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What's Been Happening to Real Wages?
Tony Kryger
Statistics Group
MAJOR FINDINGS
- Real wages in Australia rose during the period from 1982 to 1985,
fell during the second half of the 1980s and then rose again in the
1990s.
- Real wages are 6.2 per cent higher now (1996) than in 1982.
- Real wages after tax for a single male with no dependents
is 4.8 per cent higher now than in 1982.
- Real after tax income (i.e. wages plus various family payments)
for a family with a non-income earning wife and two dependent children
is 4.5 per cent higher now than in 1982.
Introduction
There has recently been some debate over what has happened to real (after
adjustment for inflation) wages in Australia during the past decade and
a half. This note attempts to clarify this situation by looking specifically
at the change in real ordinary time (i.e. excluding overtime) earnings
of a full-time employed adult male from 1982, the first year this data
series became available.
The reason for looking specifically at the ordinary time earnings of
a full-time employed adult male is to avoid changes in average earnings
figures that could be the result of compositional changes in overtime
hours worked or in the proportions of full-time and part-time employees,
males and females or adults and juniors. This method however, does not
take into account compositional changes in the occupational or industry
distribution of workers. In Australia, average skill levels have been
rising (mainly through the elimination of lower grade jobs) with the result
that average earnings are higher now than they would have been had skill
levels remained constant.
The note looks at three situations:
- the change in real gross earnings;
- the change in real net (after tax) earnings of a single male with
no dependent children; and
- the change in real disposable income (i.e. net earnings plus basic
family payment plus parenting allowance) of a family with a non-income
earning wife and 2 dependent children.
Average Tax Rates
Since taxation affects the amount of pay that a worker actually receives
in his hand, an analysis of the change in real average earnings needs
to take account of changing taxation rates. The table below shows that
the average taxation rate for a person on ordinary time earnings is higher
now than it was at the beginning of the 1980s but lower than it was at
the end of the 1980s. The effect of increasing (or decreasing) tax rates
is to make real average earnings lower (or higher) than it would have
been had tax rates not changed.
Year Average taxation
rate (%)
---------------------------------
1981-82 23.7
1982-83 23.3
1983-84 23.5
1984-85 24.2
1985-86 25.0
1986-87 25.5
1987-88 25.5
1988-89 26.6
1989-90 24.6
1990-91 24.8
1991-92 24.5
1992-93 24.6
1993-94 24.2
1994-95 24.2
1995-96 24.7
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Results
- Average weekly ordinary time earnings (AWOTE) of a full-time employed
adult male rose steadily from $310 in 1982 to $708 in 1996. In real
terms however (i.e. expressing all earnings figures in 1996 dollars),
the picture is quite different. Real AWOTE rose from $667 in 1982 to
$698 in 1985, falling to $656 in 1990 and rising again to $708 in 1996.
(See table 1.)
- After rising during the first half of the 1980s, real earnings after
tax for a single male with no dependent children fell from $530 in 1985
to $491 in 1989, rising to $533 in 1996. (See table 2.)
- In discussing the real earnings situation of a family with children,
allowance has to be made for income received in the form of family payments
and parenting allowance. Consider, for example, a family that consists
of a full-time employed husband and a non-income earning wife with 2
dependent children. For this type of family, real after tax income rose
from $561 in 1982 to $586 in 1985, falling to $532 in 1989 and rising
to $587 in 1996. (See table 3.)
- Comparing real AWOTE between 1982 and 1996 we find that gross earnings
have risen 6.2 per cent, after tax earnings for a single person with
no dependents have risen 4.8 per cent and after tax earnings for a family
(i.e. including various family payments) have risen 4.5 per cent. (Note
however, these increases are overstated due to the fact that no adjustment
has been made for the rising average skill level of Australian workers.)
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