The claim

The Turnbull Government has been predicting for some time that rising employment will put pressure on the jobs market, helping ultimately to bolster pay packets and combat cost of living pressures.

In February this year, for example, Prime Minister Malcolm Turnbull declared that "the laws of supply and demand have not been suspended", arguing a strong economy and tightening jobs market meant "prospects are good" for pay increases.



So far, however, the promised wage gains have failed to materialise — at least, not to any significant extent — despite unemployment at its lowest level for five years.

In a July 18 speech to the ACTU, former federal treasurer Wayne Swan said that since the election of the Abbott and Turnbull governments "the tide has turned abruptly for workers".

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"If you work in the private sector in Australia, your real wage has grown by just 1 per cent under Abbott and Turnbull," Mr Swan said. "Not 1 per cent a year — 1 per cent in five years."

Mr Swan added: "Essentially, the Coalition has taken five years to deliver the same wage growth that Labor delivered in just one year of government."

Is it correct that private sector real wages have grown by just 1 per cent since the Coalition was elected in September 2013? And is this equivalent to one year of wages growth under Labor? RMIT ABC Fact Check takes a look at the figures.

The verdict

Mr Swan's claim is in the ballpark.

Real private sector wages under the previous Labor government grew by about 4.2 per cent, over five-and-three-quarter years. That's an annual average pace of about 0.7 per cent.

The latest data available at the time Mr Swan made his claim shows under the Coalition, real private sector wages — from September 2013 to March 2018 — have grown by 1.2 per cent.

That's an annual average pace of about 0.3 per cent, over four-and-a-half years.

Mr Swan has overstated wages growth under Labor, and understated wages growth under the Coalition, although not excessively so.

Alternative methods to assess the data produce similar, although not identical, results.

Regardless, what is clear is that wages growth has been sluggish in recent years despite falling unemployment.

The extent to which wages growth is within the control of governments is a different question, and not the subject of this fact check.

Testing the claim

The most reliable and closely scrutinised measure of wage movements is the wage price index, produced by the Australian Bureau of Statistics.

The index measures changes in hourly wage and salary costs.

As the ABS notes, the index is unaffected by changes in the quality or quantity of work performed, or changes to the structure of the jobs market.

Because of this, it is widely regarded as the best way to measure wage changes.

The ABS also publishes average weekly earnings figures, providing a quarterly snapshot of average pay packets.

However, as the bureau states, changes in average weekly earnings can be affected by changes to the composition of the labour force, including the mix of full and part-time work, and casual and permanent work, as well as structural changes, for example a long-term increase in the share of service sector jobs.

Wage growth under Labor and the Coalition — what's the real story? ( AAP: Darren England )

Consequently, Fact Check chose to rely on the wage price index as the key measure of wages growth, while noting that this is not the only measure of wages.

Also, in making his claim, Mr Swan referred to "real" private sector wages, as opposed to nominal wages. The former factors in inflation, measuring changes in buying power over time.

When Mr Swan refers to real wage growth "under Abbott and Turnbull", Fact Check takes this to mean wages growth since the election of the Coalition in September 2013.

The bureau's wage price estimates are based on a quarterly survey of about 4,800 employers, with the data being collected according to the bureau, in "the last pay period ending on or before

the third Friday of the middle month of the quarter".

For example, data for the September quarter of 2013 was collected in towards the end of August 2013. The election was held on September 7, with Tony Abbott sworn in as prime minister on September 18.

Consequently, Fact Check regards the September quarter 2013 data as a reasonable (although not perfect) starting point from which to measure real private sector wages growth "under Abbott and Turnbull".

At the time Mr Swan made his claim, the latest estimate provided by the bureau was for the March quarter of 2018.

Likewise, Fact Check regards the December quarter of 2007 as a reasonable starting point from which to measure wages growth during Labor's term in office. Labor won the November 24 election, with Kevin Rudd sworn in as prime minister on December 3, 2007.

Fact Check adjusted (or deflated) the ABS wage figures for private sector employees (in accordance with Mr Swan's claim) using the consumer price index to produce a measure of real wages.

The percentage change between the start and the end-point of each term of government was then calculated, and divided by years in government to produce an average annual result.

What the figures show

Between December 2007 and September 2013 — the period corresponding to Labor's time in government — real wages increased by 4.2 per cent.

This represents an annual average increase over five years and three-quarters of 0.7 per cent.

Under the Coalition, real wages increased by 1.2 per cent over four-and-a-half years between September 2013 and March 2018; an annual average increase of about 0.3 per cent.

The results, checked by independent experts, roughly accord with Mr Swan's claim.

The former treasurer has, however, overstated wage growth under Labor and understated wage growth under the Coalition by claiming "essentially, the Coalition has taken five years to deliver the same wage growth that Labor delivered in just one year of government".

Based on the average, it would have taken about 1.7 years (not one year) under Labor to have produced the same wages growth produced by the Coalition.

This calculation takes the percentage change in the index from the start to the end of each government, and divides by the number of years in office to produce an annual average.

An alternative calculation

Professor Fabrizio Carmignani, the Dean of the Business School at Griffith University, found the approach used by Fact Check to be valid and confirmed the calculations were accurate.

He said an alternative was to calculate annual growth rates for each quarter of data (by comparing each quarter with the same quarter the previous year) and averaging them over each of the two periods of government.

"When you do that, the average annual increase under Labor is 0.95 per cent and the average annual increase under the Coalition is 0.24 per cent," Professor Carmignani said.

"The two definitions are equally acceptable and, in qualitative terms, they tell the same story," he said.

What the experts say

Professor Peter Whiteford, of the Crawford School of Public Policy at the Australian National University, said low wages growth was something of a puzzle.

But he suggested one plausible explanation came from changes to the industrial framework in recent years.

This view was supported by Reserve Bank assistant governor Luci Ellis, who noted in a February 2018 speech that competitive pressures had made businesses "especially reluctant to grant wage rises, because this would increase one of their most important costs".

"We are seeing this particularly in new enterprise agreements, which lately have tended to involve smaller wage increases than the ones they replaced," Dr Ellis said.

"These agreements usually last for a couple of years, so this will weigh on overall wage outcomes for a while. If wage growth is to pick up, wage increases for other workers — including in future enterprise agreements or in other wage-setting streams — will need to pick up."

And, in a recent speech, Reserve Bank governor Philip Lowe also pointed towards labour market underutilisation, a decline in high-paid resource sector jobs following the end of the mining boom, and technological change as possible reasons for sluggish jobs growth.

"It's reasonable to expect that as the labour market tightens, wages growth will pick up. The laws of supply and demand still work," Dr Lowe said.

John Edwards, a fellow with the Lowy Institute, adjunct professor with the John Curtin Institute of Public Policy at Curtin University and a former Reserve Bank Board member, confirmed the approach taken by Fact Check was accurate.

Principal researcher: Josh Gordon

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