6345.0 - Wage Cost Index, Australia, Jun 2003  
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 13/08/2003   
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The Wage Cost Index, Australia (cat. no. 6345.0) publication contains indexes measuring quarterly changes in wage and salary costs for employee jobs. These indexes were compiled for the first time for the December quarter 1997 (with a reference base of September quarter 1997 = 100.0).

2 The methodology used to construct the component indexes of the Wage Cost Index (WCI) is similar to that used for other price indexes such as the Consumer Price Index. In the WCI, index numbers are compiled from hourly wage and salary rates of pay 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. For more detailed information on the methodology used in the construction of the WCI, refer to Information Paper: Wage Cost Index, Australia, 2000 (cat. no. 6346.0).


3 There are four sets of quarterly base-period weighted indexes in the publication, these four component sets of indexes together comprise the WCI:

    • 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.


Broad Description

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:
    • 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, length of service, fitness, etc.)
    • changes in location where the work is performed.

6 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.

7 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.

8 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:
    • penalty payments for overtime, shifts, weekends and public holidays
    • ordinary time and overtime allowances
    • bonus payments.
9 The effect of rolling ordinary time penalty payments and allowances into ordinary time hourly rates is excluded from these indexes. However, when overtime penalty payments are rolled into ordinary time hourly rates, the ordinary time indexes will increase accordingly.

10 The total hourly indexes that exclude bonuses are based on a weighted combination of ordinary time hourly rates (described in paragraphs 7, 8 and 9) 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.

11 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

12 The target population of employers for the WCI is all employing organisations in Australia (private and public sectors) except:
  • enterprises primarily engaged in agriculture, forestry or fishing
  • private households employing staff
  • foreign embassies, consulates, etc.

13 All employee jobs in the target population of employers are in scope of the WCI, except the following:
  • Australian permanent defence force jobs
  • ‘non-maintainable’ jobs (i.e. jobs that are expected to be occupied for less than six months of a year)
  • jobs for which wages and salaries are not determined by the Australian labour market (e.g. working proprietors of small incorporated enterprises, most employees of Community Development Employment Programs, jobs where the remuneration is set in a foreign country).

14 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.

Data Collection

15 Information for the WCI is collected each quarter by mail questionnaires from a sample survey of approximately 4,800 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.

16 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 18).

17 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.


18 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. Appendix 1 shows the distribution of employers’ expenditure on wages and salaries, for the September quarter 2002.

19 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 re-weighting occurs. This will provide a continuous series from the original reference base of September quarter 1997 = 100.0, while incorporating the updated expenditure weights.


20 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.


21 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.

Index Movements

22 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:
    • movements between consecutive quarters
    • movements between corresponding quarters of consecutive years
    • movements between consecutive financial years.

23 The following example illustrates the method of calculating changes in index points and percentage changes between any two periods:

    Total hourly rates of pay excluding bonuses, Australia (a)
Index numbers
    June quarter 2003
    less March quarter 2003
    Change in index points
    Percentage change =
x 100 = 0.6%
(a) Figures from Table 1 of Wage Cost Index, Australia (cat. no. 6345.0).

Financial Year Indexes

24 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:
    Total hourly rates of pay excluding bonuses, Australia (a)
Index numbers
    September quarter 2002
    plus December quarter 2002
    plus March quarter 2003
    plus June quarter 2003
    Financial year 2002-03 =
= 118.8
(a) Figures from Table 1 of Wage Cost Index, Australia (cat. no. 6345.0).

25 Percentage changes between any two financial year index numbers can be calculated using the method outlined in paragraph 23 above.


26 Index numbers will be released as final figures at the time they are first published. Revisions will only occur in exceptional circumstances.


27 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.

28 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:
    • by careful design and testing of questionnaires and processing systems
    • by providing instructions to employers on how to select a sample of employee jobs
    • by detailed checking of completed survey forms
    • by instituting a range of procedures for ensuring that jobs are priced to constant quality.


29 Users may also wish to refer to the following publications which are available on request:

Australian Labour Market Statistics, cat. no. 6105.0

Average Weekly Earnings, Australia, cat. no. 6302.0

Consumer Price Index, Australia, cat. no. 6401.0

House Price Indexes: Eight Capital Cities, cat. no. 6416.0

Information Paper: Wage Cost Index, Australia, 2000, cat. no. 6346.0

International Trade Price Indexes, Australia, cat. no. 6457.0

Producer Price Indexes, Australia, cat. no. 6427.0

30 Current publications and other products released by the ABS are listed in the Catalogue of Publications and Products, Australia (cat. no. 1101.0). The Catalogue is available from any ABS office or the ABS web site. The ABS also issues a daily Release Advice on the web site which details products to be released in the week ahead.


31 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.