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The four component sets of indexes together comprise the WCI.
DESIGN OF THE INDEXES
4 The WCI is a price index which measures changes over time in wage and salary costs for employee jobs, unaffected by changes in the quality or quantity of work performed. Changes in wages and salaries resulting from changes in the composition of the labour market are excluded from the WCI movements. This is achieved by combining average price movements for each segment of the labour market (defined by State/Territory, sector, industry and occupation) using expenditure weights that remain constant between successive weighting base periods.
5 Every effort is made to price jobs in the sample to constant quality. Price determining characteristics of the jobs are detailed in fixed pricing specifications, and any changes in wage and salary payments due to changes in the pricing specifications are removed from index movements. The following are examples of changes in price determining characteristics which are not reflected in index movements:
Identifying and measuring quality changes for jobs can be difficult. However, in the WCI, a range of procedures has been developed to achieve this, and to ensure that only pure price changes are reflected in the indexes.
6 The ordinary time indexes that exclude bonuses measure quarterly changes in ordinary time hourly wage and salary rates. Changes in rates of pay reflected in these indexes (i.e. pure price changes) arise from a range of sources including award variations, enterprise and workplace agreements, centralised wage fixation, individual contracts and informal arrangements.
7 These indexes are not affected by changes in penalty payments (which fluctuate depending on the number of hours paid at penalty rates), changes in allowances (which fluctuate according to how much work is performed under special work conditions e.g. height, dirt, heat allowances) or changes in bonus payments (which may, or may not, relate to an individual’s work performance). Specifically, the following costs are excluded when computing ordinary time hourly wage and salary rates:
8 The total hourly indexes that exclude bonuses are based on a weighted combination of ordinary time hourly rates (described in paragraphs 6 and 7) and overtime hourly rates. The total hourly rates reflect changes in ordinary time hourly rates as well as changes in overtime hourly rates. The effect of changes in the amount of overtime paid at each overtime rate is not shown in these indexes except when overtime penalty payments are rolled into ordinary time hourly rates. When this occurs, the increase in the ordinary time hourly rate will tend to be offset by the elimination of the higher overtime hourly rate, leaving the total hourly indexes largely unchanged.
9 Only those indexes that exclude bonuses are pure price indexes. This is because bonus payments tend to reflect changes in the quality of work performed.
Scope and Coverage
10 The target population of employers for the WCI is all employing organisations in Australia (private and public sectors) except:
11 All employee jobs in the target population of employers are in scope of the WCI, except the following:
12 As such, full-time, part-time, permanent, casual, managerial and non-managerial jobs are in scope of the WCI. Costs incurred by employers for work undertaken by self-employed persons such as consultants and subcontractors are out of scope of the WCI, as they do not relate to employee jobs.
13 Information for the WCI is collected each quarter by mail questionnaires from a sample survey of approximately 4,400 private and public sector employers selected from the ABS Business Register. In the first quarter they participate in the survey, each employer selects a sample of jobs from their workplace(s) using sampling instructions provided by the ABS, and provides information for these jobs, including detailed pricing specifications. In subsequent quarters they are asked to provide details of payments made to the current occupants of these same jobs. It is essential that the same jobs are priced in successive quarters, whether the individual job occupants are the same or not. Approximately 20,000 matched jobs are priced each quarter from the selected employers.
14 The sampling method retains the highest possible common sample of employers over time, and retains the same sampled jobs within those employers where possible. However, it is also necessary to ensure the WCI continues to be relevant and representative over time. For these reasons, the employer sample is refreshed annually (for the September quarter) in a way that ensures a high proportion of common selections while allowing new employers to be represented in the sample. Refreshing the sample also allows the ABS to control the length of time that small businesses in particular are included in the survey. The sample refresh coincides with updating of expenditure weights (see paragraph 16).
15 Between each annual refresh of the employer sample, a small number of employee jobs will be lost from the survey sample because of the closure of some businesses. In addition, some jobs in continuing businesses will be replaced in the sample because of restructuring and other job changes.
16 In the WCI, as with other price indexes, expenditure weights are used to combine elementary aggregate indexes into publication indexes. These weights are derived from independent estimates of total weekly wages and salaries for elementary aggregates. The independent estimates are sourced from the quarterly Survey of Employment and Earnings (SEE), the biennial Employee Earnings and Hours (EEH) survey and the five-yearly Census of Population and Housing. The weights are updated for the September quarter each year to take account of changing wage and salary expenditure patterns among the elementary aggregates. The first percentage changes that can be calculated using the updated weights will occur in respect of the December quarter each year. Updated expenditure weights reflect changes in the distribution of the number of employee jobs among occupations, industries, States/Territories and sectors, as well as changes in wage rate relativities. The Appendix shows the distribution of employers’ expenditure on wages and salaries, for the September quarter 2000.
17 To facilitate comparison of index numbers over time, the published indexes will not be re-referenced (i.e. reset) to 100.0 each time this reweighting occurs. This will provide a continuous series from the original reference base of September quarter 1997 = 100.0, while incorporating the updated expenditure weights.
PERCENTAGE CHANGE AND ROUNDING
18 The published index numbers have been rounded to one decimal place, and the percentage changes (also rounded to one decimal place) are calculated from the rounded index numbers. In some cases, this can result in the percentage change for the total level of a group of indexes being outside the range of the percentage changes for the component level indexes.
INTERPRETATION OF INDEX NUMBERS
19 Index numbers in the publication measure changes in hourly rates of pay between the reference base period (September quarter 1997 = 100.0) and a later period. Index number levels cannot be compared across States/Territories as they do not provide comparative information on levels of hourly rates of pay. Similarly, index number levels cannot be compared across sectors, industries, or occupations. The usefulness of index numbers stems from the fact that index numbers for any two periods can be used to directly calculate the change or movement in hourly rates of pay between the two periods. These movements can be compared across States/Territories, sectors, industries, or occupations.
20 Index numbers in the publication are constructed on a quarterly basis with a reference base of September quarter 1997 = 100.0. Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. In the publication, percentage changes are calculated to illustrate three different kinds of movements in indexes:
The following example illustrates the method of calculating changes in index points and percentage changes between any two periods:
Financial Year Indexes
21 Index numbers for financial years are calculated as simple (arithmetic) averages of the four quarterly index numbers for the financial year. As the Wage Cost Index was first published with a reference base of September quarter 1997 = 100.0, the first financial year index number that can be calculated is for 1997-98. Consequently, the first percentage change between financial years that can be calculated is between 1997-98 and 1998-99. The following example illustrates the method of calculating the most recent financial year index numbers:
Percentage changes between any two financial year index numbers can be calculated using the method outlined in paragraph 20 above.
REVISIONS TO INDEXES
22 Index numbers will be released as final figures at the time they are first published. Revisions will only occur in exceptional circumstances.
RELIABILITY OF THE INDEXES
23 Since the index numbers are based on information relating to a sample of employee jobs, they are subject to sampling error. That is, they may differ from figures that would have resulted had all the in-scope employee jobs in the labour market been included in the collection. Estimates of the magnitude of sampling error of index numbers will not be available until the WCI has been operating for a sufficient number of quarters to enable meaningful estimates to be calculated.
24 Inaccuracies in the data may also occur because of imperfections in reporting by respondents or in processing by the ABS. This kind of inaccuracy is referred to as non-sampling error. Every effort has been made to minimise non-sampling error, for example:
25 Users may also wish to refer to the following publications which are available on request:
Information Paper: Wage Cost Index, Australia, 2000 (Cat. no. 6346.0)
Average Weekly Earnings, Australia (Cat. no. 6302.0) - issued quarterly
Consumer Price Index, Australia (Cat. no. 6401.0)
Producer Price Indexes, Australia (Cat. no. 6427.0)
International Trade Price Indexes, Australia (Cat. no. 6457.0)
26 Current publications produced by the ABS are listed in the Catalogue of Publications and Products, Australia (Cat. no. 1101.0). The ABS also issues, on Tuesdays and Fridays, a Release Advice (Cat. no. 1105.0) which lists publications to be released in the next few days. The Catalogue and Release Advice are available from any ABS office.
ABS DATA AVAILABLE ON REQUEST
27 As well as the statistics included in this and related publications, the ABS may have other relevant data available on request. Inquiries should be made to Tim Landrigan on Perth 08 9360 5151 or the National Information Service on 1300 135 070.
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