Wage-setting methods and wage growth in Australia

This analysis has been undertaken by Dick Page, from the Wage Price Index Section of the ABS

Introduction

The Wage Price Index (WPI) measures changes in the price employers pay for labour and provides an indicator of wage growth within the Australian labour market. The WPIs primary function is as a deflator in the preparation of the National Accounts but is also an important tool for informing policy development and macro-economic analysis. The WPI is used by businesses and the general public in setting wages and forming labour contracts.

This article analyses the microdata of the ABS Wage Price Index (WPI) survey to provide insights into the wage-setting dynamics and wage growth in Australia. Section 1 describes the ABS WPI Survey; the three main wage-setting methods in Australia; and allocates each of the WPI surveyed jobs to one of these wage-setting methods. Section 2 examines the contribution of each wage-setting method to wage growth over the period 2006 to 2017, focusing on the changing contribution of wage-setting method to wage growth over time. Section 3 provides some insights and conclusions.

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