No. 3 - Department of Treasury - The Western Australian Government

2006 No.3 Western Australian Economic SummaryAverage Weekly Earnings have recorded a similar pattern of volatile growthin recent quarters, with quarterly growth of 6.1% in September following adecline of 0.2% in June, and annual average growth of 4.9% in the year toSeptember.The greater volatility of the earnings measures compared to the Wage PriceIndex probably reflects changes in the composition of the workforce, whichaffect average earnings data but not the Wage Price Index, which measuresmovements in the wages of a fixed basked of jobs (Box 2).Box 2What do the main earnings indicators actually measure?The Wage Price Index, Average Weekly Earnings and Average Weeklyfull-time Ordinary Time Earnings are three key ABS published wagesmeasures. The Wage Price Index is DTF’s preferred measure of wagesgrowth.The Wage Price Index is an index of the cost of a fixed basket of jobs,designed to measure changes in wages over time for a fixed quantity andquality of labour input. It is designed to measure wage changes ratherthan levels, and is analogous in its construction to the Consumer PriceIndex. As such, it is less subject to the influence of compositional changeand hence is less volatile than the average earnings measures.The main reason why it is preferred over average earnings is that changesin average earnings may be affected not only by changes in the level ofearnings of employees, but also by changes in the composition ofemployment. Both earnings measures can be affected by variations in theoccupational distribution within and across industries; variations in thedistribution of employment between industries; and variations in theproportion of male and female employees and junior employees. Inaddition, aggregate average weekly earnings data can be affected byvariations in the proportions of full-time, part-time and casual workers.Such compositional effects may differ within and between different statesand territories, and over time.However, the Wage Price Index has shortcomings, and so should not beseen as a definitive measure of employment-related costs. It excludes nonwageremuneration and does reflect individuals’ earnings changes, as ittracks the pay associated with a fixed basket of jobs, rather than tracking agroup of employees1 Some industries are too small for data to be released by the ABS due to reliability ofthe data and confidentially safeguards. Data for these industries is not included in thediscussion on industry data for Western Australia.Department of Treasury and Finance 23