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Labour Price Index
 
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    NAME OF ORGANISATION
    Australian Bureau of Statistics (ABS)

    OVERVIEW
    The Labour Price Index measures change in the price of labour services resulting from market pressures. The LPI was developed to replace the award rates of pay index (ARPI) which was produced from the early 1950s to June 1997 and published in ABS cat. no. 6312.0. By the early 1990s this series no longer provided a reliable measure of movement in wages and salaries, due to the changing industrial relations environment which saw a move away from pay setting based on awards.

    As awards became less dominant in setting wages and salaries, the ARPI series applied to a diminishing proportion of the labour market and the series ended with the June quarter 1997 release. In its place the ABS commenced the quarterly wage price index series (originally known as the wage cost index) to measure changes in wage and salary costs for employee jobs. The index follows pay movements in jobs, regardless of whether remuneration is set by award or through some form of non-award agreement.

    Index numbers are compiled from hourly wage and salary costs for a representative sample of employee jobs within a sample of employing organisations. Data are published in Labour Price Index, Australia (cat. no. 6345.0), which was released with the title Wage Cost Index, Australia (cat. no. 6345.0) until the September quarter 2004 edition. The name change provided clearer links between the survey and the data produced, and also reflected the inclusion of non-wage outputs in the publication.

    PURPOSE
    Price indexes such as the LPI enable prices for a common item or group of items to be compared at different points in time. The LPI measures changes in the price of labour services resulting from market pressures, and is unaffected by changes in the quality and quantity of work performed.

    The LPI has widespread application in the analysis of monetary, fiscal and wage policies. The various indexes enable analysts and policy makers to assess the impact of wage and non-wage cost changes at the State, sector (private/public),and broad industry levels.

    The LPI may also be used in the following situations:

      • by employers and employee representatives in the wage and salary negotiation process; and
      • in the compilation of volume measures in the ABS Australian National Accounts, for the construction of deflators for some industries.

    SCOPE

    Employers

    The target population of employers for the LPI survey is all employing organisations in Australia (private and public sectors) except:

      • enterprises primarily engaged in agriculture, forestry or fishing;
      • private households employing staff;
      • overseas embassies, consulates etc.
    The first group above is excluded because a very high proportion of agricultural enterprises have no employees. It would be disproportionately costly to survey a sufficient number of these enterprises to obtain a sample of jobs which was large enough to adequately represent this industry. In addition, the highly seasonal nature of activities in this industry would make it difficult to track jobs over time.

    The two other groups are excluded because they are out of scope of the ABS Business Register from which the LPI sample of businesses is selected.

    Jobs

    All employee jobs in the target population of employers are in scope of the LPI survey, with the exception of the following:

      • Australian permanent defence force jobs,
      • 'non-maintainable' jobs (i.e. jobs that are expected to be occupied for less than 6 months of a year),
      • jobs for which wages and salaries are not determined by the Australian labour market: e.g. owner/managers of small incorporated enterprises; most employees of Community Development Employment Programs, jobs where the remuneration is set in a foreign country.
    Full-time and part-time, permanent and casual, and managerial and non-managerial jobs are all in scope of the LPI.

    Costs incurred by employers for work undertaken by self-employed persons such as consultants, subcontractors and owner/drivers, are out of scope of the LPI, as they do not relate to employee jobs. Workers paid commission without a retainer are also excluded, as a large number of such workers operate in a similar fashion to self-employed persons.

    DATA DETAIL

    Conceptual framework
    The LPI is an integrated set of chained Laspeyres (i.e. base period weighted) indexes. The LPI measures changes in the price of labour services resulting from market pressures, and it is unaffected by changes in the quality and quantity of work performed.

    A two-stage sampling procedure is used to generate a sample of employee jobs for the LPI: a sample of businesses; and a sample of employee jobs from within those selected businesses. Probability sampling is used in the selection of both businesses and jobs to ensure that the sample of jobs used in the compilation of the indexes is representative of all jobs in the labour market.

    The wage price indexes are produced using information about the actual wage and salary payments made to job occupants in the survey reference period rather than nominal or list rates (e.g. awards or book rates) for each job.

    Wages and salaries account for the majority of expenditure on labour costs. These costs are outlined in the System of National Accounts (SNA08) concept Compensation of Employees. The Compensation of Employees is defined as 'the total remuneration, in cash or kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period' (source SNA08, paragraph 7.5).


    Effective construction of price indexes requires fixed pricing specifications. In the LPI, these pricing specifications include a job identifier as well as characteristics of the job being priced, such as job title, grade or level, location and tasks, so the employer can uniquely identify the selected employee job.

    Most importantly, pricing specifications also outline the price determining characteristics of each selected job. Pricing to constant quality is achieved by considering any changes in relation to these characteristics, and by removing any changes in labour payments which relate to these changes. Essentially, pricing to constant quality in the LPI ensures that price changes from the following are not reflected in the index series:
      • changes in the nature of work performed (e.g. different tasks or responsibilities);
      • changes in the quantity of work performed (e.g. the number of hours worked);
      • changes in the characteristics of the job occupant (e.g. age, apprenticeship year, successful completion of training or a qualification, grade or level, experience, etc.);
      • changes in other price determining characteristics which may exist (e.g. the site where the work is performed, the presence of other components of pay or labour costs which have been rolled in, changes in work schedules).

    Only matched jobs contribute to the index calculation each quarter. If one or more characteristics of a matched job change from one quarter to the next then the impact of the change in quality is removed from the price change for the job prior to index calculation. A constant quantity is maintained for each individual job from one quarter to the next by pricing the hourly rate of pay.

    Sometimes, significant changes in job specifications fundamentally alter the nature of the job, to the point where the job priced in the previous quarter essentially no longer exists. In this situation it is not possible to continue pricing the job originally selected, and a new job is selected to take its place in the sample.

    Main outputs
    Wage price indexes

    Four wage price indexes are constructed and published quarterly. These indexes were first compiled for the September quarter 1997:

      • ordinary time hourly rates of pay - excluding bonuses index
      • ordinary time hourly rates of pay - including bonuses index
      • total hourly rates of pay - excluding bonuses index
      • total hourly rates of pay - including bonuses index.
    The 'headline measure' is the index for total hourly rates of pay excluding bonuses. Separate indexes are released for each of the above series for various combinations of State/Territory, sector (private/public) and broad industry groups. Estimates are published quarterly and more detailed data maybe available on request. Seasonally adjusted and trend data are produced for the index of total hourly rates of pay excluding bonuses for Australia, for the private sector and for the public sector.

    Non-wage price indexes

    These are financial year indexes and were first compiled for the 2001-02 financial year. The non-wage indexes are published annually in the September quarter edition of the LPI publication. The four non-wage price indexes constructed are:

      • annual and public holiday leave index
      • superannuation index
      • payroll tax index
      • workers' compensation index.

    Labour price indexes

    From the individual wage and non-wage components a labour price index can be constructed. Two versions of the labour price index are produced, and like the non-wage price indexes, they are financial year indexes (first compiled for 2001-02).

      • labour price index excluding bonuses
      • labour price index including bonuses.

    Like the wage price indexes, non-wage and labour price indexes are available for various combinations of State/Territory, sector (private/public), and broad industry group.

    Classifications
    Classification of Industry

    Employee jobs are classified to industry of the employer based on the Australian and New Zealand Standard Industrial Classification; (ANZSIC), 2006 (ABS Cat No. 1292.0).

    Sector

    Employee jobs are classified to sector (private or public) based on the type of legal organisation of employer (TOLO).

    Other concepts (summary)
    Linking

    This is a technique used to join a new index series (having a changed composition of jobs and weighting pattern) to an old index series to form a continuous series. The technique ensures the resultant index reflects only the underlying changes in the costs of labour and changes due to introduction of new jobs and weights do not in themselves affect the level of the index.

    Re-referencing

    The reference base of an index is the period for which the index is equal to 100.0. Re-referencing (or rebasing) an index means that the point at which the index series equals 100.0 is changed. Generally when re-referencing is carried out, the new reference base is a time period closer to the present than the previous reference base.

    Re-referencing is done because it can become difficult to relate to price comparisons when the reference point is set a long time in the past. Re-referencing may also be carried out to coordinate the base periods of one or more series of data.

    The reference base of an index series is most commonly a year, but it can also be a different length of time, ranging from two or three years down to a single quarter. It often coincides with the weighting base for the series, but this is not essential.

    It is simple to change the reference base of an index series once the time period which will be the new reference base has been chosen. The method involves rescaling the index numbers using a factor calculated from the ratio of the index numbers on the old and new base.

    GEOGRAPHIC DETAIL
    Australia
    New South Wales
    Victoria
    Queensland
    South Australia
    Western Australia
    Tasmania
    Northern Territory
    ACT

    Comments and/or Other Regions

    None

    COLLECTION FREQUENCY
    Quarterly

    Frequency comments

    The Labour Price Index (LPI) survey collects job level information with respect to the following data items:

      • Ordinary Time Wages and Salaries;
      • Overtime;
      • Bonus, Commission and Incentive Payments;
      • Paid Annual Leave; and
      • Superannuation.
    The first three of these data items are collected in all four quarters of the calendar year to compile the (quarterly) wage component of the LPI (published in ABS cat. no. 6345.0).

    The remaining two non-wage data items are collected in the June quarter of each year only (in addition to the wage component). They are combined with the wage components plus other data (e.g. Superannuation Fund Details, Public Holidays, Payroll Tax Rates and Thresholds etc) to generate the annual non-wage indexes.

    Two annual labour price indexes (one including bonuses and one excluding them) are constructed from the individual wage and non-wage components.

    The non-wage and labour price indexes are financial year indexes, first compiled for 2001-02.

    COLLECTION HISTORY
    The LPI was developed in two stages. The first stage involved the development of the quarterly wage price indexes, and the second stage, the development of the non-wage price indexes and labour price index constructed from the wage and non-wage components.

    The wage price index series goes back to the September quarter 1997. Data for the non-wage and labour price indexes are only available for financial years from 2001-02 onwards. The first release of these series was in the September quarter 2004 edition of the LPI publication (cat. no. 6345.0) and updates are provided in each September quarter edition of the publication.

    The first quarterly edition of cat. no. 6345.0 was released on 26 March 1998, with the title Wage Cost Index, Australia and this title was last used with the June quarter 2004 edition. With the first release of the non-wage and labour price indexes in the September quarter 2004 edition, the title was changed to Labour Price Index, Australia. The catalogue number remained the same in spite of the title change.

    DATA AVAILABILITY
    Yes

    Data availability comments

    Data is published quarterly. The first issue of the publication Wage Cost Index, Australia (ABS cat. no. 6345.0) was released on 26 March 1998. This issue showed wage rate movements between the September quarter 1997 and the December quarter 1997. No index movements prior to the December quarter 1997 have been compiled.

    From the September quarter 2004 edition, cat. no. 6345.0 has been released with the title, Labour Price Index, Australia. The September quarter 2004 edition contained the first release of the non-wage price indexes and the full Labour Price Index constructed by compiling the individual wage and non-wage components.

    The non-wage and Labour Price Indexes are all financial year indexes, with the first data being available for 2001-02. Updates to these series are included in the September quarter publication each year.


    DATE OF LAST UPDATE FOR THIS DOCUMENT
    11/01/2012 07:17 PM



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