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What's been happening to real wages?



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Department of the Parliamentary Library

Parliamentary

Research

Service

RESEARCH NOTE Number 53, 25 June 1996 ISSN 1323-5664 What’s Been Happening to Real Wages? MAJOR FINDINGS 1. 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. 2. Real wages are 6.2 per cent higher now (1996) than in 1982. 3. Real wages after tax for a single male with no dependents is 4.8 per cent higher now than in 1982. 4. 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.

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

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.)

1. AVERAGE WEEKLY ORDINARY TIME EARNINGS - FULL-TIME EMPLOYED ADULT MALE

Average earnings:

March Nominal

Real; March 1996 prices* $ $

1982 309.8 666.7

1983 350.5 677.1

1984 376.2 686.6

1985 399.6 698.3

1986 427.2 683.3

1987 454.4 664.3

1988 485.7 664.3

1989 521.9 668.5

1990 555.8 655.5

1991 597.7 672.3

1992 625.2 691.4

1993 628.6 686.9

1994 648.7 699.2

1995 679.5 705.0

1996 708.0 708.0

2. AVERAGE WEEKLY ORDINARY TIME EARNINGS LESS TAX - FULL-TIME EMPLOYED ADULT MALE, NOT MARRIED AND WITH NO DEPENDENT CHILDREN

Average earnings:

March Nominal

Real; March 1996 prices* $ $

1982 236.4 508.7

1983 268.9 519.5

1984 287.9 525.4

1985 303.1 529.7

1986 320.3 512.3

1987 338.5 494.9

1988 362.1 495.2

1989 383.3 491.0

1990 419.2 494.4

1991 449.8 505.9

1992 472.0 522.0

1993 474.1 518.0

1994 491.6 529.9

1995 515.3 534.6

1996 533.0 533.0

3. AVERAGE WEEKLY ORDINARY TIME EARNINGS LESS TAX PLUS FAMILY PAYMENT AND PARENTING ALLOWANCE- FULL-TIME EMPLOYED ADULT MALE WITH A NON INCOME EARNING SPOUSE AND 2 DEPENDENT CHILDREN

Average earnings:

March Nominal

Real; March 1996 prices* $ $

1982 260.8 561.2

1983 298.9 577.4

1984 320.4 584.7

1985 335.6 586.4

1986 352.8 564.2

1987 371.0 542.4

1988 394.5 539.7

1989 415.4 532.1

1990 460.5 543.2

1991 493.9 555.6

1992 522.1 577.5

1993 521.9 570.3

1994 540.0 582.1

1995 566.5 587.7

1996 586.6 586.6

* Adjusted by the Consumer Price Index.

650

660

670

680

690

700

710

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

$

Real weekly earnings - before tax

480

490

500

510

520

530

540

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

$

Real weekly earnings of a single person - after tax

530

540

550

560

570

580

590

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

$

Real weekly income (wages + family payments) of a family - after tax

Tony Kryger Statistics Group Parliamentary Research Service Phone: 06 2772486 Fax: 06 2772454

Views expressed in this Research Note are those of the author and do not necessarily reflect those of the Parliamentary Research Service and are not to be attributed to the Department of the Parliamentary Library. Research Notes provide concise analytical briefings on issues of interest to Senators and Members. As such they may not canvass all of the key issues.

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