Wages: Winners & losers

Average weekly ordinary time earnings rose by 3.5 per cent in the six months to November 2012 to be 5 per cent higher than a year ago.

• Private sector wages rose by 5.1 per cent over the year. Public sector wages rose by 4.5 per cent over the year.
• The gap between male and female earnings shows no signs of closing, having increased by 6.3 per cent over the past year. On average men are earning $13,608 more per year than women.
• The average wage stands at $72,592. The highest average wage can be found in the Mining sector ($122,767 per year) followed by Finance & Insurance services ($85,390). The lowest average wage is obtained by workers in the Accommodation and Food Services sector ($51,626), followed by Retail Trade ($52,432).
• Wages growth was weakest in Manufacturing up just 2.6 per cent over the past year, and Arts & Recreation Services (up 2.7 per cent). But in Administrative and Support Services wages rose by 10.2 per cent over the year with Mining wages up 8.0 per cent.
• Wages by states & territories: Across states & territories, we have calculated average annual wages were highest in: ACT ($85,545) from Western Australia ($82,711), Northern Territory ($73,705), NSW ($72,743); Queensland ($71,245); Victoria ($69,212), South Australia ($66,352) and Tasmania ($63,783).

What does it all mean?

• The best measure of wage growth is the wage cost index which came out yesterday. And that data showed wage growth remains subdued in the private sector. The average weekly earnings data is affected by compositional changes, such as the shift from full-time to part-time and movements across sectors. But the average weekly earnings data provides useful dollar estimates for wages.
• And there are clearly some major differences across the country when it comes to wages. Western Australia continues to dominate as the high wage state, largely driven by the mining boom and the resulting demand for workers across an array of industries. In addition, male wages continue to outpace female earnings. And the gap between high and low wage industries continues to widen.
• The gap between male and female earnings shows no signs of closing. On average men are earning $13,608 more per year than women. One key reason for the disparity is the rising demand for labour in male dominated sectors, such as mining and construction. Still there remains worrying wage disparities in other sectors as well that is clearly worthy of greater investigation.
• The latest data on wages bears out what most households would be well versed with now – the Chinese industrialisation is leading to major shifts in our economy. Wages in the fast-growing mining sector are now almost 2½ times the earnings in food sectors like cafes and restaurants as well as across the retail sector. And the resources states of Western Australia, the Northern Territory and Queensland are clearly dominating in the pay stakes.
• Interestingly despite sustained growth in real wages Aussie consumers are remaining conservative. However given that wage growth continues to outpace the rise in economy wide prices it is likely that consumer conservatism will thaw over time – particularly given lower interest rates, rising share markets and more stable house prices. Interestingly the growth in full time earnings including bonuses and overtime was also relatively well contained at 4.8 per cent.
• Wage growth will be closely watched by the Reserve Bank over the coming year. At present, wage growth across the economy does seem in balance however if activity levels pick up over the coming year, as the central bank anticipates, the labour market does have the potential to tighten. Excessive wage pressure is exactly what the Reserve Bank is attempting to curtail and the Federal Government will need to play a key role – implementing measures to improve Australia’s productivity and ensuring that skilled migration targets are constantly reviewed and revised.

What do the figures show?

• Average weekly ordinary time earnings rose by 3.5 per cent in the six months November 2012 to be 5 per cent higher than a year ago. Private sector wages rose by 5.1 per cent over the year. Public sector wages rose by 4.5 per cent over the year.
• Average weekly total earnings rose by 4.8 per cent over the year.
• Male wages rose by 3.3 per cent in the six months to November 2012 and by 5.0 per cent over the year. Female wages rose by 3.4 per cent in the six months to November and by 4.8 per cent over the year.
• Wages rose most over the year in Administrative and Support Services (up 10.2 per cent), Mining (up 8.0 per cent), Rental, Hiring and Real Estate Services (up 7.5 per cent) and Electricity, Gas, Water and Waste Services (up 6.8 per cent). ). Wages were weakest over the past year in Manufacturing (up 2.6 per cent), Arts & Recreation Services (up 2.7 per cent), and Professional, scientific and technical services (up 3.3 per cent).
• Across states & territories, we have calculated average annual wages as follows: NSW $72,743 (up 5.8 per cent over the year), Victoria $69,212 (up 3.0 per cent), Queensland $71,245 (up 5.4 per cent), South Australia $66,352 (up 4.5 per cent), Western Australia $82,711 (up 4.4 per cent), Tasmania $63,783 (up 4.3 per cent), Northern Territory $73,705 (up 2.8 per cent) and ACT $85,545 (up 5.0 per cent).
• The highest average wage can still be found in the Mining sector, at $122,767 per year. Next highest is Finance & insurance services ($85,390), Professional, scientific & technical services ($84,963) and information media & telecommunications ($84,854). The lowest average wage is obtained by workers in the accommodation and food services sector ($51,626), followed by retail trade ($52,432) and “other services” ($57,506).

What is the importance of the economic data?
The ABS publishes the Average Weekly Earnings (AWE) series on a quarterly basis. While the Wage Cost Index allows analysis of wage movements from quarter-to-quarter, the AWE series is best seen as a measure of actual dollar figures for wages. But average weekly earnings figures can be distorted by changes such as the relative growth of high-paid to low-paid jobs and the cashing out of bonuses in ordinary earnings.

What are the implications for interest rates and investors?
The fundamentals for the domestic economy remain sound and over the coming year it is clear that Australia will continue to benefit from the strength in mining activity. But the non-mining states are unlikely to feel the effects of the rise in incomes until the recovery is well and truly in full swing. No doubt as the recovery gains traction the mining states will be in the driver’s seat and continue to enjoy strong investment flows.

The low inflation environment ensures that the Reserve Bank can maintain an easing bias however the urgency for a further rate cut has been reduced in recent months given the improving economic outlook.