Labour Cost Index
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Australian Bureau of Statistics (ABS)
The Wage Cost Index (WCI), published quarterly, is an integrated set of chained Laspeyres (i.e. base period weighted) indexes measuring changes in wage and salary costs for employee jobs, unaffected by changes in the quality and quantity of work performed. Index numbers are compiled from hourly wage and salary costs for a representative sample of employee jobs within a sample of employing organisations. Individual indexes are compiled for various combinations of State/Territory, sector (private/public), broad industry group and broad occupation group. These indexes will reflect changes in hourly rates of pay resulting from changes to awards, enterprise or workplace agreements, individual contracts and other arrangements such as annual reviews.
The purpose of the Wage Cost Index (WCI) is to measure changes in wage and salary cost of a representative 'basket of jobs' over time, unaffected by changes in the quality and quantity of work performed.
The WCI is an important addition to the range of economic indicators published regularly by the ABS. It will have widespread application in the analysis of monetary, fiscal and wage policies. The various indexes will enable analysts and policy makers to assess the impact of wage cost changes at the State, sector (private/public), broad industry and broad occupation levels.
The WCI is also expected to be used:
for rise and fall clauses in contracts to adjust the wage component of contract costs in line with movements in the cost of labour;
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.
Award Rates of Pay Indexes (ARPI)
The target population of employers for the LCI survey is all employing organisations in Australia (private and public sectors) except:
The first group above is excluded because of high collection costs (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.
All employee jobs in the target population of employers are in scope of the LCI survey, with the exception of the following:
As such, full-time and part-time, permanent and casual, and managerial and non-managerial jobs are all in scope of the LCI. Costs incurred by employers for work undertaken by self-employed persons such as consultants, subcontractors and owner/drivers, are out of scope of the LCI, 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.
The Wage Cost Index (WCI) is the first stage in the development of the Labour Cost Index (LCI). The LCI will measure the combined effect of changes in wage costs and selected non-wage labour costs. The range of labour costs to be included in the LCI coincides with the National Accounts measure of 'compensation of employees', together with the costs of fringe benefits tax and payroll tax. As described in the 1993 System of National Accounts, compensation of employees comprises: (i) wages and salaries in cash (for time worked as well as for paid leave); (ii) wages and salaries in kind (i.e. fringe benefits); and (iii) the value of social contributions payable by employers (e.g. for sickness, accident, redundancy, retirement). Thus, the LCI will build on the wage component, incorporating costs relating to employer funded superannuation, workers' compensation, payroll tax, fringe benefits tax and paid leave.
Reimbursements by employers of expenditures incurred by employees on items that are needed exclusively, or primarily, to enable them to carry out their work, are not included in compensation of employees, and hence are not included in the LPI. In accordance with the 1993 System of National Accounts, the amounts reimbursed are treated as intermediate consumption by employers. (Work related travelling costs, and expenditure on tools and equipment are examples of this type of expenditure.) Taxable allowances, on the other hand, are included in compensation of employees (as wages and salaries), and hence are included in the LCI.
There are a number of costs incurred by employers that could be considered to be 'labour on-costs', but which will not be included in the LCI. Examples are: payments to outside instructors or institutions for vocational training; payments to recruitment agencies; payments to other organisations for the provision of welfare services (food, recreational, medical, etc); depreciation on buildings and equipment used for training and for the provision of welfare services to employees. Although these costs relate to employees, they are formally outside the scope of the LPI, as they are not part of compensation of employees. Note that wage and salary costs and on-costs incurred by employers in respect of their own employees working in the areas of training, recruitment and the provision of welfare services are already included in the LCI. The wage and salary costs for these employees are not treated as on-costs in the LCI.
There are four sets of quarterly Laspeyres (i.e. base-period weighted) indexes compiled:
Ordinary time hourly rates of pay - excluding bonuses
Ordinary time hourly rates of pay - including bonuses
Total hourly rates of pay - excluding bonuses
Total hourly rates of pay - including bonuses.
The four component sets of indexes together comprise the Wage Cost Index (WCI).
With in each type, separate indexes will be released for various combinations State/Territory,sector (private/public), broad industry and broad occupation groups.
Prior to estimation, every matched job is assigned an elementary aggregate (EA) from each of the sets (specified below) to which it relates. For each set, the particular EA assigned to a job depends on the combination of codes of State, sector, Australian and New Zealand Standard Industrial Classifications (ANZSIC) and Australian Standard Classifications of Occupations, Second Edition (ASCO SE) possessed by the job in the current quarter.
Elementary aggregates will be mainly fixed at the State by sector by ANZSIC Division by ASCO, Second Edition, Major Group level.
There are five sets of EAs that will be used to calculate the various indexes:
* In public sector EAs (for any level of government), ANZSIC Divisions B to L are not separately identified.
# B to J are amalgamated into one industry group (R); K and L into another (S). Industry Divisions, M, N, O, P and Q remain separate in the total public sector.
Classification of Industry
Employee jobs are classified to industry of the employer based on the Australian and New Zealand Standard Industrial Classification; (ANZSIC), 1993 (ABS Cat No. 1292.0).
Classification of Occupation
Employee jobs are classified according to the Australian Standard Classification of Occupations (ASCO), Second Edition (ABS Cat No. 1220.0).
Employee jobs are classified to sector (private or public) based on the type of legal organisation of employer (TOLO).
Other concepts (summary)
The 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.
Comments and/or Other Regions
The Labour Cost Index (LCI) survey collects job level information with respect to the following data items:
The first three of these data items are collected in all four quarters of the calendar year to compile the (quarterly) Wage Cost Index (WCI) publication (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 those used to compile the WCI). They will be combined with data items used to compile the WCI (Ordinary Time Wages and Salaries, Overtime and Bonus Commission and Incentive Payments) plus other data (e.g. Superannuation Fund Details, Public Holidays, Payroll Tax Rates and Thresholds etc) to generate the (annual) Labour Cost Index (LCI) publication (ABS cat. no. to be advised). Collection of the non-wage items was first conducted in June quarter 2002 and continued in subsequent June quarters. The first Labour Cost Index publication is expected to be released in late calendar year 2004 once two annual movements have been constructed.
Labour Cost Index (LCI) Survey - proposed implementation strategy
The LCI has been developed in stages. First, the initialisation of the index sample and the measurement of ordinary-time wage and salary costs were implemented in June quarter 1997. Second, from the September quarter 1997 overtime costs were added to ordinary-time earnings to enable an index of total wage and salary costs - the Wage Cost Index (WCI) - to be compiled, beginning with December quarter 1997. Non-wage costs (NWC) were introduced from the June quarter 2002, to give the full LCI.
Data availability comments
The first issue of the new quarterly publication Wage Cost Index, Australia (ABS Cat No. 6345.0) was released on 26 March 1998. This issue showed wage rate movements between September quarter and December quarter 1997. No index movements prior to December quarter 1997 have been compiled.
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