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Wage Price Index, Australia methodology

Reference period
September 2020

Explanatory notes

Introduction

1 This publication contains indexes measuring changes in the price of wages and salaries in the Australian labour market.

2 The methodology used to construct the WPIs is similar to that used for other price indexes such as the Consumer Price Index. In the WPI, index numbers are compiled using information collected from 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) and industry division. Industry is classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 (cat. no. 1292.0). For more detailed information on the methodology used in the construction of the WPI, refer to Wage Price Index: Concepts, Sources and Methods (cat. no. 6351.0.55.001).

Current published indexes

3 Four WPIs are constructed and published quarterly. These indexes were first compiled for the September quarter 1997, and cover:

  • ordinary time hourly rates of pay excluding bonuses index
  • ordinary time hourly rates of pay including bonuses index
  • total hourly rates of pay excluding bonuses index
  • total hourly rates of pay including bonuses index.
    In these indexes the term 'bonuses' refers to bonuses and commissions.
     

Design of the indexes

Broad description

    4 The WPIs measure changes over time in the price of wages and salaries unaffected by changes in the quality or quantity of work performed. A range of procedures have been developed to identify and measure quality and quantity changes and ensure that only pure price changes are reflected in the indexes.

    5 Price-determining characteristics of the jobs are fixed to ensure that changes in these characteristics do not contribute toward 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, etc.)
    • changes in the location where the work is performed.
       

    6 Changes in the price of wages and salaries resulting from changes in the composition of the labour market are also excluded from index movements. To achieve this, a longitudinal survey methodology is used to measure a similar sample of jobs over time. Once a business is selected in the sample, it will be expected to provide data for a sample of jobs for a minimum of five years.

    Wage price indexes

    7 The ordinary time hourly rates of pay 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, minimum wage setting, individual contracts and informal arrangements.

    8 These indexes are not affected by changes in:

    • penalty payments for overtime, shifts, weekends and public holidays (which fluctuate depending on the number of hours paid at penalty rates)
    • allowances which fluctuate (such as those paid according to how much work is performed under special work conditions e.g. height, dirt, heat allowances)
    • bonus payments (which may, or may not, relate to an individual's work performance). These payments are specifically excluded when calculating ordinary time hourly wage and salary rates.
       

    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 and non-separable shift allowances are rolled into ordinary time hourly rates, the ordinary time indexes will increase accordingly.

    10 The total hourly rates of pay indexes that exclude bonuses are based on a weighted combination of ordinary time hourly wage and salary rates (described in paragraphs 7 and 8) and overtime hourly rates. As a result, the total hourly rates of pay indexes reflect changes in both the ordinary time and overtime hourly rates. However, the effect of changes in the amount of overtime paid at each overtime rate is not shown in these indexes.

    11 Only those indexes that exclude bonuses and commissions are pure price indexes because bonus and commission payments can reflect changes in the quality of work performed. No attempt is made to remove this quality element from the indexes that include bonuses and commissions.

    Scope and coverage

    12 The target population of employers for the WPIs are 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 A sample redesign was undertaken and the outcome implemented from the December quarter 2009. A result of this review was to stop collecting data on a quarterly basis from micro businesses (0-4 employment). The size and frequency of pay changes for jobs in micro businesses was found to be the same as businesses with employment of five or more. Therefore, micro businesses are now treated as being out of coverage but remain in scope through their continued inclusion in the expenditure weights used in compiling the WPIs. The introduction of this change does not impact what the indexes are measuring.

    14 All employee jobs in the target population of employers are in scope of the WPIs, except the following:

    • Australian permanent defence force jobs
    • non-salaried directors
    • proprietors/partners of unincorporated businesses
    • persons paid by commission only
    • working proprietors/owner managers of Pty Ltd companies
    • employees on workers' compensation who are not paid through the payroll
    • '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. most employees of Community Development Employment Programs, or jobs where the remuneration is set in a foreign country).
       

    15 As such, full-time, part-time, permanent, casual, managerial and non-managerial jobs are in scope. Costs incurred by employers for work undertaken by self-employed persons such as consultants and subcontractors are out-of-scope, as they do not relate to employee jobs.

    Data collection

    16 Information for the WPI is collected each quarter by mail and online questionnaires from a sample survey of private and public sector employers selected from the ABS Business Register. The survey reference date is the last pay period ending on or before the third Friday of the middle month of the quarter. Data for bonuses are collected in respect to those bonuses paid during the three month period ending on the third Friday of the middle month of the quarter.

    17 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 survey respondents 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 18,000 matched jobs are priced each quarter from the selected employers.

    18 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 WPIs continue to be relevant and representative over time. For these reasons, the employer sample is refreshed annually (for the December 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 are included in the sample.

    19 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.

    Weighting

    20 Expenditure weights are a measure of the relative importance of each elementary aggregate (EA), based on employers' expenditure on wages and salaries. Below the EA level, sample weights applied to each job on the WPI survey indicate the number of jobs in the Australian labour market a particular sampled job represents.

    21 Businesses selected in the WPI are assigned sample weights according to the number of similar businesses they represent in their state, industry and sector. Jobs are assigned sample weights according to the number of jobs they represent in that business. The total sample weight for a job is determined by multiplying business and job sample weights together. This total sample weight is the number of jobs in the Australian labour market a particular sampled job represents.

    22 The total employment figures for each business in the WPI survey are obtained from providers each September quarter. Job weights are updated based on these employment data and applied to the WPI sample each December quarter. These actions ensure the WPI sample remains representative.

    23 Expenditure weights are updated every two years to reflect structural changes in the Australian economy. Once updated, the weights are fixed again, and a new weighting reference period is created. In the following quarters, prices will be compared using this new weighting reference period. This process is referred to as reweighting. Reweighting ensures the index remains relevant.

    24 The December quarter 2018 weight update uses wages and salaries expenditure sourced from the 2018 Survey of Employee Earnings and Hours (EEH). The EEH data items used in the December quarter 2018 weight update are: ordinary time earnings and total earnings. These data are price updated to represent current period values for each index. Prior to the December quarter 2016 only EEH total earnings was used in weighting all indexes. This is the item which aligns most closely with the headline WPI series. The use of EEH ordinary time earnings to weight the ordinary time hourly rates of pay indexes improves the conceptual alignment of the expenditure weight to the index. This improvement in alignment has not impacted the indexes. The new weights are available in the Appendix in the publication and as a data cube on the ABS website. The next weight update will occur in the December quarter 2020.

    25 When the expenditure weights are updated, the published index numbers will not recommence at 100.0. The series based on the old expenditure weights and that based on the new weights are linked to form a continuous series.

    Interpretation of index numbers

    26 Index numbers in this publication measure changes in the price of wages and salaries between the commencement of the series and a later period. Index number levels cannot be compared across states/territories as they do not provide comparative information on the relative levels of labour costs. Similarly, index number levels cannot be compared across sectors or industries. 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 the price of labour between the two periods. These movements can be compared across states/territories, sectors or industries.

    Percentage change and rounding

    27 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. Seasonally adjusted and trend quarterly estimates are calculated from unrounded original indexes. The percentage changes (rounded to one decimal place) are calculated from the rounded index numbers.

    Index movements

    28 Movements in indexes from one period to another can be expressed either as changes in index points or as percentage changes. In this 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 (i.e. changes 'through the year')
    • movements between consecutive financial years.
       

    29 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, All Sectors, Australia Index numbers, original (see table 1)
    September quarter 2020 134.7
    less September quarter 2019 132.9
    Change in index points 1.8
    Percentage change 1.8/132.9 x 100 = 1.4%

    Financial year indexes

    30 Index numbers for financial years are calculated as simple (arithmetic) averages of the four quarterly index numbers for the financial year. As the WPIs were first produced for the September quarter 1997, 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 financial year index number for 2019-20:

    Total hourly rates of pay excluding bonuses, All Sectors, Australia Index numbers, original (see table 2)
    September quarter 2019 132.9
    plus December quarter 2019 133.5
    plus March quarter 2020 134.1
    plus June quarter 2020 134.1
    Financial year 2019-20 534.6/4 = 133.7

    31 Percentage changes between the index numbers for any two financial years can be calculated using the method outlined in paragraph 29 above.

    Seasonally adjusted indexes

    32 Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of the classical seasonal influences (e.g. the effect of the weather, social traditions or administrative practices) plus other kinds of calendar related variations, such as the number of trading days, Easter or the proximity of significant days in the year (e.g. Christmas). In the seasonal adjustment process, both seasonal and other calendar related factors evolve over time to reflect changes in activity patterns. The seasonally adjusted estimates reflect the sampling and non-sampling errors to which the original estimates are subject.

    33 The total hourly rates of pay excluding bonuses index is the only index of the WPI that is seasonally adjusted. Institutional effects largely drive the seasonality of this index. Important factors in determining this seasonality are the timing of effect of agreements, the length of these agreements, and the timing of the implementation of significant wage determinations that impact on rates of pay. A significant institutional change in wage setting arrangements can affect the relative level (or trend) and seasonality of the index.

    34 Prior to 2006, the Australian Industrial Relations Commission (AIRC) handed down annual Safety Net Review (SNR) decisions which set federal full-time minimum award rates. Since the commencement of the WPI, the SNR has contributed to the level of the index. Most of its impact on the WPI was in the September quarter with some residual effect in the December quarter each year. This impact contributed to the level of seasonality for those quarters. As a result of industrial relations changes associated with Work Choices there was no SNR decision in 2006. The setting of federal minimum wage rates became the responsibility of the Australian Fair Pay Commission (AFPC).

    35 The AFPC's first decision was handed down on 26 October 2006 with a date of effect of 1 December 2006. The impact on the WPI of the first AFPC ruling was mainly in the March quarter 2007. From 2007 to 2009, AFPC determinations impacted the December quarter WPI.

    36 On 1 July 2009 Fair Work Australia (FWA) began operations as part of a new national workplace relations system underpinned by the Fair Work Act 2009. In June 2010 FWA announced its first annual minimum wage decision and the increase impacted the WPI in the September quarter 2010. Since 2010, minimum wage decisions have taken effect in the September quarter of each year and have resulted in a change of seasonality. To account for the change in timing, the seasonally adjusted and trend series were reanalysed in the September quarter 2010 to remove the influence of the different timing of minimum wage decisions in any year on the WPI.

    Concurrent seasonal analysis

    37 The WPI uses a concurrent seasonal adjustment methodology to derive the adjustment factors. This method uses the original time series available at each reference period to estimate seasonal factors for the current and previous quarters. Concurrent seasonal adjustment is technically superior to the more traditional method of reanalysing seasonal patterns once each year because it uses all available data to fine tune the estimates of the seasonal component each quarter. With concurrent analysis, the seasonally adjusted series are subject to revision each quarter as the estimates of the seasonal factors are improved. In most instances, the only significant revisions will be to the combined adjustment factors for the previous quarter and for the same quarter in the preceding year as the reference quarter (i.e. if the latest quarter is Qt then the most significant revisions will be to Qt-1 and Qt-4). Seasonal patterns are also reanalysed when there are known changes to regular events. This can lead to additional revisions.

    ARIMA modelling

    38 The ABS uses Autoregressive Integrated Moving Averages (ARIMA) modelling techniques to produce seasonally adjusted estimates. ARIMA modelling is a technique that can be used to extend original estimates beyond the end of a time series. The extended values are temporary, intermediate values that are used internally to improve seasonal adjustment. They do not affect the original estimates and are discarded at the end of the seasonal adjustment process. The use of ARIMA modelling generally results in a reduction in revisions to the seasonally adjusted estimates when subsequent data becomes available. ARIMA modelling in the WPI was introduced in the June quarter 2008. For more information on the details of ARIMA modelling see the feature article 'Use of ARIMA modelling to reduce revisions' in the October 2004 issue of Australian Economic Indicators (cat. no. 1350.0).

    Trend estimates

    39 The trend is a measure of the underlying direction of a series. The ABS trend estimates for the WPI are derived by applying a 7-term Henderson-weighted moving average to all quarters of the respective seasonally adjusted indexes except the first three and last three quarters. Trend estimates are created for these quarters by applying surrogates of the 7-term Henderson weighted moving average to the seasonally adjusted indexes, tailored to each time series. In general, trend estimates give a better indication of underlying behaviour than the seasonally adjusted estimates. Please refer to the ABS Information Paper, A Guide to Interpreting Time Series - Monitoring Trends (cat. no. 1349.0).

    40 Increases in minimum wage rates contribute to the relative level (or trend) of the WPI. A review of the seasonally adjusted series was undertaken in the September quarter 2010 to remove the impacts of the different timing of the increases in minimum wage rates. A trend break correction has been applied between the June quarter and the September quarter 2009 to remove the shift in the underlying level as a result of no increase to minimum wage rates being awarded in 2009.

    Index reference period

    41 The index reference period of an index series is that period for which the value of the index is set to 100.0. From the September quarter 2009 issue of this publication the wage price indexes are calculated on an index reference period of 2008-09 = 100.0.

    Revisions to indexes

    42 Original index numbers will be released as final figures at the time they are first published. Revisions will only occur in exceptional circumstances. Trend and seasonally adjusted indexes may be revised as extra quarters are included and analysed for seasonal influences (see paragraphs 32 to 40).

    Related publications

    43 Users may also wish to refer to the following publications which are available free on the ABS website www.abs.gov.au

    Wage Price Index: Concepts, Sources and Methods, (cat. no. 6351.0.55.001)
    Information Paper: Update on ANZSIC 2006 Implementation for Labour Price Index, Australia, 2009, (cat. no. 6345.0.55.001)
    Consumer Price Index, Australia, (cat. no. 6401.0)
    House Price Indexes, Eight Capital Cities, (cat. no. 6416.0)
    International Trade Price Indexes, Australia, (cat. no. 6457.0)
    Producer Price Indexes, Australia, (cat. no. 6427.0)
    Australian Consumer Price Index: Concepts, Sources and Methods, (cat. no. 6461.0)
    Producer and International Trade Price Indexes: Concepts, Sources and Methods, (cat no. 6429.0)
    Australian Labour Market Statistics, (cat. no. 6105.0)

    44 Current publications and other products released by the ABS are listed on the ABS website www.abs.gov.au. The ABS also issues a daily Release Advice on the website which details products to be released in the week ahead.

    ABS data available on request

    45 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 WPI on Perth (08) 9360 5151 or the National Information and Referral Service on 1300 135 070.

    Appendix - distribution of expenditure on wages

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    As updated December quarter 2018

     PrivatePublicTotal
    %%%
    Australia by sector   
     Australia77.222.8100.0
    Sector by State/Territory   
     New South Wales34.129.333.0
     Victoria26.523.325.7
     Queensland18.219.818.6
     South Australia5.37.15.7
     Western Australia11.910.911.7
     Tasmania1.42.31.6
     Northern Territory1.02.01.2
     Australian Capital Territory1.55.42.4
     Australia100.0100.0100.0
    Sector by broad industry group(c)   
     Mining4.2(d)3.3
     Manufacturing8.9(d)6.9
     Electricity, gas, water and waste services0.93.01.4
     Construction11.5(d)9.0
     Wholesale trade5.9(d)4.6
     Retail trade8.0(d)6.2
     Accommodation and food services4.7(d)3.7
     Transport, postal and warehousing5.0(d)4.8
     Information media and telecommunications2.1(d)1.8
     Financial and insurance services6.8(d)5.5
     Rental, hiring and real estate services2.3(d)1.8
     Professional, scientific and technical services13.51.410.7
     Administrative and support services7.1(d)5.6
     Public administration and safety0.834.28.4
     Education and training4.428.79.9
     Health care and social assistance9.124.612.6
     Arts and recreation services1.3(d)1.1
     Other services3.5(d)2.8
     All industries100.0100.0100.0
    a. See paragraphs 23-28 of the Explanatory Notes.
    b. Components may not sum to 100.0 due to rounding.
    c. Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).
    d. For the Public sector, these industries are combined and included in the 'All industries' total.
     
     PrivatePublicTotal
    %%%
    Australia by sector   
     Australia76.923.1100.0
    Sector by State/Territory   
     New South Wales34.429.233.2
     Victoria26.523.325.8
     Queensland18.119.818.4
     South Australia5.37.15.7
     Western Australia11.810.911.6
     Tasmania1.42.31.6
     Northern Territory1.02.01.2
     Australian Capital Territory1.55.42.4
     Australia100.0100.0100.0
    Sector by broad industry group(c)   
     Mining4.3(d)3.3
     Manufacturing8.6(d)6.6
     Electricity, gas, water and waste services0.92.91.3
     Construction10.7(d)8.3
     Wholesale trade5.9(d)4.5
     Retail trade8.2(d)6.3
     Accommodation and food services4.9(d)3.8
     Transport, postal and warehousing4.8(d)4.6
     Information media and telecommunications2.1(d)1.9
     Financial and insurance services7.0(d)5.6
     Rental, hiring and real estate services2.3(d)1.8
     Professional, scientific and technical services13.81.411.0
     Administrative and support services7.1(d)5.5
     Public administration and safety0.834.18.5
     Education and training4.529.310.2
     Health care and social assistance9.324.512.8
     Arts and recreation services1.3(d)1.2
     Other services3.5(d)2.7
     All industries100.0100.0100.0
    a. See paragraphs 23-28 of the Explanatory Notes.
    b. Components may not sum to 100.0 due to rounding.
    c. Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).
    d. For the Public sector, these industries are combined and included in the 'All industries' total.

    Appendix - Labour Price Index

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    Financial year Labour Price Index (2012) vs quarterly Labour Price Index, June 2020

    For many years the Wage Price Index has acted as a reasonable proxy measure of the rising price of labour after the discontinuation of the Labour Price Index in 2012.

    With the introduction of the JobKeeper wage subsidy package, and to a lesser extent changes to payroll tax by the different state and territory governments, this proxy relationship is no longer as clear.

    To properly measure the changing cost of labour to businesses the ABS has developed a quarterly version of the previous discontinued Labour Price Index (LPI). Concessions have been required to redevelop the financial year index into a quarterly index utilising available information while maintain consistent methods.

    The comparison table below highlights the places where the quarterly LPI is similar and different to the previous financial year version.

    Financial year LPI (discontinued 2012)Quarterly LPI (temporarily reinstated 2020)

    Financial year index, compiled retrospectively in September quarters

    Quarterly index, compiled from March quarter 2020 to show change over June quarter 2020.

    Five index components measuring costs of:

    • wages
    • superannuation
    • paid leave
    • payroll tax
    • workers’ compensation insurance premium

    No change

    Small wage subsidy component from apprenticeship programs

    Large wage subsidy component from JobKeeper and apprenticeship programs.

    Treatment scenarios of JobKeeper payments for eligible jobs in June quarter 2020:

    • jobs receiving $750pw (entirely supported by JobKeeper) have incurred no cost to employer.
      Hourly rate of $0
    • jobs that were partially supported by JobKeeper recorded an hourly rate based on the amount above the JobKeeper payment.

    Hourly superannuation costs calculated from job data collected in June quarter survey form.

    Aggregate weekly superannuation costs sourced from Major Labour Costs (MLC) 2015/2016 financial year data.

    Rate of superannuation held constant and inflated quarterly by wage growth due to its direct relationship with wages.

    Total paid leave costs calculated from job data collected in June quarter survey form.

    Aggregate weekly paid leave costs sourced from Major Labour Costs (MLC) 2015/2016 financial year data.

    Paid leave costs held constant (assumed same entitlements over time) and inflated quarterly by wage growth due to its relationship with wages.

    Public holiday changes in each state have been included.

    Workers’ compensation insurance premium costs sourced from Major Labour Costs.

    Workers’ compensation costs sourced from Major Labour Costs (MLC) 2015/2016 financial year data.

    Costs inflated quarterly by wage growth (including bonuses).

    Payroll tax costs modelled for the previous financial year using the survey of Average Weekly Earnings (AWE) June quarter data.

    Payroll tax cost varies according to size of payroll and state determined rates/thresholds

    Payroll tax costs modelled using AWE June quarter 2018 data.

    Effects of payroll tax rate and threshold changes, waivers and exemptions applied on a state/territory basis.

    Expenditure weights sourced from

    • Survey of Major Labour Costs (MLC)
    • Survey of Employee Earnings and Hours (EEH) for wages and salaries index component and occupation series
    • Census data (employment)

    Expenditure weights sourced from

    • MLC state, sector and industry data
    • EEH for wages and salaries component.

     Occupation indexes not developed.

    Expenditure for first (base) index period sourced from

    • MLC
    • EEH
    • Census

    Expenditure for first (base) index period sourced from

    • 2015/16 MLC data
    • 2018 EEH data

    Expenditures adjusted to the base index period (September quarter 2018) by quarterly wage growth.

    Explanatory notes - LPI (quarterly)

    Expenditure shares:

    • Wages and salaries (81%),
    • Superannuation (7%),
    • Workers compensation premiums (1%),
    • Payroll tax (3%), and
    • Annual leave (9%)

     

    Price changes across the LPI

    Superannuation and paid leave:

    Superannuation and annual leave were previously collected through the LPI survey. The assumption for the quarterly LPI is that these components tend to be a proportion/factor of the total wage and salary bill (ie. superannuation guarantee of 9.5% and minimum leave entitlements of ~4 weeks per year). For this reason, estimates of superannuation and leave price changes will follow wage and salary changes (WPI).

    Payroll tax:

    AWE is used to model total payroll tax, and then the change from one quarter to the next is calculated. This is the same process as the original LPI. The payroll tax price model assumes that price changes in the wages and salaries bill (WPI) flow through, maintaining the same proportionate share of labour costs for wage and payroll tax.

    With the changes announced by State and Territory governments the underlying payroll tax bill, which is normally changed as a function of wage growth, was adjusted in June quarter 2020 to reflect waived and deferred payments (drop in tax bill).

    Workers' compensation:

    Workers’ compensation premiums are also modelled, and the same assumption made that changes in wages and salaries will flow through to the cost of employers’ compensation insurance.

    It should be noted that in some states the workers compensation premiums were adjusted slightly (around one tenth of a percentage point) over the last year and this change wasn’t reflected in the June quarter LPI.

    Wages and salaries:

    The wage and salary bill for employers is changed based on the WPI price changes and, where applicable, reduced for those eligible employees receiving JobKeeper subsidies. In some cases, this reduces the wages of an employee to zero and in other cases just to the amount above the JobKeeper subsidy the employer still pays (residual payment).

    The difference in earnings levels above the JobKeeper level, across different industries, affects the correlation of the LPI to JobKeeper subsidy uptake (i.e. if two industries have the same proportionate JobKeeper take up, but have different earning levels across jobs, this will show as a different LPI outcome between the two industries based on the residual payments for employers).

    Glossary

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    Bonuses

    Payments made to a job occupant that are in addition to regular wages and salaries and which generally relate to the job occupant’s, or the organisation’s, performance. In the WPI, the term 'bonuses' refers to bonuses and commissions.

    Elementary aggregates

    The finest aggregations of jobs, in terms of state/territory, sector and industry group, for which expenditure weights are available.

    Employee job

    A job for which the occupant receives remuneration in wages, salary, payment in kind, or piece rates.

    Employer

    Organisation with one or more employees.

    Expenditure weights

    A measure of the relative importance of each elementary aggregate, based on employers’ total expenditure on wages and salaries. Expenditure weights are used to combine elementary aggregate indexes into broader level indexes.

    Index number

    Measures the ratio of the price of labour between the commencement of the index series and a later period.

    Index reference period

    The period for which an index series is given the value of 100.0. The current index reference period for the WPI is the 2008-09 financial year.

    Industry

    Classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC), 2006 (cat. no. 1292.0).

    Ordinary time hourly rates of pay index

    Measures quarterly change in ordinary time hourly rates of pay (see Explanatory Notes paragraphs 7 and 8).

    Ordinary time hours

    Award, standard or agreed hours of work paid for at the ordinary rate.

    Overtime hours

    The number of hours paid for in excess of ordinary time hours.

    Reference date

    The reference date for this survey is the last pay period ending on or before the third Friday of the middle month of the quarter, except for bonuses which are collected in respect to those paid during the three month period ending on the third Friday of the middle month of the quarter.

    Sector

    Public sector comprises local government authorities and all government departments and agencies created by, or reporting to, the Commonwealth, or state/territory parliaments. The private sector comprises all organisations not classified as public sector.

    Seasonal adjustment

    Process of removing systematic calendar related effects from the original series (see Explanatory Notes paragraphs 32-38, 42).

    Total hourly rates of pay index

    Measures quarterly change in combined ordinary time and overtime hourly rates of pay (see Explanatory Notes paragraph 10).

    Trend

    A measure of the underlying direction of a series (see Explanatory Notes paragraphs 39-40, 42).

    Wage price index

    Measures changes in the price of wages.

    Weight reference period

    The period to which the expenditure weights relate.

    Quality declaration

    Institutional environment

    For information on the institutional environment of the Australian Bureau of Statistics (ABS), including the legislative obligations of the ABS, financing and governance arrangements, and mechanisms for scrutiny of ABS operations, please see ABS Institutional Environment.

    Relevance

    The Wage Price Index measures changes over time in the price of labour services, unaffected by changes in the quality and quantity of work performed (that is, indexes are unaffected by compositional change). It enables analysts and policy makers to assess the impact of changes in wage costs on the labour market, the economy more generally, households and the community. The survey results are used in formulating industrial relations, wages policies and economic analysis.

    Wages and salaries account for the majority of expenditure on labour costs by employers. The 'headline' measure of the wage price index is the total hourly rates of pay excluding bonuses index. Wage price indexes are released for state and territory; sector (private/public) and broad industry groups.

    Industry is classified according to the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 (cat. no. 1292.0). Prior to the September quarter 2009, the ANZSIC 1993 version of the classification was used.

    The target population of businesses for the WPI is all employing organisations in Australia (private and public sectors) excluding:

    • enterprises primarily engaged in agriculture, forestry or fishing
    • private households employing staff
    • foreign embassies, consulates, etc.
       

    A sample redesign of the WPI was undertaken and the outcome implemented from December quarter 2009. A result of this review was to stop collecting data on a quarterly basis from micro businesses (0-4 employment). The size and frequency of pay changes for jobs in micro businesses was found to be the same as businesses with employment of five or more. Therefore, micro businesses are now treated as being out of coverage of the WPI but remain in scope through their continued inclusion in the expenditure weights used in compiling the WPI. The introduction of this change has not impacted what the WPI is measuring.

    All employee jobs in the target population of businesses are in scope of the WPI, with the exception of 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, and jobs where the remuneration is set in a foreign country).

    Timeliness

      Wage price indexes have been produced each quarter commencing from the September quarter 1997. The survey reference date is the last pay period ending on or before the third Friday of the middle month of the quarter, except for bonuses which are collected in respect to those paid during the three month period ending on the third Friday of the middle month of the quarter. Wage price indexes are released about three months after the reference date.

        Accuracy

        There are two principle sources of error in surveys, sampling error and non-sampling error. Non-sampling error arises from inaccuracies in collecting, recording and processing the data. Every effort has been made to reduce non-sampling error in the Wage Price Index by:

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

        Sampling error occurs when a sample or subset of the population is surveyed rather than the entire population. One measure of the likely difference resulting from not including all of the population in the survey is given by the standard error. While the selection of employers and employee jobs are based on sampling techniques, standard errors are not available for the wage price index. While it is reasonably straightforward to calculate sampling errors for a level estimate such as the total number of employees jobs, it is not so straightforward to determine standard errors for the WPI which uses both sampling and index methodologies.

        Original index numbers are released as final figures at the time they are first published. Revisions have never occurred and will only occur in exceptional circumstances. Trend and seasonally adjusted indexes are revised as extra quarters are included and seasonal factors are updated.

        Information for the wage price indexes is collected each quarter by mail and online questionnaires from a sample survey of approximately 3,000 private and public sector employers selected from the ABS Business Register. These employers select a sample of jobs from their workplace(s) using instructions provided by the ABS. Approximately 18,000 jobs are priced each quarter.

        Coherence

        The methodology used to construct the WPI is similar to that used for other price indexes produced by the ABS such as the Consumer Price Index and the Producer Price Indexes. The sample for the WPI, is selected from the ABS Business Register which is primarily based on registrations to the Australian Taxation Office's Pay As You Go Withholding scheme.

        Employers are classified to an industry using the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 (cat. no. 1292.0). Up until June quarter 2009, the content and format of tables containing industry data reflected the 1993 version. Indexes for previous periods have been reproduced on an ANZSIC 2006 basis by reclassifying the businesses that reported data in earlier periods to the appropriate industry division of ANZSIC 2006. Index movements for Australia, state/territory, sector and All industries original series were not affected by the introduction of the new industry classification. Details about the change to ANZSIC 2006 are outlined in Information Paper: Update on ANZSIC 2006 Implementation for the Labour Price Index, Australia 2009 (cat. no. 6345.0.55.001).

        The ABS conducts a number of sample surveys of businesses which collect information about wages and salaries. One of these series, Survey of Average Weekly Earnings (AWE), is designed to measure the level of average earnings in Australia at a point in time. Period to period movements for the AWE series are not comparable with those from the wage price index. The two series have different purposes. Consequently, they have different concepts, and use different sample selection and estimation methodologies.

        Interpretability

        The WPI publication (cat. no. 6345.0) contains Explanatory Notes, Appendices and a Glossary that provide information about data sources, terminology and other technical aspects of the series. More detailed information can also be found in the Wage Price Index, Concepts, Sources and Methods (cat. no. 6351.0.55.001).

        The total hourly rates of pay excluding bonuses index Australia and sector level indexes are the only indexes of the WPI that are seasonally adjusted.

        Seasonally adjusted estimates are derived by estimating and removing systematic calendar related effects from the original series. In most economic data these calendar related effects are a combination of seasonal influences e.g. the weather, social traditions or administrative practices plus other kinds of calendar related variations, such as the number of trading days, Easter or the proximity of significant days (e.g. Christmas).

        Institutional effects largely drive the seasonality of the WPI. Important factors are the timing of effect of Australian workplace agreements and certified agreements, the length of these agreements, and the timing of the implementation of significant wage determinations that impact on rates of pay. A significant institutional change in wage setting arrangements can affect the relative level (or trend) and seasonality of the index.

        The ABS has implemented improved methods of producing seasonally adjusted estimates, focussed on the application of Autoregressive Integrated Moving Average (ARIMA) modelling. Adoption of ARIMA modelling reduces the extent of revisions to the seasonally adjusted and trend estimates. For more information on the details of ARIMA modelling see feature article: Use of ARIMA modelling to reduce revisions in the October 2004 issue of Australian Economic Indicators (cat. no. 1350.0).

        Accessibility

        Additional wage price indexes are available on request. To make enquiries about such data, telephone WPI on Perth (08) 9360 5151 or email wage.price.index@abs.gov.au

        Abbreviations

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        ABSAustralian Bureau of Statistics
        WPIWage Price Index

        Frequently asked questions

        The Wage Price Index FAQs page has answers to a number of common questions to do with price indexes and the Wage Price Index, in particular.