods whenever they want and wherever they are. The extra ‘supply’ is putting downward pressure on wage and price growth.

“The other point is that productivity growth has slowed, meaning that nominal wages should be growing at a slower rate.”

In an October 17 speech Reserve Bank deputy governor Guy Debelle said on any of the measures available “wages growth has been low over the last few years”, despite strong employment, near-record labour market participation, and the lowest unemployment for six years.

“Despite these improvements, there is still spare capacity in the labour market,” Dr Debelle said.

“Unemployment is higher than is desirable and a number of workers would like to work more hours than are currently on offer. This is a large part of the explanation for the low wages growth in recent years.”

And in a June 2018 speech, Reserve Bank governor Philip Lowe suggested that wages growth could have been sluggish because of labour market “underutilisation”, a decline in high-paid resource sector jobs following the end of the mining boom, and technological change.

“It’s reasonable to expect that as the labour market tightens, wages growth will pick up. The laws of supply and demand still work,” Dr Lowe said.

Principal researcher: Josh Gordon

factcheck@rmit.edu.au

Sources

Topics:

industrial-relations,

liberals,

australia



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