IR Reforms Out Of Step With Rocketing Real Wages Data For SMEs

A reason there is such a disparity in wage growth statistics lies in the data that is being measured.

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I am yet to meet anyone who would not appreciate an increase in their wage.

Photo by Towfiqu barbhuiya on Unsplash

And at a time when more of that wage is going towards things like feeding the family and fueling up the car to do the school run, introducing measures to do so would be more welcome than ever.

So on face value, when the Federal Government says the new industrial relations (IR) reforms aim to get wages moving, people pay attention. In fact, increasing wage growth is one of the fundamental justifications for the reforms that have been quoted repeatedly over the last week. Treasurer Dr. Jim Chalmer's Budget also forecasts that real wages will not start to grow until 2024.

But here's the catch: at Employment Hero our SME Index tells us a very different story over the past 12 months. It indicates wages are not lagging behind inflation. They are outpacing it. Our Index shows year-on-year median wages increased overall by 7.9 per cent in September 2022 and by one per cent over the last month.

Such disparity in the rate of wage growth between the Australian Bureau of Statistics' Wage Price Index (2.7 per cent to June 2022) and our Index (7.9 per cent to September 2022) calls into question the fundamental premise of the proposed IR changes. Even the ABS notes that 'Private sector wages rose 2.7 per cent over the year to June quarter 2022, the highest seasonally adjusted rate of growth for the sector since September 2013'. We're seeing the same thing; the fastest wage growth in nearly a decade.

Our data proves that employers and employees have already adjusted salaries without needing third-party intervention.

At Employment Hero, our mission is to make employment easier and more valuable for everyone - employees and employers alike - because we realise that employment is an equation. It relies on two parties where one cannot prosper without the prosperity of the other.

Real time is more relevant

A reason there is such a disparity in wage growth statistics lies in the data that is being measured.

The Employment Hero SME Index uses an accumulative dataset of 1.29 million employees at 130,000 SME businesses, representing 5.8 per cent of all employing businesses in the nation. I would argue it is one of the most accurate and revealing snapshots into the state of play for Australian SMEs available. And in a country where 70 per cent of us are employed by SMEs, surely this data should be at the very least considered?

We analysed payslips and pay run records, calculating the median hourly wage by dividing gross earnings by the number of hours worked. This includes employees aged under 18, on internships or working under awards with special provisions.

Employment Hero's median hourly wage data includes penalty rates, allowances and bonuses received, and it is not seasonally adjusted. It is the actual amount that is landing in people's bank accounts.

Many employers - especially SMEs - supplement pay with allowances and bonuses to put more into the pockets of their hard workers, especially in times of crisis.

If this has been happening in the market more so in the past year, our data is a more relevant and holistic measure of wages than what the Wage Price Index takes into account.

That Index only accounts for ordinary time and total hours, and excludes extra payments. It is gleaned from a survey of 18,000 jobs.

Our dataset is 70 times larger than the amount of data the ABS uses to make its determination. And we all know that SMEs are the heartbeat of Australia's economy, employing almost 70 per cent of Australians.

We also track data monthly, as opposed to quarterly, which provides a better snapshot of the reality of wage growth in real time.

In today's technophilic world - and when Australia is home to some of the best technology companies in the world - it seems a no-brainer for the Government to tap into the huge quantities of anonymised and up-to-date available data.

But especially so, when it wants data to inform major policy decisions, and identify opportunities for growth and support.

The path to success

Business confidence is already low, as reported by the NAB Business Confidence Index. It fell five points in September to its lowest reading since June.

SMEs are already concerned about the gloomy global outlook, labour shortages, and rising interest rates. When economic uncertainty and a potential recession looms, why make it harder for SMEs, and ultimately their employees, to thrive?

We should constantly look for ways to reduce the complexities of employment. This promotes greater trust between employer and employee. And to state the obvious, it allows employers and employees alike to get on with running their businesses, creating even more employment opportunities and contributing to our economy. Simplifying employment makes it easier for bargaining to occur, removes red tape and limits bureaucracy.

Let's harness real time jobs and wages data to encourage employment mobility and increase competition for labour. We are living in a digital age and should leverage every opportunity it offers before returning to IR settings from the 1980s - especially when our SME Index shows rocketing real wages and contradicts the very premise of the IR proposals.

Ben Thompson (CEO and Co-founder, Employment Hero)