Feature Article - Spotlight: Labour Price Index
This article was published in the January 2005 issue of Australian Labour Market Statistics (cat. no. 6105.0).
The first edition of the quarterly publication Wage Cost Index, Australia (cat. no. 6345.0) was released in respect of the September quarter 1997. The wage price indexes (end note 1) in this publication measure changes over time in wage and salary rates of pay for employee jobs, unaffected by changes in the quality or quantity of work performed. There are four quarterly wage price indexes:
The wage price indexes were the first outputs of a program to produce a comprehensive labour price index. Development work to produce price indexes for selected non-wage costs was recently completed, resulting in the release of new non-wage price indexes and a labour price index that combines the wage and non-wage components.
- index of ordinary time hourly rates of pay - excluding bonuses
- index of ordinary time hourly rates of pay - including bonuses
- index of total hourly rates of pay - excluding bonuses
- index of total hourly rates of pay - including bonuses.
From the September quarter 2004 issue, which was released on 17 November 2004, the Wage Cost Index, Australia publication will be issued under the title Labour Price Index, Australia (cat. no. 6345.0). The new name identifies the publication as one of the price indexes produced by the ABS, and also reflects the availability of the non-wage price indexes (in addition to the wage price indexes) and the overall labour price indexes.
THE NEW PRICE INDEXES
The non-wage price indexes measure price changes in annual and public holiday leave, employer funded superannuation, payroll tax, and workers' compensation. Like the wage price indexes, the non-wage price indexes are Laspeyres-type price indexes, which measure changes in the price of labour using fixed weights. The price changes recorded are unaffected by changes in the quality and quantity of the work performed.
These non-wage price indexes are compiled on a financial year basis, and are available for the years starting from 2001-02.
The annual and public holiday leave index and the superannuation index are calculated using data collected from a sample of individual jobs common to consecutive time periods.
The methodology used to calculate the payroll tax index and the workers' compensation index differs from that used for annual and public holiday leave and superannuation. As payroll tax and workers' compensation are both levied at the employer level, the price is also determined at this level. Therefore, rather than calculating the indexes from a sample of individual jobs, the payroll tax and workers' compensation indexes are calculated using an employer's total payroll.
- The annual and public holiday leave price is derived using both wage data (in the form of an hourly rate of pay) and the amount of annual and public holiday leave that is offered by the employer. The index is constructed by comparing this price to that in the previous time period. Changes in the price will result from changes in the hourly rate of pay, and/or the amount of leave offered by the employer.
- The superannuation price is derived using both wage data (again in the form of an hourly rate of pay) and the rate of superannuation that is paid by the employer. Changes in the price from one period to the next will result from changes in the hourly rate of pay, and/or the rate of superannuation paid by the employer.
- Utilising data from both ABS and non-ABS sources, the payroll tax price is modelled by applying the appropriate payroll tax variables (rate and threshold) to employer payroll data. Changes in the price from one period to the next will result from changes in the payroll tax variables, and/or the employer's payroll (excluding payroll changes resulting from changes in the number of employees).
- The workers' compensation price is modelled by applying the appropriate workers' compensation premium rate to employer payroll data. Where applicable, the prices of any excess and excess buy-out options are also modelled. Changes in the price from one period to the next will result from changes in the range of workers' compensation variables, and/or the employer's payroll (again, excluding payroll changes resulting from changes in the number of employees).
LABOUR PRICE INDEX
A labour price index can be constructed from the individual wage and non-wage components. Two versions of the labour price index are produced, one excluding bonuses and the other including them. As is the case for the wage price indexes, with bonus payments often reflecting changes in the quality of work performed, only the labour price index that excludes bonuses is considered to be a pure price index.
Like the non-wage price indexes, the labour price indexes are compiled on a financial year basis, and are available for the years starting from 2001-02.
Table 1 shows the percentage change from the previous financial year for some of the key indexes from the Labour Price Index.
The total hourly rates of pay excluding bonuses index and labour price index excluding bonuses show similar rates of change from the previous financial year for 2003-04. This was not the case for 2002-03 when the labour price index showed a larger rate of increase than the total hourly rates of pay excluding bonuses index. The main reason for the difference in 2002-03 was the impact of the changed Superannuation Guarantee Levy upon the labour price index (see notes on the superannuation index below).
Table 1, Labour Price Index
Change from previous financial year (%)
|Total hourly rates of pay excl. bonuses|
|Annual and public holiday leave|
|Labour price index excluding bonuses|
Annual and public holiday leave
The percentage change from the previous financial year for all sectors, Australia for 2003-04 was 2.6%. All states contributed to this increase except for Victoria with -0.5% and Tasmania with 0.0%. In 2002-03 ANZAC Day fell on Friday, whereas in 2003-04 it fell on a Sunday. Unlike other states and territories, Victoria and Tasmania did not provide an additional day off in lieu in 2003-04. As a result, the price of public holidays in these two states decreased in 2003-04.
The percentage change from the previous financial year was 11.8% for 2002-03 and 3.7% for 2003-04. The reason for the high rate of change for 2002-03 was the increase in the Superannuation Guarantee Levy, which rose from 8% to 9% in July 2002.
The new indexes will be published annually in November, as part of the September quarter Labour Price Index publication. Eleven additional tables will be included, presenting non-wage and labour price indexes. These tables provide state/territory, sector and industry information. In November 2004, data for three financial years were released: 2001-02, 2002-03 and 2003-04.
RE-REFERENCE OF THE WAGE PRICE INDEXES
The reference base of an index series is that period for which the value of the index is set to 100.0. For the wage price indexes, the September quarter 1997 was used as the original reference base, as it was the first quarter for which data were available. With the introduction of the non-wage price indexes, all index numbers are presented on a reference base of 2003-04.
A consequence of re-referencing price indexes can be that the period to period percentage changes calculated using re-referenced index numbers may differ slightly from those calculated using the original series. These differences do not constitute a revision of the index but simply reflect the effect of rounding.
The Labour Price Index, Concepts, Sources and Methods (cat. no. 6351.0.55.001) provides comprehensive information about the concepts underlying the LPI, as well as the data sources and methods used to compile it. The September 2004 edition of the Labour Price Index, Australia (cat. no. 6345.0) contains information about the wage and non-wage price indexes as well as an appendix about the re-referencing of the wage price series.
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1. The term 'wage cost index' which has been used up until now, has been replaced by 'wage price index', consistent with the other changes being made to the publication.< Back