Average earnings rocket as low-paid jobs decimated

On Wednesday, the Australian Bureau of Statistics (ABS) released its labour price index (LPI), which showed wage growth collapsing to a fresh all-time low in the June quarter, driven by the private sector:

However, yesterday the ABS also released half-yearly average weekly earnings (AWE) data for May, which showed a surge in average earnings:

Driven by the private sector:

While the findings appear contradictory, they are actually easily explained.

Unlike AWE, the LPI measures like-for-like wages and, therefore, does not account for changes in the composition of the labour market.

As the COVID-19 pandemic has seen huge numbers of lower paid jobs lost in areas like hospitality, it has increased average earnings while placing downward pressure on wages within industries.

As noted by the ABS:

Average weekly earnings for all employees rose by 3.8% in the six months to May 2020 (seasonally adjusted). This was the greatest biannual rise in the published seasonally adjusted series (commencing May 2012, when the frequency of the survey was changed) and was considerably greater than the recent average biannual increase over the November 2013-November 2019 period (around 1%). Using original figures, the current biannual increase is the greatest since November 2009.

Through the year to May 2020, average weekly earnings rose by 5.4%, underpinned by the strong biannual increase…

Given the major labour market impacts from COVID-19, it may seem counter-intuitive that average earnings would show strong growth in the six months to May 2020. However, an increase in average weekly earnings does not necessarily reflect increased wages at the individual employee level, nor reflect an increase in labour demand. ..

Given AWE estimates reflect aggregate measures of the labour market (rather than information on individual workers and how their earnings change over time), changes over time always reflect a degree of compositional change in the wage and salary earner segment of the labour force. Compositional changes can include variations over time in the proportions of full-time, part-time, casual and junior employees; variations in the occupational distribution within and across industries; and variations in the distribution of employment between industries.

The COVID-19 period has been unprecedented in the scale and speed of changes in the labour market. As various restrictions to control COVID-19 have been implemented, relaxed and lifted, employment and hours have changed considerably.

Between March and May 2020, there was a major decrease in the number of jobs, people employed, and hours worked, with lower paid jobs and industries particularly impacted. While some employees saw decreases in their earnings and hours over the period, some part-time and junior employees saw increases in their earnings, as a result of the relative contribution of the JobKeeper payment (which was a standard amount of $1,500 per fortnight or $750 per week, regardless of the relative level of pre-COVID-19 earnings)…

Changes in payroll jobs ranged widely between industries, from a decrease of 29.7% in the Accommodation and food industry to a 0.3% increase in Financial and insurance services.

The chart below displays the change in weekly payroll jobs to 16 May 2020, ordered based on the median total weekly cash earnings from Employee Earnings and Hours, Australia, May 2018. It highlights that the industries with the lowest median total weekly cash earnings (on the left) were also the industries that were most impacted by payroll job losses. The large-scale loss of lower paid jobs in these industries will have the effect of increasing the value of average weekly earnings at the economy level.

The Accommodation and food services industry, which saw the greatest decrease in payroll jobs, also had the lowest median pay of all industries at $516.00 in May 2018. This compared with median pay of $1,490.00 in the Financial and insurance services industry, which recorded a 0.3% increase in payroll jobs.

These are truly unusual economic times.

Leith van Onselen
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